Good morning, and welcome to Hydro's Q3 2022 presentation and conference call. We will start off with the presentation by Hydro CEO, Hilde Merete Aasheim, followed by a financial update by CFO ,Pål Kildemo. , The presentations will be followed by a Q&A session for those physically in the room. We will have a digital conference call at 11:00 A.M. With that, I turn the microphone over to you, Hilde, please.
Thank you, Therese, and good morning. It's good to see you here at Vika. Some more people here than at Vika last time. Let me go straight to the highlights for the quarter. For Q3, we report an EBITDA of NOK 9.7 billion, while free cash flow came in at NOK 2 billion. The war in Ukraine, high energy prices, and concern around inflation and increasing interest continues to add uncertainty in our markets. In these volatile markets, we are addressing the challenges with the mitigating measures while also positioning the company according to Hydro 2025 strategy. In the third quarter, aluminum metal markets, and extrusion continued to deliver strong results. However, the overall results were down from the second quarter from lower realized all-in metal and alumina prices, as well as seasonally lower sales volume downstream.
This was partly offset by CO2 compensation and positive currency effects. Our efforts to ensure robustness and competitiveness across the value chain continue at full pace. Hydro's 2025 improvement program is estimated to deliver on its 2022 target of NOK 7 billion and new improvement initiatives are being identified across the portfolio. In the third quarter, a revised CO2 compensation scheme was proposed in Norway. The impact of the revised CO2 compensation scheme booked in the third quarter was NOK 0.5 billion, which was the compensation for Q3 in addition to a catch-up effect of NOK 1.4 billion relating to previous quarters in 2021 and 2022. Despite the weaker markets, we have continued to execute on the Hydro 2025 strategy during the quarter, strengthening our position in low carbon aluminum and growing in new energy areas.
In the third quarter of 2022, sales of Hydro REDUXA and Hydro CIRCAL was 45% higher year-on-year, supporting Hydro's ambition to double sales of greener products by 2025. Finally, in the third quarter, an additional cash dividend for 2021 of NOK 3 billion were distributed corresponding to NOK 145 per share, and we also initiated a share buyback program of up to NOK 2 billion. Before I continue, let me talk about what is the most important in Hydro. That is the health and safety of our people. After a challenging year in 2021, as operations also was restarting fully after the pandemic, we have steadily improved our safety performance. In fact, in 2022, we have reduced the number of total recordable incidents by 20% since the end of 2021. An injury-free environment is our ultimate goal.
All our employees in Hydro should be safe working in Hydro. We are continuously working throughout the whole Hydro organization to avoid any incidents to happen to our people. Now, let's talk about the business environment. What we have experienced this year has been, to say it mildly, an unprecedented development. The brutal invasion of Ukraine in February has introduced a great deal of uncertainty and unpredictability to all parts of the economy, with the broader consequences becoming increasingly visible. The energy prices crisis in Europe has, until now, led to 50% of Europe's aluminum smelter portfolio being curtailed due to high energy costs. The current geopolitical tension and the energy crisis have in particular made us all more aware of the importance of security of supply and how vulnerable we are to unforeseen disruptions in our supply chains.
Going forward, we see a lot of attention towards access to secure, affordable, and sustainable energy sources, but also minerals, raw materials, and other strategic materials. Hydro is well-positioned in this regard, having the whole aluminum value chain in-house, including raw materials but also own energy production and long-term power purchasing agreements. This gives us a robust foundation both for our own operations and our position as a reliable and stable supplier in the market. On a European level, the regulatory agenda is now heavily oriented towards alleviating the energy crisis while not losing sight of the green transition. In the short term, the European Commission is looking deep into their toolbox to identify solutions to ease the strain on European citizens, business, and industry. Just last week, the EU Commission presented their proposal on a gas market package, including a range of measures.
We are monitoring this process closely, especially regarding possible mandatory gas demand reduction measures in the member states, which could affect our operations this upcoming winter. As of now, we have not been notified of any such reductions. The ongoing revision of the EU ETS is nearing completion with conclusions expected in fourth quarter. As of now, CO2 compensation will remain in ETS following a provisional agreement in the EU trilogues. Regarding CBAM, there has been no conclusion yet, but it is expected to affect free allocation of emissions quotas from 2026. The final timeline for phase out is not yet concluded. There has been a lot of discussion on the consequence of CBAM for the CO2 cost compensation scheme.
