But Russian cargoes being diverted to Asia that started already sort of back in 2022. Is there something — like why this is now surprising to the upside? Could — can you have said the same thing over the last couple of quarters? Is there something sort of changed from that perspective?
Torgrim Reitan : Okay. No. Thanks, Martijn. So on your first question related to UK, first of all, as an industry, we are very dependent on stable and predictable framework conditions and tax systems as well. And sort of when labor is putting forward potential changes, that creates uncertainties. And that is something that we need to take into sort of our risk management and the way we think about capital allocation in the portfolio. And the UK is a very important country for us, and it will remain so. But we will also be very diligent in sort of that there needs to be a good link between risk and return as such. So predictability, very, very key, and that is what [indiscernible] spoke to Bloomberg about this morning. On your second question on MMP oil trading and all gas, the results related to our oil trading portfolio of producing assets and the quality differences and — or shipping fleet and trading organization gives this opportunity.
It will — opportunities will arise between quarters. And even if there is a good asset base to take advantage of it, the results will go up and down on the oil side as well. But what we clearly see is that what we have is actually a flexible set of assets that enables us to take opportunities of arbitrage situations when they occur.
Martijn Rats : Okay, thank you.
Bard Pedersen : Thank you. Next on the list is Michele Della Vigna from Goldman Sachs. Michele, please the microphone is open.
Michele Della Vigna : Thank you very much. And congratulations, Torgrim, on the strong results. And two questions, if I may. The first one is on the operating working capital release, very impressive in this quarter, around $3 billion. I was wondering if you could shed a bit of light, especially on how much do you think this can be structural or how much it may reverse into the coming quarters. And then secondly, you’ve given a very good layout of how you’re thinking about Empire Wind and the pricing you got there and the move towards FID and project financing. But I was wondering, do you think we could get to farm out this year and therefore the deconsolidation of about $1.5 billion of capital or maybe that could come later and so going to 2025? Thank you.
Torgrim Reitan : Thanks, Michele. Very good. So first one on the working capital reduction. So in the quarter, the reduction was $3.2 billion. And currently, our working capital level in absolute terms is around $5.5 billion. So this comes on the back of lower gas prices. It comes from lower third-party volumes in sort of — when it comes to oil and liquids and lower volumes sold in March compared to December. So that’s sort of the drivers behind it. And then sort of on your question, is this structural or not? Well, it will varies over quarters, and it’s typically driven by volumes, it’s driven by absolute price and it is also driven by volatility. And you might remember during 2022 with very high gas prices and rather extreme volatility.
We had at one point in time, $10 billion in collaterals in the balance sheet. That’s, of course, not the case anymore. So I would say that the current working capital is sort of a fair reflection on current portfolio, current prices and current volatility, but we must be prepared that it goes up and down on a quarterly basis going forward. Yeah. And then the second one was Empire Wind, yeah. So very glad to have received the new contract with the State of New York. The price that we have in our contract has not been revealed, but the average of two contracts is 150.5. When sort of the contract is finally signed, we will sort of be able to communicate a specific price. I’m looking forward to that. The old contract was $118 per megawatt hour.
So as you understand, this was a significant step-up and it significantly changed the economics of the project. Then when it comes to final investment decision that is progressing. All contracts are settled for practical purposes. There are very little exposure to inflation left in the procurement. And we have Vesta delivering 15 gigawatts turbines, we are sort of from ASA plain Manila compared to — it’s not plain Manila wrong word, but it’s a proven technology compared to the others have been planning for. So we feel confident in the delivery of that. Then the financing package will be put in place and then it will be formed on. And actually, this asset will be farmed down for the second time, as you would remember. So when this is derisked, financed, there is a broad set of potential interested party in this asset and we will get on with that as soon as we can.
I don’t have a specific date for you, but clearly, it is very important for us to have it derisked and farmed down as you see practical. So thanks.
Bard Pedersen : Thanks, Michele. Next question is Kim Fustier from HSBC. Kim?
Kim Fustier : Hi, good morning. Thanks for taking my questions. The first one is just a quick one, a housekeeping question on the EQT deal in the U.S. Could you quantify the positive impact on production? And maybe more broadly, what should we read into your decision to no longer operate anything in the U.S. onshore? Are there any other areas around the world where you’d like to relinquish operatorship? And then my second question is on is on gas-fired power. You’ve got the Triton power station in the UK, but you’re also building out renewables positions elsewhere. So are there maybe other countries where you think you might need to buy gas-fired power generation capacity in the future? Thank you.
Torgrim Reitan : Okay. Thanks, Kim. Very good. So first on the EQT transaction, on production side, it typically will add around 15,000 barrels per day in increased production. And as I mentioned, lower breakeven, lower emissions and better returns. This was sort of the last piece of operated activities within U.S. onshore activity. And it was a small operations where we lacked scale and we have come to the conclusion that we don’t see ourselves as a future operator within U.S. onshore activities. And we instead want to prioritize working with the best operators around and within the gas portfolio that is not the case. So this is sort of another example of high-grading the international E&P portfolio. And building size and scale in certain areas where we do operate and where we can take advantage of that.
On your second question around CCGTs. CCGTs are a natural sort of an important part of an energy system with an increasing share of renewable and interruptible power in it. And it creates a good link between natural gas and renewables. And we do see natural gas to be a very important part of the long term here. What we typically will consider. Our CCGTs that can be ready for either capture or hydrogen-ready. And as an example, we have an MOU with RWE related to five hydrogen-ready CCGTs in Germany, a landing point for a significant part of our net gas to Europe. So it is an integrated part of the way we think about the future markets.
