Equinor ASA’s natural gas production and related revenues continued to rise in the third quarter as it answers Europe’s call to replace lost Russian imports, but management sees more volatility on the horizon, including from potential price cap policies.

Equinor earnings

CEO Anders Opedal said the firm and Norway as a whole have taken on an increased role “as a reliable energy provider” and are “going to great lengths to keep the energy production high and secure.”

During 3Q2022, Equinor increased its gas supply to Europe by 11% from the year-prior period. Last year’s third quarter had previously been a high mark for Equinor’s recent gas production volumes as it began ramping up activity to meet growing demand.

Equinor’s combined production totaled 2.02 million boe/d during 3Q2022, comprising about half liquids and half gas, up from 1.99 million boe/d a year earlier. The firm is targeting production growth of about 1% in 2022, revised from its 2% guidance earlier in the year due to timing changes in some of its development projects in Norway.

Earlier in the week, Equinor inked an agreement with Denmark’s Ørsted AS to supply the country around 27.3 Bcf of pipeline over 16 months through the recently opened Baltic Pipe pipeline system. It could amount to around 34% of the country’s natural gas consumption last year. Equinor previously signed a long-term agreement to supply Poland through the regional network.

However, with severe price volatility in Europe expected to continue, CFO Torgrim Reitan said Equinor isn’t focusing on simply producing as much gas as possible and could be expected to prioritize more competitive markets during price downturns.

“Gas prices fluctuate very much on a daily basis, we will have days and weeks with very low prices,” Reitan said. “In those times we will use the flexibility and opportunity to defer gas to where it is needed most. We will prioritize the value over volume when optimizing gas production.”

European natural gas prices have fallen from an all-time high in August to the lowest point since June as markets weigh winter weather forecasts and above average natural gas storage levels. Gas and power prices began rising again Thursday nearing the $40/MMBtu mark.

Traders have also been contemplating potential impacts from a bloc-wide price cap on natural gas used for power generation being discussed by the European Commission. Reitan said market prices help manage supply and demand during periods like Europe’s current energy crisis. By upending those established controls, he said the region faces the potential risk of a yawning supply gap.

“If we sort of make changes to well functioning market mechanisms, we might end up in a situation where demand is probably too high, and we won’t be able to attract the sufficient volumes to supply Europe,” he said.

Reitan pushed back on the idea that Equinor would act as a swing supplier of gas for the continent, asserting the firm “will produce natural gas as a base provider” for the continent while using its ingrained flexibility to capture value.

Management said the quarter’s production growth was supported by the restart of the Hammerfest LNG terminal, which came back online during the summer after almost two years of repairs.

The firm reported its production volumes from the United States and other global assets “were stable” compared to the year-prior period, attributed partly to a restart of the Peregrino oil field in Brazil. The added production from Peregrino helped offset volumes lost from Equinor’s completed exit from Russia earlier this year, management said. 

The firm’s average realized price for Norwegian gas in 3Q2022 was $42.34/MMBtu, compared with $13.91 in 3Q2021. Its average realized price for U.S. gas rose to $7.01/MMbtu from $2.20 in the year-prior.

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Equinor has natural gas and natural gas liquids assets concentrated in the Marcellus and Utica formations in the Appalachian Basin and recently increased its offtake of U.S. LNG through an agreement with Cheniere Energy Inc. Reitan said Equinor’s U.S. position and its access to some regasification capacity in Europe could give it a reason to consider additional investments in U.S. LNG, but current volatility requires a “very cautious approach.”

“We will, of course, always consider opportunities, but we know the prices are volatile both on the U.S. side and the European side, and then the margins in between are very volatile,” he said.

Equinor retained its expectation of annual organic capex to average around $10 billion in 2022 and 2023. It is earmarking around $12 billion for 2024 and for 2025, management said.

Equinor reported net income of $9.37 billion ($2.98/share) in 3Q2022, versus $1.41 billion (43 cents) in the year-prior period.