Lawsuit over Gassled tariffs

Unofficial translation

Gassled is a joint venture which owns a majority of the gas transport system on the Norwegian Continental Shelf. The gas transport system consists of pipelines, platforms, onshore process facilities and receiving terminals abroad. Anyone who needs to transport Norwegian gas uses this system.

Gassled

Pursuant to the Petroleum Act, the Norwegian State has the proprietary right to the petroleum resources and exclusive right to resource management. The petroleum resources should be managed with a long-term perspective for the benefit of the Norwegian society as a whole. Through the licensing system, the State grants licences to conduct petroleum activities, including licences to install and operate gas transport systems.

Gassled is a joint venture which owns the majority of the gas transport system on the Norwegian Continental Shelf. The gas transport system consists of pipelines, platforms, onshore process facilities and receiving terminals abroad. Anyone who needs to transport Norwegian gas uses this system.

Gassled was established in 2003 through a merger of several separate transport systems, and is operated based on licences pursuant to Section 4-3 of the Petroleum Act, or former similar provision, on stipulated conditions and subject to the State's resource management prerogative.

In all of the respective systems established after 1987, the tariffs have been set to yield a real rate of return of about 7 per cent before tax  (with a higher return for the older Statpipe system) on invested capital. Since 2003, the tariffs have been stipulated in a separate Tariff Regulation, issued pursuant to Section 10-18(1) of the Petroleum Act, Section 4-8 of the Petroleum Act and Section 70 of the Petroleum Regulations. Like the original Tariff Regulation and all subsequent amendments, the Amendment Regulation is also based on these provisions.

The Tariff Case

Four companies that have ownership interests in Gassled: Njord Gas Infrastructure AS, Solveig Gas Norway AS, Silex Gas Norway AS and Infragas Norge AS, have filed suit against the State, represented by the Ministry of Petroleum and Energy, claiming that the Regulation of 26 June 2013 relating to amendment of the Regulation regarding stipulation of tariffs, etc. for certain facilities ("the Amendment Regulation") is invalid, and that the State is liable to pay damages. The State claims that the Amendment Regulation is valid and the claim for damages must be dismissed.

Since 2003, the price (tariff) for transport of gas in Gassled has been stipulated in a separate Tariff Regulation.

The Amendment Regulation represents an amendment to the Tariff Regulation, and stipulates new, lower tariffs for gas transport in Gassled. The new tariffs only apply to new transport agreements (capacity reservations) entered into after the Amendment Regulation entered into force, and only for transport from 1 October 2016. Transport agreements entered into before the effective date of the Amendment Regulation are not affected by the amendment. As regards gas transport pursuant to these agreements, the earlier tariff shall still be paid for the reserved capacity.

Gas transport tariffs have been subject to government regulation ever since the petroleum activities started in Norway. Since the mid-1980s, all licences have been granted on the basis that investments in gas infrastructure shall yield about 7 per cent in real rate of return before tax, and tariffs have been stipulated in a separate Tariff Regulation since 2003. The objective of the regulation of gas transport has consistently been to ensure that the transport terms are in accordance with fundamental resource management considerations, and that the profit shall first and foremost be extracted on the fields. The purpose of the Amendment Regulation is to promote optimum resource management, in accordance with the objective of the Petroleum Act.

The tariff level in Gassled is relevant for all decisions that can impact gas production from fields that have been, or discoveries that may be, tied in to Gassled. This applies both to gas fields and oil fields containing gas, and relates to decisions in all phases of the petroleum activities: exploration, development, operations and tail production. The trend on the Norwegian Shelf implies that tariffs in Gassled will have increasing importance for resource management, in part for discoveries in areas further north on the Shelf, and for discoveries close to existing infrastructure. New, lower tariffs result in lower costs and contribute to recovering a larger part of the socio-economically profitable petroleum resources.

The investments in Gassled will yield a reasonable return and substantial additional revenues up to expiration of the licence period in 2028. It is estimated that, from 2013 to 2028, Gassled will receive capital tariff revenues in the order of NOK 122 billion. In addition, Gassled will receive full capital revenues through the tariff element linked to maintaining the system, as well as full coverage of all operating costs. If the Ministry had not exercised its authority under the statute to stipulate new tariffs, potential tariff revenues for new volumes qualified for gas transport at the decision date would have been around NOK 14.7 billion higher (present value, 2012-NOK). For the plaintiffs, representing approximately 44 per cent of the participating interest in Gassled, this difference amounts to around NOK 6.5 billion. This corresponds to around 11 per cent of the plaintiffs' overall capital tariff revenues.

A more detailed account of the Amendment Regulation and information regarding the consultation process can be found on the Ministry's consultation page (in Norwegian only):

https://www.regjeringen.no/nb/dokumenter/horing---endringer-i-forskrift-om-fastse/id712041/

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