Norwegian Oil Output Set To Fall To Lowest Level In Three Decades
Norway’s crude oil production slipped to 1.38 million bpd in April from 1.387 in March and 1.531 million bpd a year ago, the Norwegian Petroleum Directorate reported this week. The trend is a long one and it highlights the challenges one of Europe’s top oil producers faces.
Norway has been doing an exemplary job in cutting production costs and boosting efficiencies, especially after the 2014 price collapse that gave a major push to both cost cuts and efficiency improvements across the industry. Yet Equinor and its sector players have had trouble securing long-term supply: new oil and gas discoveries have been few and far between.
The situation with new discoveries is so bleak, the Norwegian Petroleum Directorate warned in January that oil production in the country this year could drop to the lowest in three decades, to an average of 1.42 million bpd. The April figure is already lower than this and this doesn’t bode well for the rest of the year.
There have been two major discoveries in recent years in Norway: Johan Sverdrup—the North Sea giant, as operator Equinor calls it—which should start producing later this year, and Johan Castberg in the Barents Sea scheduled for first oil in 2022. Despite a recent proposal from the energy ministry to expand the acreage to be tendered for exploration in the Arctic, so far exploration this has been pretty much fruitless.
This is particularly concerning in light of the fact that, according to the NPD’s resource estimate, nearly two-thirds of the undiscovered resources on the Norwegian continental shelf lie in the Barents Sea, in the Arctic. This is why so much effort is being put into exploration in the area and this is why the lack of substantial results is so worrying.
The good news amid all this worry is that Johan Sverdrup and Johan Castberg will temporarily reverse the overall production decline during the next decade.
With expected resources of 2.1-3.1 billion barrels of oil equivalent, Johan Sverdrup is one of the largest discoveries on the Norwegian continental shelf ever made. It will be one of the most important industrial projects in Norway in the next 50 years, and at its peak, the project’s production will account for 25 percent of Norway’s total oil production, Equinor says.
Johan Castberg is quite a bit more modest in terms of reserves: it has recoverable reserves of some 450-650 million barrels of oil equivalent and Equinor says it will have a productive life of 30 years. Together, the two fields would provide a vital contribution to Norway’s total oil output. However, there is a problem with already producing fields.
S&P Global Platts reports that Equinor and its rivals at home are struggling with technical issues that are preventing them from boosting production at mature fields, although the report does not go into detail about the nature of these technical issues.
On top of all this, Norway’s oil industry is facing intensifying environmentalist opposition. The green lobby in the country is among the most powerful in Europe, and Norway is, a little ironically, one of the greenest countries in the world. However, the oil and gas industry will in all likelihood remain vital for its economy if the extent of the fallout from the latest oil price crisis is any indication. Unfortunately, there is little the industry can do to reverse the production decline except keep its fingers crossed for at least one more large discovery.