As to from which year this will be affected by CBAM, this is yet to be concluded, and we are following obviously this very closely. To our home turf, Norway. Early this month, the Norwegian government presented their proposal for the 2023 state budget. With the war in Ukraine, inflation, and high energy prices as a backdrop, the Norwegian government has communicated a need to finance increased costs with new streams of revenue. For Hydro, there are two significant development in this proposal. First, the government is proposing tax increases for renewable power. Resource rent tax for hydropower is proposed to increase from 37% to 45% from 2022. We estimate this impact for Hydro to be in the range of NOK 250-300 million per year.
To capture the windfall profits resulting from high energy prices, a 23% tax on price exceeding 0.70 NOK per kilowatt has been proposed as a temporary measure. We expect this new tax to have limited impact on Hydro as our power production is consumed for own use. Finally, a new resource rent tax at 40% is proposed for onshore wind. Secondly, the government has proposed the CO2 compensation scheme that will continue. The proposal includes an expansion of the scope to include equity power, but also the introduction of a CO2 price floor of 200 NOK per ton to be deducted from the total compensation amount. For Hydro, we estimate the compensation for 2022 to amount to NOK 2.2 billion, and for 2021, NOK 1.7 billion.
It should be noted that the government's proposal is subject to approval by the parliament. Negotiations here have begun with a final vote expected in parliament in December. Let's talk about the global economic outlook. At the end of last year, the world was on a recovery path after the pandemic, and most forecasters were anticipating steady growth across most major economies. However, growth prospects for this year and next look very different than anticipated. Global real GDP growth is forecasted to slow down from 5.8% in 2021 to 2.8% for this year and down to approximately 2% next year. As COVID-related restrictions are eased, there has been some hope that the global economy will quickly rebound. But however, there are several headwinds as we see it now.
First, inflation, tightening monetary policies, and fear of recession have weakened overall demand. Second, production in China is still negatively impacted as some COVID-19 related restrictions remain. Third, the property sector in China has slowed down dramatically, impacting both activity in the sector and the value of household savings. In the US, the real GDP growth is projected to slow down from the 5.7% in 2021 to 1.7% in this year and just below 1% next year. The U.S.. Housing market is showing signs of stress, likely due to the tightening of the monetary policy that has significantly boosted the average mortgage interest rate. Looking at Europe, the Russia-Ukraine war has had significant negative impacts, and real GDP growth in the Eurozone is predicted to slow until 2023 before seeing some growth in 2024.
The prospect for further disruption to the energy supply, leading to higher prices, remains on the downside. Let us then see how this impacts the aluminum market. Demand in China has been weak due to problems in the property sector, as I just mentioned, and the Zero-COVID policy, while supply has come back quickly after smelters curtailed in 2021. World ex China demand is expected to be lower in second half 2022, dragging the overall yearly growth down as regions like Europe and U.S. are at risk of recession. On the supply side, we have seen curtailments driven by high energy prices, particularly in Europe. For next year, moderate demand growth is expected by CRU with a downside risk. There's also expected higher supply, however, with around 1-1.5 million tons of capacity being at risk of curtailment in Europe on high energy prices.
In sum, the next year, the expectation is that the market will be largely balanced due to weaker demand, while production in China is expected to remain strong. To prices. LME and premiums have dropped sharply due to the demand reduction and weaker macro outlook, while a weaker NOK has given support to prices in Norwegian krone. Weak building and construction activity is negatively impacting the extrusion industry, which also puts pressure on the billet premium. The spread between billet premiums and standard ingot premiums is narrowing, but also between billet and scrap, which is tightening and which is putting further pressure on remelt margins. Let us move to the detailed cost situation for the upstream part.
To the left, you see the cost curve for the global smelter, where around 45% of global capacity expected to be loss-making at current price levels. Due to higher energy and raw material costs, elevated costs are also expected going into 2023, and this represent a risk of further curtailment of smelter capacity, which could impact the aluminum market balance, which I showed earlier. The low-cost smelters, what do they have in common? They have secure power at low cost and are mainly in Canada, Middle East, India, and Norway. Our current position is at the 17th percentile, a very robust position in the current uncertain market. To the right, you see the global cost curve for the alumina industry. The global alumina industry's profitability is also under pressure because of high raw material costs from increasing caustic soda and energy prices.
