Norway's government steps in to end oil and gas strike, averting a new energy shock for Europe

London(CNN Business) Norway has intervened to end a strike by oil and gas workers, the country's government said in a statement late Tuesday, citing concerns about Europe's energy crisis amid Russia's war in Ukraine.

Natural gas prices spiked after Norwegian oil and gas workers went on strike over a pay dispute Tuesday, shutting three fields in the North Sea and threatening to escalate action over the course of the week.

Norway is Europe's second-largest energy supplier after Russia and the strike had pushed gas prices to their highest level in four months.

The Norwegian government has proposed a compulsory wage arbitration to settle the dispute, the statement said.

"We normally exercise significant restraint before intervening with compulsory wage arbitration," Labor Minister Marte Mjøs Persen said after he summoned oil companies and workers to a meeting late Tuesday. "However, the serious consequences of the announced escalations have forced my hand in intervening."

The Norwegian oil and gas employers' lobby had said the strikes could have halted almost 60% of Norwegian gas exports to Europe from July 9.

The closure of the three fields resulted in the loss of the equivalent of about 89,000 barrels of oil a day, Norway's state-owned energy company Equinor said in a statement.

Europe is trying to reduce its reliance on Russia's exports, which are already being curtailed by Moscow. Any sustained drop in Norway's output could deal a big blow to efforts to replenish gas stocks ahead of the winter, as well as raise the risk of a catastrophic energy shortage.

Germany, the region's biggest economy, has already declared a "gas crisis" and warned it can't rule out introducing rationing to get through the winter.

News of the strike helped push European natural gas futures prices up 5% to hit 172 euros ($177) per megawatt hour, data from the Intercontinental Exchange showed. That's the highest price since early March in the days following Russia's invasion of Ukraine.

"The Ministry of Foreign Affairs emphasizes that Russia's offensive war against Ukraine has had a major impact on security of supply in many European countries," the Norwegian government said in its statement.

"There is an immediate risk of additional energy shortages in Europe. A reduction in Norwegian gas deliveries will worsen the energy crisis, in addition to the inherent political, financial and societal consequences. Norway must do everything in its power to bolster European energy security and European solidarity against Russian aggression."

An uncertain winter

The Norwegian strike came nearly three weeks after Russia reduced the flow of gas to Europe through the Nord Stream 1 pipeline and after it cut off three European Union countries and several energy companies for refusing to pay in rubles, rather than euros or dollars.

Gas flows through Nord Stream 1 are currently running at just 40% of capacity, according to an analysis by S&P Global Platts.

To add to the uncertainty, deliveries through the pipeline are due to stop completely for 10 days from the start of next week for maintenance work.

"The concern is rather that gas shipments may be even further reduced or not even resumed at all following the maintenance work," Carsten Fritsch, analyst for energy, agriculture and precious metals at Commerzbank, wrote in a note on Tuesday.

"This would make it virtually impossible to replenish European natural gas stocks for next winter and would necessitate further-reaching political measures and cuts to gas consumption," he added.

Gas storage facilities in the EU are about 59% full, data from Gas Infrastructure Europe show. That is about three percentage points below usual storage levels for this time of year, Fritsch said.

Bigger headache

Alex Froley, an analyst at the Independent Commodity Intelligence Services, told CNN Business the bigger problem facing Europe was the closure of a major liquefied natural gas (LNG) plant in the United States.

A fire at the Freeport LNG facility in Texas last month has temporarily stopped production. Normally, the facility produces about one-fifth of the US' LNG exports, according to analytics firm Vortexa.

In recent months, Europe has become increasingly reliant on imports of LNG to compensate for the reduction in Russian natural gas supplies.

"Gas demand for heating is greatly reduced in summer, though, and Norway always carries out some maintenance in summer — so it's not an immediate physical problem for the market to see some reductions," Froley said.

"[The Freeport LNG plant has] been a big source of supply for Europe this year, and isn't expected back until October at the earliest," he added.