Bard Pedersen : Thank you. The next question is Yoann Charenton from Bernstein. Now, Yoann, please go ahead.
Yoann Charenton : Yeah, thank you for taking my question. Good afternoon, Torgrim. I would like to ask about Johan Sverdrup again, if you don’t mind. You have said that you have very significant water handling capacity at the field and you confirm as well that the production trend is in line with your expectations. At the same time, your largest partner in the field said yesterday that this year’s activity program will involve the drilling of 10 production wells instead of 8 as stated earlier this year. So for production to continue to trend in line with expectation, are you ready to drill more well this year, and can you explain why as well you are adding 2 wells to this year’s program?
Torgrim Reitan : Okay. Thanks, Yoann. Yeah, you’re right. So drilling of new wells will be a key element of optimizing the production profile on Johan Sverdrup. So they are currently two wells ongoing, and there are more to come. I think we have said by end of second quarter up to five wells. So there are more wells being started and progressed during this quarter and then we will continue with that during the rest of the year. So this is — there’s no magic in this. This is hard work, good planning and optimizing the field. And as we produce and as we drill, we learn more and more about the reservoir and the placing of the wells. And everything that we see is very good and in line with what we have seen and expected since the start of the field. So — but clearly, I mean, we will give you an update as we drill and as we progress and as we report.
Yoann Charenton : Thank you, Torgrim.
Bard Pedersen : Thank you, Yoann. The next question is Paul Redman from BNP Paribas.
Paul Redman : Hi, good morning, guys. And thanks very much for your time. And I’ve just got two quick questions. You mentioned a couple of times the curtailment impact and the fact that that’s not in your guidance for production, any idea of kind of what the impact of curtailment would be and the conversations you’ve had with EQT, kind of how likely this would be? And then the second 1 is just a more general question. Just you’ve got some big projects coming online over the next couple of years, clear updates on progress on Johan Castberg and on Bacalhau. Thank you.
Torgrim Reitan : Thanks, Paul. Very good. Yeah. So gas prices in the U.S. are on a rather low level. And we see that the way our operators there are typically working is that they sort of hedge the gas price for a certain amount of time. So — but no gas prices have remained low for quite a while, so those hedges are coming off. And that sort of discovers a sort of a true exposure to underlying gas prices. So what they say, and this is Chesapeake and EQT in particular, is that they will adjust activity to optimize for value. And Chesapeake has said they’re going to reduce by one rig. And then, of course, they have an inventory of wells that can be completed. They also say they’re going to adjust that. Then beyond that, I mean, there are also opportunities to choke production as such, which is also on opportunities across these operators.
So I will leave it to them to be specific on the impact of this. So I just encourage you to follow EQT and Chesapeake’s communication around this to and then try to find a readout on the impact on our portfolio. It is still too early to — for us to have a specific number for you. We just wanted to be ahead of the game, so you are aware of it. I think it’s important for me to say that we clearly support this. And secondly, these are barrels with low earnings impact because of the gas prices is low, and they will come back at a higher price and with higher earnings as such. And that’s, of course, something I do appreciate. On your second question, the big projects, yeah. So let us take you Johan Castberg, Barents development. It now sits in the yard of Stord on the West Coast of Norway.
And we do plan a sail away very soon. All the sort of offshore work is done and quite a bit of commission is finished. So the risk in sort of completing that asset, has come down quite a bit during the quarter. As you would remember, there was quite a bit of carryover work from Asia when taking this to Norway, driven by Covet and that period as such. So I mean, it has been some challenges, but that is now considered to be handled in a good way. On Bacalhau, so Bacalhau came out of the yard in China and now sits in Singapore, and it came there last summer. Also here, work is progressing well, and we expect first oil next year. So this is progressing well. I think it is worth mentioning that clearly, in Brazil, there are inflationary pressures as such that we monitor very closely and are prepared for managing as such.
So those are sort of the two big ones that are under construction. And then we have Rosebank, as you know. We have Raia in Brazil as well coming and then Sparta operated by Shell in Gulf of Mexico. Those are sort of the big ones underway.
Bard Pedersen : Thank you, Paul. The next question is Henri Patricot from UBS. Henri?
Henri Patricot : Yeah, thank you, everyone. Just one question, please, on the European gas market. Could you perhaps share some of your views on how you see the balance of risk to European gas prices for the rest of the year and what you’re seeing in terms of demand recovery at this point? Thank you very much.
Torgrim Reitan : Thank you very much, Henri. Yeah, I mean, we have come to a very warm winter. And gas prices has come down. Now it sort of stabilizing a little bit. But clearly, it is a market that is colored by the temperature and is also colored by the high level of inventory. So 59% or sort of in April, which is very high if you compare it to the five-year average. I think still there are some — we can talk about a few things. Maybe we can talk about sort of European demand first. I mean, clearly, we see that is down. We see industrial demand is around 15% below the five-year average now. And then — but then we see some positives because if you adjust for temperature, we see actually a 5% to 10% increase in demand over the last year, both industrial and sort of commercial assets.
So my point is sort of the European demand picture is quite a bit impacted by temperature as such. Then beyond that, China is particularly an area to follow. And Chinese — the Chinese gas market has passed Europe market in size, meaning that actually demand growth in China is more important for European gas prices than European demand. So watch out. And we see that as sort of taking efforts. And then there are a couple of other things to watch. One is sort of the sanctioning of Russian LNG and also the Russian gas coming through Ukraine, that’s around 12 Bcm. The gas coming through Ukraine. That contract is sort of ending by year-end. And there were some solid remarks from Ukrainians that this is it. So I think those are elements to watch in addition to operational disruptions either in LNG chain or in pipe gas operations.