In China, new refineries are ramping up production despite weakening demand following smelter production cuts, especially in the Yunnan province. Lower alumina prices have led to some capacity curtailments. However, we doubt that these curtailments are sufficient to balance the market in light of new Chinese production. In the world ex-China, very high gas prices have pushed costs at most European refineries to unprecedented levels, and they are now at the highest-cost producers in the world. Going forward, alumina price trends will largely depend on the magnitude of curtailments, both in China and outside, required to balance the market. Also within the global alumina market, we are well positioned at the 30th percentile on the cost curve. Now moving to the downstream to the extrusion market and our extrusion sales.
Total extrusion sales have decreased by 4% in the third quarter of 2022 compared to last year, with 8% in Europe and 2% in North America, reflecting the general weakening market environment. In Europe, demand for the industrial and the building and construction segment has weakened the most. While growth in automotive demand is improving slightly as supply chain issues are easing. What is interesting to follow is that the renewable energy sector is also driving demand for aluminum now. In North America, demand has continued to remain fairly strong across key segments, particularly in non-residential building and construction, automotive, and transportation. Looking into the fourth quarter, CRU estimates that the European demand will decrease by roughly 15% compared to the same quarter last year.
Overall, European extrusion demand is estimated to decrease by 4% in 2022 compared to the year before, and 7% in 2023 compared to 2022. For North America, CRU estimates demand will be flat in the fourth quarter of this year compared to the same quarter last year. Overall extrusion demand in North America is estimated to increase by 4% in 2022 compared to the year before, and be stable in 2022 compared to this year. I would however, like to state that there is a high market uncertainty out there, and that there is a further downside risk to these estimates. Let me move to the energy area and talk about the higher energy prices and price area differences in Norway. A lot of focus has been on the gas market during Q3.
European gas prices increased in the first half of Q3 as gas flow from Russia was gradually curtailed. After a peak in August, prices started to correct down following a combination of gradually improved fundamentals and the uncertainty related to the EU's market intervention scheme. In Norway, we saw record high system prices in Q3 as weaker hydrology triggered a gradual change from net export to net import in Q3 as the spot prices in southern Norway increased above prices in Continental Europe.
Nordic future prices have come down since the peak in August due to gradually lower European gas prices corresponding to lower European power prices, and further reduction due to the weather change in October with higher precipitation and wind. Looking back at Q3, the Nordic hydrological balance ended the quarter around 10 terawatts below normal, compared to around 75 terawatts below normal at the end of previous quarter, and as much as 19 terawatts below normal at the end of the same quarter last year. Hydropower reservoirs in Norway were at 70% of full capacity at the end of the quarter, which is 13% below the normal level. However, in Southwestern Norway, the NO2, the reservoirs were only 53% full at the end of September, which is 30 percentage points below the normal level.
The recent weather shift and imports have increased the reservoir levels in NO2 above the levels seen at the same time last year, but the reservoir levels are still below normal. The Norwegian transmission system operator, Statnett, still consider the situation to be pressed and maintains that securing energy in the southern Norway may be a concern during the winter. Statnett has also proposed mitigating measures to the pressed power situation, including close monitoring of reservoir levels and a system for energy options if the risk of rationing increases throughout the winter. Let me comment on our robustness and response in this unprecedented business environment. Let me first start by saying that for several years, we have worked systematically on securing long-term power contracts at competitive price level, which is a great advantage in the current volatile market.
We have robust power coverage across the smelter portfolio with the Norwegian smelters well-covered until 2030, and with Albras well on the way with sourcing strategy for 2025 and beyond. In addition to the strong power coverage across our global smelter portfolio, we have also hedged parts of the gas and its electricity need that we have in the extrusion and metal markets for 2022 and 2023. We are well covered on the power side in the Nordics, financially and physically. For our European operations, we have also good financial coverage. However, we could face regional limitations on physical availability of gas or power in Europe this winter. In this scenario, it is a strength to have a large extrusion and remelt system in Hydro, which could allow for the movement of production between Hydro facilities.
