February 21, 2019 / 2:23 PM / a year ago

UPDATE 1-Equinor changes gas trading strategy in volatile markets

(Adds comments on geopolitical risk, trade war)

By Lefteris Karagiannopoulos and Nerijus Adomaitis

OSLO, Feb 21 (Reuters) - Equinor is changing its gas trading strategy to focus more on short-term price indexes, the company said on Thursday, as increased supplies of liquefied natural gas and renewables growth are making European gas markets more volatile.

“We are changing our gas strategy, we are moving more towards shorter indexes, we will have more active management in the way we market our gas,” the state-controlled company said.

“With more LNG coming into Europe and more and more renewables, we are seeing more volatility in the gas markets,” the company said in a presentation.

Norway supplies about 25 percent of Europe’s natural gas, second only to Russia, while Equinor markets around 70 percent of total gas sales from the Norwegian continental shelf, including volumes owned directly by the Norwegian state.

Tor Martin Anfinnsen, Equinor’s head of marketing, told a gas seminar in London the company planned to tilt its gas sales towards day-ahead and month-ahead contracts towards 2020, as demand for longer-term contracts was fading away. He did not elaborate.

He said Equinor had “high ambitions” for its energy trading business after acquiring Danish trader Danske Commodities for 400 million euros last year.

The company also said gas flows are now more affected by geopolitical risks due to the growth of LNG. But the current trade spat between the U.S. and China, a major LNG consumer, had a very marginal impact on LNG trade so far.

“The growth in LNG means that gas flows become more exposed to geopolitical risks that traditionally had only affected the oil markets,” Equinor’s Chief Economist Eirik Waerness said.

In the fourth-quarter of 2018, Europe’s LNG imports increased by more than 40 percent or by 8 billion cubic metres compared with the same period in 2017, Equinor said.

Equinor expects global LNG demand to catch up with supply in 2022, and leading to higher LNG prices.

Equinor also said it expected gas demand for power generation in Europe to rise by 12 percent in 2019 from 2018 and by 8 percent in 2020 year on year. This is being driven by more gas replacing coal in power generation.

Last month, a German government commission said the country should shut all it coal-fired power plants by 2038 at the latest, part of plans to shift to renewable energy.

Europe’s domestic gas production was expected to fall by 10 percent from 2019 to 2020, the company said, with the shortfall expected to be covered by LNG.

Russian gas supplies to Europe in 2019 were expected to remain at around the same levels as in 2017 and 2018, meeting about 35 percent of Europe’s total demand.

Equinor did not see Russia’s Nord Stream 2 pipeline to carry Russian gas to Europe under the Baltic Sea starting before 2021, without providing more details.

Editing by Jason Neely and Jane Merriman

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