Thursday March 30, 2017

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REGIONAL JOURNALISM, GLOBAL PERSPECTIVE.

Oil & Minerals
Oil in Norway

The long game starts now

Keeping Norway’s production oil and gas at current levels in the coming decades will require an ambitious exploration programme
Oil & Minerals
Time to turn up the volume (Photo: Harald Pettersen)

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To get an idea of some of the challenges Norway must grapple with as it seeks to prevent oil production from declining, consider Goliat, an Italian-operated rig in the Barents Sea.

Oil was first discovered in the field of the same name in 2000, after three years of searching. Seven years ago, Stortinget, the national assembly, voted to give the go-ahead for plans to develop the field. Production began in March, but not before numerous delays had added 50% to the cost of development.

As production from fields in the North and Norwegian seas declines, Oslo is betting that the Barents will pick up the slack. So far, it appears this will be case: the 2016 Resource Report, an occasional estimate of the country’s untapped reserves, finds that declines in more mature southern fields have been more than compensated for by finds in the north.

SEE RELATED: Life after oil

The NPD, the national petroleum authority, expects that if production is to maintain its current level after 2025, an ambitous amount of exploration will need to lead to a constant flow of new finds. In short, there will need to be more Goliats, but without the delays.

“It can take many years from a find being made before it enters into production,” the NPD stated in the report, released earlier this month. “Exploration activity in the coming years will be important if we are to slow the decline in production.”

If significant new finds are to be made, the best place to look will indeed be the Barents, where more than half of Norway’s estimated 18 billion barrels of oil are found, and where, to date, only Goliat is drilling.

For the NPD this is good news, since it means there are still plenty of discoveries to be made, though the low price of oil may mean development will take longer than it would like. Rather than increasing, investments fell 12% last year. If depressed prices continue to put off investments a temporary dip in production may be unavoidable.

SEE RELATED: Seize the moment

Again, Goliat provides an example of the situation producers face. Eni, the firm that operates the rig, estimates the field can turn a profit only if oil costs more than $50 a barrel. Others suggest the figure is higher. Rystad Energy, a consultancy, for example, reckons the price must be closer to $100. Regardless of which figure is right, both are above the current price of oil, which is trading around $40 a barrel.

This, the NPD admits, is not something Oslo can do anything about. “The price of oil and gas is determined outside Norway,” the report concludes. What firms operating in Norway can do, it underscores, is to drive down their production costs, by doing things like being more efficient.

Industry and labour unions say all this fretting about where Norway's next finds will be is unnecessary. In a recent report of their own, the two groups joined forces to push the government towards opening up drilling near the Lofoten islands, an area between the Norwegian and Barents seas.

The two groups describe the area as easier to develop and less expensive to operate in than the Barents and would like Oslo to study what impact drilling would have.

SEE RELATED: New geography

Currently, a political agreement has halted development of the area until at least the next election, due in 2017. This is to protect marine life, especially cod and cold-water reefs, but the area itself is highlighted for its natural beauty, and opponents fear drilling will spoil this.

The pro-drilling camp, however, says the economic arguments have become too great to ignore. Lofoten may contain as much as 1 trillion kroner ($123 billion) worth of oil. With oil prices down, and with production from established fields in decline, proponents argue that money would be a way to make sure there is still enough money to fund a high level of public service.

To start with, the groups want Oslo to order an assessment of the impact of drilling. This, they make clear, is not the same as permitting drilling. But with fields taking a decade on average to come on-line, they warn there is no time like the present to prepare for the future, whatever it may bring.