Commodity markets are volatile and cyclical by nature. Following many years of challenging earnings in our industry, we have looked for ways to make our cash flows more robust over the cycle. One of the initiatives we started a few years ago was to implement an integrated margin strategic hedging program for aluminum. At that time, we said that we would rather have a more robust financial position in the lower part of the cycle than a very robust position in the higher part of the cycle. In the current market environment, this will support our robustness if margins should further decline. We now have an integrated margin LME hedge in place for around 20% of our 2023 positions and around 20% for 2024.
We are also about now to roll the position into 2025, securing parts of earnings if markets should become more challenging. We are also progressing according to the plan on our ambitious improvement program, which aims to deliver NOK 8.5 billion by end of 2025. I'm very happy to report that, again, we are on track to deliver on our target for this year in total accumulated NOK 7 billion. An impressive effort from the whole organization. However, our NOK 2.5 billion commercial ambitions looks a bit more challenging in the current market environment. We are working on the levers we can pull also here.
On top of this, we are now working on new improvement initiatives to strengthen the program, including, among other, energy efficiency measures throughout the company, which is really good return on these kind of activities in the energy market we see now. Strengthening procurement efforts and optimization across the BAs. Of course, adjusting the indirect spend to the overall business sentiment. Finally, I should mention that the biggest contributor to improved earnings in Bauxite & Alumina is the effect of the ongoing fuel switch projects and implementation of the first electric boiler, which in total will contribute with around $80 million, respectively, each quarter at current market prices and will be effective in the second half of 2023. To address the short-term market deterioration, especially for extrusion ingots in Europe.
We have adjusted our capacity accordingly in aluminum metal and metal markets. First, through shifting volumes between product segments where we have flexibility. Next, through lower cold metal remelting. Finally, through some curtailments of recyclers in total, adding up to 45,000 tons. This has also been followed by even stronger measures, curtailments of electrolysis capacity at Karmøy and Husnes, in total, 110-130,000 tons. In these instances, the excess power has been sold in the market at high power prices, more than offsetting the negative effect of lower aluminum production. We are continuously evaluating further measures in line with the development in the market. In extrusions, we have also reduced European recycling capacity by 20,000 tons, and we continue to continually now adapt extrusion capacity to demand with reduced number of shifts.
While addressing the short-term challenges in the market, we have also made progress on the 2025 strategy. An important foundation for strengthening our position in low carbon aluminum is through targeted investments, supporting our strategic ambition to double the recycling of post-consumer scrap by 2025. In the U.S.., we have decided in Q3 to invest NOK 500 million to expand our recycling capabilities at the Cressona plant in Pennsylvania. We expect the project to be fully operational by the end of 2024, expanding Cressona's casting capacity by 50,000 tons. In Europe, construction started just last month at the new recycling plant in Székesfehérvár in Hungary. When completed in Q1 2024, the new facility will have an annual capacity of 90,000 tons. In Q2, in the second quarter, we announced an acquisition to buy the shares in the Polish recycler Alumetal.
The acquisition will add substantial capacity to recycle our post-consumer scrap and an important part to reach our target of doubling the use of post-consumer scrap. On October the 6th in this month, the European Commission decided to open a phase two review of the proposed acquisition of Alumetal. We remain committed to this transaction and will continue to work closely with the European Commission over the coming months on the phase two review. Extrusions remained a key growth area in Hydro's 2025 strategy, and in the third quarter, Hydro made the decision to invest in 12,000 tons of additional capacity at our extrusion plant in Rackwitz in Germany. To the second pillar of our 2025 strategy, which is to diversify and grow in new energy.
This quarter, we have finalized the acquisition of 30% of the shares in Vianode, a joint venture together with Elkem and Altor. Following this, Vianode announced that we will invest in NOK 2 million to produce low carbon synthetic graphite for about 20,000 electrical vehicles per year by 2024 at the pilot plant, first pilot plant at Herøya in Norway. Hydro Rein continues to develop a robust portfolio of renewable energy projects. Last quarter, Hydro Rein announced two major renewable projects in Brazil, the 586 MW combined wind and solar power project, Feijão, and 531 MW solar project, Mendubim. Both projects are important for Hydro to reach its climate ambitions and to secure renewable power for both Albras as well as Alunorte.
