“Act Two” of the Gassled continuum – The Norwegian State intends to take over key gas transportation infrastructure

On 28 April 2023, the Ministry of Petroleum and Energy (MPE) published a press release informing that the Norwegian State intends to exercise its right to take over key parts of the Norwegian gas transportation system upon the end of the licence period.

This is a significant turn of events which raises several commercial and legal issues. In this newsletter, we summarize the applicable rules governing the State’s takeover right as well as highlight certain key takeaways. Needless to say, the infrastructure owners must be on their toes to protect the shareholder values in this unprecedented situation.


The Norwegian gas infrastructure is the world’s largest offshore network, comprising more than 8 8000 kilometres of pipelines. It is currently owned partly by the Norwegian State and partly by private companies. An overview of the owners of the different parts of the gas transportation system operated by state-owned Gassco are found here: https://www.gassco.no/en/about-gassco/owners/.

An efficient gas infrastructure on the Norwegian continental shelf is of great importance to promote resource management and support value creation from the Norwegian petroleum resources. This objective has become even more important following the energy crisis and the Russian invasion of Ukraine, and European energy security is currently a hot topic.

Most of the gas transportation infrastructure is owned through the partnership Gassled, with slightly more than 50% direct or indirect State participation. Gassled was established in 2003, when virtually all the Norwegian gas transportation systems in place at that time were combined in a new unincorporated joint venture. It comprises the onshore plants at Kårstø and Kollsnes as well as pipelines linking producing fields to these facilities and/or providing onward transport to the UK and continental Europe.

The current licence periods for the main parts of Gassled expire in 2028 following the extension granted at the establishment of Gassled in 2003. Other licences expire later, such as Tampen Link (2032), Langeled (2035), Nyhamna (2041) and Polarled (2041). Certain onshore installations do not have a time-limited licence. In addition to Gassled, other important parts of the Norwegian gas infrastructure include the partnerships Nyhamna, Polarled and Vestprosess DA.

Whether or not the State would prolong the current licence periods and at what terms has been a topic with increasing focus the recent years. It is now clear that the Norwegian State intends to exercise its right to take over key parts of the Norwegian gas transportation system. This signifies a significant shift from previous practice.

The key messages from the Norwegian government:

  • The Norwegian State have made it clear that it intends to exercise its right to take over key gas transportation facilities, upon the end of the licence period, as the State wishes to have full state ownership of the central parts of the Norwegian gas transportation system.
  • The majority of the licences in Gassled expires in 2028. Other parts of the gas transportation system have a longer time limit and some of the facilities do not have an explicit time limitation.
  • Where the State takeover requires compensation to the licence holders, such compensation shall be based on the future expected net income that the owners of the infrastructure will have from their ownership.
  • A possible transition to full State ownership is assumed to be value neutral for the State. This means that the Norwegian State’s ownership costs related to the gas transportation system will be fully covered by future tariff revenue.
  • After the transition to a full state ownership, the main principles of the current regulation of the gas transportation system shall still be applicable.
  • Gassco shall continue to be the operator of the gas transportation system, and technical service provides shall be used.


Legal basis and compensation for the State’s right to take over facilities

Nationalisation of private ownership in such scale is seldom in Western democracies. However, pursuant to section 5-6 of the Petroleum Act, there has always been a right for the State to take over the licence holders’ fixed facilities when the licence expires.

In the event of takeover of a facility onshore or on seabed subject to private property rights (e.g., land terminals), compensation shall be paid to the extent this follows from otherwise applicable rules.  The Norwegian legislation on expropriation generally gives the right to receive expropriation compensation in line with market value. That said, the assessment of what represents the market value of one-of-a-kind assets is not necessarily a trouble-free exercise.

For offshore facilities, however, the government decides with binding effect if and to what extent compensation shall be paid for the takeover. There is little precedence on such takeover, and difficult to predict to what extent the State would provide compensation to the current owners covering any value stemming from the period after licence expiry. Our expectation is that the State will not give such compensation and the discretionary decision by the State will be difficult to challenge in the civil courts.

A separate issue is the situation where the State wishes to take over the infrastructure prior to licence expiry. In such case an agreement must be reached between the State and the current owners unless the State would attempt to apply general expropriation mechanisms.

The transportation system also consists of terminals and pipelines outside Norwegian jurisdiction. These elements create additional issues, including due to deviating regulation. This will create additional complexity.

At the time of State takeover, the facilities with appurtenances shall be in such condition as adequate maintenance implies. Any dispute regarding this, and, if applicable, regarding the compensation to be paid to the State for lack of maintenance, shall pursuant to the Petroleum Act be determined by appraisement.

Pursuant to the Petroleum Act, a takeover shall take effect 6 months after the time when the licence has expired, has lapsed for other reasons, or the use of the facility ceases permanently, unless otherwise agreed or decided by the Ministry. Our expectation is that this regulation would have limited importance in practise since the take over is likely to be implemented by agreement prior to licence expiry.

Key questions and further process

The announcement raises several issues which will need to be resolved.

With the certainty that the gas transportation licences will not be prolonged; the period until licence expiry would be a less than ideal period for ongoing projects and required investments, many of which will have a longer perspective than the current licence period. Thus, in the interest of all stakeholders our expectation is that the take over process will start immediately with the aim of concluding this process as soon as possible through a negotiated solution between the State and the current owners.

The core issue in such discussion would be the value which should be compensated by the State. This raises several issues, including related to which discount rate should be applied and the valuation of assets not subject to a licence period. A separate issue in this respect is the distinction between the value of future cash flows and replacement value, in addition to the question of option value related to future use (e.g., related to new energy forms such as hydrogen).

Another issue would be if the State attempts to further reduce tariffs within the current licence period with effect for the compensation to be paid (discounted cash flow) at licence expiry. This could open up for a second round of the Gassled tariff case which was decided by the Supreme Court in HR-2018-1258-A.

As we see it, the State and the industry should attempt to reduce the uncertainties related to State ownership and seek to negotiate solutions which can be implemented quickly and which are deemed acceptable to owners, shippers and the State. The relevant parties have historically, such as at the establishment of Gassled, demonstrated that they are able to reach acceptable solutions through very complex negotiations and at times, bending arms. Let’s see if the parties are able to make this happen during 2023.

On a separate note, despite there being legal basis for State takeover at licence expiry there is a real need to prevent this process to negatively impact Norway as an attractive investment destination. It is fair to say that this is not something one should take for granted these days.

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