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Can Norway Supply Europe With Gas Long-Term?

Arctic pipeline

As the EU has pushed to reduce greenhouse gas emissions and lower the portion of energy that comes from nuclear sources, the greatest benefactors have been natural gas producers. The single biggest EEA benefactor has been Norway.

According to the Norwegian Petroleum Directorate, hydrocarbon production on the Norwegian shelf is expected to remain relatively stable for the next 10 years. In the long-term, new discoveries will be crucial to the sustained production of Norwegian Oil and Gas. However, according to the Wall Street Journal, declining oil and gas revenues could prompt the country to tap into its sovereign wealth fund, as oil and gas fields contributed 29 percent less to government’s oil revenue for the first half of 2016. This discrepancy suggests Norway needs to look deeper to keep producing oil and gas at its current levels.

Falling UK gas production has necessitated the UK to start importing natural gas. Gassco AS completed three pipelines last year from Norway to the UK: the Knarr, Utsira, and Valemon pipelines were the first pipelines completed in Norway in five years – all were destined to the UK. Gassco is a crown corporation and operator of the Norwegian gas transport system.

The UK has since accounted for over 15 percent of Norway’s natural gas and condensate, the country’s second largest export country, with the Netherlands coming in at first place and almost one fifth.

Struggling to keep investment as efficiency increases

However, according to a report by Wood Mackenzie, the country expects a decline in Oil and Gas investment by over $50 billion between 2016 and 2020. How this plays out in production numbers in the future is yet to be seen. If the latest developments in Statoil’s largest oilfield are any indicator, there are reasons to believe that falling investment will not mean falling production: the $12 billion Johan Sverdrup oil field is expecting development costs to fall by 20 percent while increasing expected production rates by 25 percent. Related: Slashing Dividends: The Only Option Left For Big Oil?

Although there have been increases in gas development efficiency, such as wells being drilled 50 percent faster compared to 2013 speeds, more work is needed to keep investment – and production levels, steady. Statoil is seeking to squeeze more gas out of existing fields such as the Gulfaks field using technologies such as we gas compression, extending the fields life by up to two years.

Statoil leading the Northern push

Statoil is set to drill Norway’s Northern-most well next year, and a total of seven wells in the Barents Sea. These wells will test different geologies, and will be a determining factor for Norway’s Oil and Gas production in the distant future. The Barents Sea has many advantages for investment over other areas in the Arctic: it is relatively shallow, with depths similar to the North Sea, and is ice free all year round, thanks to the Gulf Stream. Oslo estimates that half of the 18 billion barrels of oil equivalent that are yet to be discovered in Norwegian waters will be found in the Barents Sea. With these new wells coming online, Europe will be watching to see how the Sea fares.

In the long term, the IEA estimates that Norway will continue to decrease its gas production at a rate of 1.3 percent annually – this could mean a 40-50 percent decline by 2025 should the northern push prove to be a whimper. Gassco noted that an Arctic gas pipeline could be built from the Barents Sea to supply European customers, depending on developments next year.

There is no doubt however, that with falling Western European gas production, a new source of gas will need to be found, whether it is Russian, U.S., Norwegian, Algerian, or Azeri gas.

By Matt Slowikowski for Oilprice.com

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