Given the uncertain capital markets, alternatives to an initial public offering are still being considered to raise the capital required for further growth, and we are still targeting a capital raise in the current quarter. The positive trend in demand for low-carbon aluminum continued also this quarter. Sales of Hydro CIRCAL and Hydro REDUXA were 45% higher year-on-year in the third quarter, supporting the ambition to double the use of sales of greener products by 2025. We are constantly working with customers to help them reduce their environmental impact through choice of solutions and materials. The building on the right side here on the picture is one of Hydro's building system's latest projects, the Zweites Bergquartier in Frankfurt. Completed in 2021 with a facade from Wicona by Hydro.
The building stands out not only aesthetically, but also in terms of its direct and indirect environmental impact. By using our end-of-life aluminum, Hydro CIRCAL 75, the project saved more than 2,000 tons of CO₂ emissions from this project compared with the European aluminum average. This supports a trend that we are seeing in the market, that customers are not only looking at the qualities of the materials they source, but also how these materials are made. On that note, let me also comment on our sustainability program, which is a very important part of Hydro 2025 strategy and our positioning going forward. This increased focus on how materials are made and the traction in the market for our low carbon brands also underlines the role of sustainability as a basis for our future positioning and profitability.
As we say in Hydro, profitability and sustainability go hand in hand. I'm happy to report that we are on track on reaching important milestones on our sustainability agenda. I already mentioned the Alunorte fuel switch project. Replacing heavy fuel oil with natural gas is progressing according to plan and is expected to be finalized by the second half of 2023. This is an important enabler for our ambition to reduce our climate footprint by 30% by 2030. Also an important contributor to becoming net zero in terms of Scope 1 and 2 in 2050 or earlier. As mentioned earlier, in addition to lowering emission, the fuel switch project will deliver a significant reduction in raw material costs at current market prices.
In addition to climate targets, Hydro has also made a lot of progress on the ambition to protect biodiversity, where we are on track to deliver on the one-to-one rehabilitation targets for mined areas. Moving towards the social dimension of the sustainability agenda, we are proud to report that the brand new technical school, a school called A School of Work and Production of Pará, was completed and handed over to the municipality of Barcarena this quarter in Brazil. With a capacity of around 1,000 students, the technical school will contribute to education and skilling of the workforce in Barcarena and the surrounding communities. This is very much in line with our ambition to contributing to quality education and strengthening our local communities and institution through capacity building.
Here I will end my presentation and hand over the microphone to our CFO, Pål Kildemo, for the financial update.
Thank you, Hilde, and good morning from my side also. Let's start directly with this quarter's EBITDA bridge. Adjusted EBITDA for the third quarter was NOK 9.7 billion. This is NOK 1.9 billion down from the NOK 11.6 billion in the previous quarter. The main drivers are 15% lower realized alumina prices, and 15% lower realized all-in aluminum prices. Lower volumes, mainly seasonal, and margins contributed negatively with NOK 1.2 billion, and a short position in our energy area added another NOK 0.4 billion negatively, despite record high area price contributions within the quarter. These negative elements were partly offset by lower raw material and fixed costs of a total of NOK 0.7 billion.
Positive currency effects on the stronger dollar, NOK 1.4 billion CO2 compensation catch-up effects, and also NOK 0.6 billion larger gains on power sales, mainly from Slovalco. Finally, we have NOK 0.8 billion higher elimination than last quarter, mainly related to lower margins in bauxite, alumina and aluminum metal. We will dive into more details on these elements as we move through the business areas. If we move to the key financials for the quarter, year-over-year revenues increased by 43% to NOK 52.4 billion. Higher realized prices is the main driver here. However, compared to the last quarter, revenues have decreased, driven primarily by lower realized prices.
The adjusted EBITDA at NOK 9.7 billion excluded a positive effect of 108 million, which increases the reported EBITDA to NOK 9.8 billion. Adjusting items for the quarter are largely driven by around 100 million in net foreign exchange gain, as the positive effects of unrealized derivative effects on LME related contracts related to our strategic hedging activity offset the negative unrealized derivative effects on power and raw material cost. Moving on, we have adjusted depreciation and amortization of around 2.1 billion, which results in adjusted EBIT around 7.6 billion. The financial gain we have in this period of 500 million for the third quarter consists of a net foreign exchange gain of around 600 million, primarily reflecting the gain on euro embedded derivatives on the back of a tightening EUR/NOK interest differential.
