Shell Ormen Lange Gas Field Won't Reach Full Output Until 2010

By Ben Farey

Sept. 12 (Bloomberg) -- Royal Dutch Shell Plc said the peak in supplies from Norway's second-biggest gas field will be a year later than planned, risking lower shipments to U.K. at a time of record prices.

``Peak will be in 2010,'' Adam Newton, a spokesman for the operator, said in a phone interview from Shell's office in The Hague yesterday. StatoilHydro ASA, which managed the field until last year, had expected maximum production in 2009.

Ormen Lange is expected to meet as much as 20 percent of British gas demand for the next 40 years and is the main source of fuel for the Langeled pipeline from Norway. The field's development has been hindered by slower-than-expected drilling.

The U.K. is importing more gas by pipeline as North Sea production chalks up its eighth year of decline. Forward gas contracts gained more than 60 percent to records this year. Centrica Plc, Electricite de France SA and other suppliers have passed on higher gas costs to households, stoking inflation and stifling consumer spending.

``We've been looking at options for bringing in more drilling capacity. We've yet to take a decision,'' Newton said. Drilling halted in January for safety reasons while work was carried out on a blow-out preventer valve, he said. Operations resumed again in late May.

As many as 24 wells may be drilled at Ormen Lange before it reaches full production, according to Wood Mackenzie Consultants Ltd. Nine wells have been drilled so far, according to the Norwegian Petroleum Directorate. Of these, Newton said three are producing. Two wells are suspended at their target depth and three are plugged, according to the directorate.

King of Norway

Ormen Lange, opened officially by the King of Norway in October 2007, will reach maximum output ``following a gradual increase in production over the first two to three years,'' according to a statement on StatoilHydro's Web site. Output at the field averaged 30 million cubic meters a day in July and 26 million a day in June, according to petroleum directorate data.

Deliveries through Langeled remain below their rate in mid- August. The pipeline was delivering about 34 million cubic meters a day at 7:50 a.m. U.K. time today, compared with an average of 39 million a day last month.

Wood Mackenzie analyst Andrew Slessor expects Ormen Lange to produce a daily average of about 48 million cubic meters next year, rising to about 60 million in 2010.

``They may do 70 million in the months of peak demand,'' he said by phone yesterday.

Long-Term Contracts

The ``big variations'' in daily gas flows to the U.K. were due to Norway's long-term contractual obligations to European buyers, StatoilHydro's Senior Vice President of Supply, Jens Okland, said on Sept. 10 in London.

Contractual flows can vary on ``an annual and daily basis,'' while only ``uncommitted'' gas can be sold on spot markets such as the U.K.'s National Balancing Point, he said.

Norwegian gas supplies to the U.K. have increased steadily since 2001, Okland added. Norway meets about 15 percent of Europe's gas demand and is the second-biggest supplier to the continent after Russia, he said.

StatoilHydro holds 28.91 percent of the Ormen Lange development. Its partners are Royal Dutch Shell Plc (17.04 percent), Petoro AS (36.48 percent), Dong Energy AS (10.34 percent) and Exxon Mobil Corp. (7.23 percent).

To contact the reporter on this story: Ben Farey in London at bfarey@bloomberg.net