This is partly offset by around NOK 100 million in net interest expenses. Our tax expense amounted to NOK 1.5 billion or about 18% of income before tax. This rate reflects the mainly high proportion of income, of earnings in Norway, as well as a positive effect from a historical tax settlement. Overall, this results in a reported net income from continuing operation of NOK 6.7 billion, up NOK 1.1 billion from last quarter, but down from NOK 11.1 billion in the second quarter. Adjusted net income was NOK 6.3 billion, compared to NOK 3.5 billion last year and NOK 7.7 billion in the second quarter.
This brings us to an adjusted earnings per share of 2.91 NOK, up from 1.6 in Q3 last year and down from 3.63 in the second quarter. If we then move over to the business areas and start with Bauxite and Alumina, adjusted EBITDA decreased from NOK 1.05 billion in Q3 2021 to NOK 633 million in Q3 2022, mainly driven by higher raw material costs. The higher raw material costs amounted to around NOK 1.5 billion on the lower results, and included 100% higher caustic prices, 230% higher coal prices, and 35% increase in fuel oil costs.
Together with the higher bauxite costs and fixed costs, this contributed significantly to the $104 increase in cash costs from $233 to $337 per ton. This was partly offset by higher realized alumina prices, which increased by around $80 per ton. If we compare results to the second quarter of 2022, the adjusted EBITDA decreased by around NOK 500 million. The main driver was $66 lower realized alumina prices, but also slightly higher costs, which contributed with around NOK 50 million to NOK 100 million negatively. This is slightly lower than what we expected last quarter on lower energy and caustic prices.
Partly offsetting this was a positive deviation of negative one-offs in Q2, around NOK 100 million that we don't have in Q3, and positive one-offs related to tax credits in Q3 of around NOK 100 million, which contributes in one-off deviations of around NOK 200 million positive in total. We also had positive currency effects of around NOK 300 million on weaker BRL and NOK in the period. Looking into the fourth quarter, Alunorte production is expected to continue at around nameplate capacity. In addition, compared to the third quarter, current raw material prices based on market pricing indicates an increase of around NOK 250-300 million from increases in caustic soda, but also energy prices, which dipped in the third quarter.
If the current alumina price remains at the $310 level, this will also represent a sizable downside from the price levels realized this quarter, further negatively impacted by the current spot currencies. Moving on to the strongest contributor for this quarter, aluminum metal, where adjusted EBITDA increased from NOK 4.3 billion in Q3 2021 to NOK 6.5 billion. The results were mainly driven by higher all-in metal prices, positive currency effects, CO2 compensation, and power sales, partly offset by higher raw material and fixed costs. The booked CO2 compensation of NOK 1.9 billion is a combination of current, but also historical, CO2 compensation effects. In line with the new proposed CO2 compensation framework communicated as part of the Norwegian state budget proposal, around NOK 550 million relates to compensation for the actual period Q3 2022.
This includes both the inclusion of the CO2 compensation on own production, but also the newly introduced price floor of 200 NOK per ton. The remaining NOK 1.35 billion relates to catch-up effects from 2021 and year-to-date 2022, in line with the current state budget proposal. If we compare results to the second quarter of 2023, results have decreased by half a billion NOK, mainly driven by lower all-in metal prices and lower sales volumes, reflecting lower casthouse production in line with the falling market demand. This was partly offset by positive currency effects, higher CO2 compensation, NOK 600 million higher effects from sale of power from Slovalco, and also lower fixed cost.
On raw materials, the net effect was NOK 400 million lower for the quarter, with positive contributions from alumina on energy on LME index contracts, partly offset by higher carbon and other raw material costs. The overall figure is higher than our guidance from last quarter, in the negative direction, driven by the new higher rate of continuous CO2 compensation amounting to around NOK 2 million of the total amount. Excluding this is quite in line with our last quarter's guidance. If we were to exclude one-offs and look at the underlying figures for the quarter, we see that the all-in implied primary cost would have been around $2,350 per ton, and the underlying margin around $950 per ton.
I'm also pleased to say that the ramp-up at Albras was finalized in Q3, following the power outage that caused one of the three lines to be stopped earlier this year. For the fourth quarter, 70% of primary production is priced at $2,257 per ton, while 44% of premiums affecting Q4 is booked at $811 in total. Q4 realized premium is expected to be in the range of $550-$600 per ton, somewhat lower than what we indicated last quarter on the continuous falling of market premiums. Compared to the third quarter, we expect lower raw material prices in aluminum metal in Q4 2022.
If we use expectations based on current market prices, that accounts for around NOK 400-NOK 500 million. This is mainly driven by lower alumina and energy costs. This will partly be offset by seasonally higher fixed costs of around NOK 100-NOK 200 million. In addition, it's important to remember that due to the curtailment of Slovalco, Karmøy, and Husnes, we expect to book around NOK 1.6 billion in higher results on power sales in the fourth quarter compared to the third quarter. This quarter, metal markets delivered an adjusted EBITDA of 534 million, compared to 170 million in Q3 last year. The improvements this quarter is driven by recycling on the back of increased sales premiums, lifting results with 269 million compared to Q3 last year.
In addition, positive currency and inventory valuation effects contribute with around NOK 178 million. This is partly offset by NOK 77 million lower commercial results on falling ingot premiums. If we exclude the currency and inventory valuation effects, the result for the quarter was NOK 398 million. Looking into the next quarter, sales premiums are declining, and further curtailment of recycler capacity of around 20,000 tons is currently planned on top of the seasonally lower production. We will continuously adjust this to market demand. As the market currently stands, that means that we expect a light reduction in the recycler results compared to the fourth quarter of 2021. As always, remember that trading results and currency effects in metal markets are by nature volatile.
If we then move to the financial results of Extrusions, adjusted EBITDA is slightly lower from NOK 1.5 billion in Q3 2021 to NOK 1.4 billion this quarter. Increased gross margins were offset by increased variable and fixed costs, with energy costs amounting to a significant share. In addition, the falling premiums contributed with a negative metal effect this quarter of around NOK 300 million. Volumes are also declining on falling demand, as Hilde went through earlier, which contributes negatively. Partly offsetting this, as in the previous quarter, is the integrated recycling operations, which contribute positively year-over-year based on the higher billet sales premium than last year. If we compare results to Q2 of 2022, then the adjusted EBITDA decreased from NOK 2.4 billion to NOK 1.4 billion on seasonally lower volumes and margins, in addition to the general market weakening.
Looking into Q4, we expect lower volumes than last year on the lower market demand. As it stands now, given high uncertainty, we expect to be largely in line with CRU expectations for the fourth quarter. In the current inflationary environment, we also expect continued margin pressure, and in addition, we have seen premiums come further down, which will impact recycler profitability, in addition to also 20,000 tons of planned curtailments of remelt capacity in extrusion. As in the last quarter, we would like to stress test that we are back to a period with high market uncertainty, both into Q4 and first half of 2023, and guiding is becoming more challenging in extrusion. The last business area walkthrough is energy, where results decreased from NOK 464 million in Q3 last year to NOK 321 million this year.
Record high area price differences and higher gains from participation in physical balancing markets in Norway were more than offset by 300 GWh lower spot sales, which needed to be covered in the market at very high prices in the NO2 area. In addition, we also had higher tax costs in our equity accounted investment company, Lyse Kraft DA, which brings tax above the line due to the accounting methodology. Compared to the previous quarter, the adjusted EBITDA decreased by NOK 1.4 billion due to the same items that I've just mentioned. If we look into the fourth quarter, then price and volume uncertainty is always large, and production prices will depend on hydrological conditions.
However, we do expect production to be higher than in the third quarter, but with the absolute amount being highly dependent on the shift of production between Q4 and first quarter of 2023. As of yesterday, the quarter to date difference between mid Norway prices, NO3, and southwest Norway, NO2, were around NOK 1,000 per megawatt-hour compared to NOK 3,200 for the third quarter, still implying that earnings from price area difference will continue at a high level in Q4, but potentially somewhat lower than in Q3. Let's then finish the financial part with the developments in our net cash position. Based on the starting point of NOK 1.7 billion in net debt from Q2, our overall debt position increased by NOK 1.4 billion quarter on quarter to NOK 3.1 billion in net debt position. This was based on the following.
We start with NOK 9.7 billion in adjusted EBITDA. We then had a net operating capital build of NOK 3.3 billion, which can be broken down as follows. Price effects on inventories are largely stable, with raw material increases being offset by general decreases on inventory pricing of finished goods. We have metal inventory build in aluminum metal and extrusion on the falling demand, which we are seeking to mitigate through the ongoing curtailment of recyclers and smelters, but for this period, it amounts to around NOK 1 billion. Finally, we have around NOK 1.9 billion, which is driven by the CO2 compensation receivables in aluminum metal, which I mentioned earlier. If we look at the full year estimates, we now expect around NOK 6 billion in full year build of operating capital, implying a release of around NOK 5 billion in the coming quarter.
This build is around NOK 200 billion higher than what we expected last quarter due to NOK 1 billion higher CO2 compensation after we received the payment for this year, or for last year, and around NOK 1 billion in higher finished goods in aluminum metal and metal markets in light of the ongoing weakening demand. We are still looking into ways to further reduce this figure, revisiting safety stocks, looking at portfolio adjustments and other initiatives which could represent further downside.
On the other side, if the market falls more aggressively than we foresee, that could pull in the other direction. As I mentioned the last quarter, if currency and prices remains at or below the levels that we observed in the end of last year, we should be able to reduce this NOK 6 billion further into next year by around another at least NOK 3 billion-NOK 4 billion all else equal, remaining with CO2 compensation and higher safety stocks on, for example, anode inventories as the main deviating factors compared to the end of last year. Other operating cash flow adjustments amounted to NOK 1 billion, driven mainly by NOK 0.6 billion in taxes paid and other smaller effects. Net investments were NOK 3.4 billion for the quarter. We're still keeping our guidance on CapEx that we updated last quarter.
However, I would like to indicate that there is a downside from this figure, as we are evaluating spend in the current market environment, and we will most likely push more projects into 2023 and beyond as we see how the coming winter and expectations for 2023 materialize. As a result of all this, we generated free cash flow from operations of around NOK 2 billion in Q3. In addition, we paid NOK 3 billion in shareholder dividend, NOK 1.45 per share at the end of September. If we finish up with adjusted net debt, then we start by adjusting for the NOK 1.2 billion in collateral per Q3, mainly related to strategic and operational hedging activity, which has decreased by NOK half a billion from last quarter on the declining LME prices.
The next adjustment of NOK 4.4 billion reflect cash and short-term investments in our captive insurance company and asset retirement obligations. We also have a net pension asset of NOK 1 billion, which is down by around NOK 0.4 billion from last quarter, mainly driven by changes to the Norwegian interest rate path. With this adjustment, we end up with an adjusted net debt position of NOK 7.8 billion at the end of Q3, an increase of NOK 1.5 from NOK 6.3 at the end of Q2. With that, I give the word back to you, our CEO, Hilde Merete Aasheim, for our final priorities.
Thank you, Pål. Let me round off with the priorities going forward. Health and safety will always be our top priority. We are well positioned in a challenging market. This enables us to combine short-term measures, maneuvering in the short term, while also at the same time making progress on our positioning for the long-term opportunities. The improvement program is crucial to deliver on our strategic direction and will continue with full force. Our cost program and commercial ambitions have strong momentum and is well anchored in the organization. As I've said several times during my presentation, we will continue to execute on our 2025 strategy, which is to strengthen our position in low carbon aluminum, but then also grow in new energy solutions, which includes renewable growth, batteries, and hydrogen.
With that, I say thank you for the attention.
Thank you very much, Hilde and Pål. We will move to a Q&A from the audience. If anyone has any questions, please raise your hand. Yes.
Morten Nordby, Carnegie. You mentioned NOK 1.6 billion higher EBITDA from power sales in Q4. What electricity price is that based on?
Well, for the power sales from Slovalco, this is based on the power we locked in those power sales at. So that won't move. It's secured in the marketplace. On the power from the Norwegian smelters, that's based on right below 300 EUR per megawatt hour, I would say. This is locked in between aluminum metal and energy. However, energy take this in as part of their the total portfolio and hedge in the marketplace. There's still a risk to the movement in the value of that figure, but that will then be in energy results and not aluminum metal results.
Thank you, Morten. Any other questions from the audience? No? I would like to thank you very much for joining us today, and please join our conference call. That will be digital Q&A at 11:00 A.M. today. Thank you very much.