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Can Norway Survive Without Big Oil?

Norway

Supermajors are shunning Arctic oil exploration in Norway, or at least that’s the overwhelming feeling after the last licensing round conducted by the Norwegian Petroleum Directorate in early December.

Eleven companies applied for 102 blocks or parts of blocks, of which almost all were in the Barents Sea. The only supermajor in the crowd was Shell. What happened?

More than half of Norway’s untapped oil and gas reserves are located in the Barents Sea. That’s beyond the Arctic Circle—an area that contains an estimated 90 billion barrels of crude and 1,669 trillion cu ft of natural gas in total. Norway’s share is more than 9 billion barrels of undiscovered oil.

This likely would have sounded irresistible five years ago, with Big Oil always on the hunt for large-scale projects, armed with the means to afford investing in them. No more. Now everyone—up to and including the likes of Exxon, Total, BP, Chevron, and Shell—wants quicker and higher returns on slimmer investments.

The Arctic is a harsh place to drill. The climate may be changing, but not enough to make the place driller-friendly. Also, environmentalists will never get off drillers’ cases, so that’s some additional pressure, especially now. In November, environmental organizations took the Norwegian government to court over the awarding of oil drilling licenses in the Arctic, and argued on the first day of hearings that the 2015 licenses should be withdrawn as they violate Norway’s constitution and the country’s pledge to fulfill the terms of the Paris Climate Agreement. The court is expected to rule on the case later this month.

And there’s more. Last year saw a record number of exploration wells drilled in Norway’s section of the Barents Sea, but only one of them yielded a commercially viable discovery. That’s one out of 15 wells drilled. It’s also not large enough to deserve its own development: Statoil will develop the discovery as part of its Johan Castberg project, which is due to start pumping oil in 2022. Related: Higher Oil Prices Slow China’s Crude Stockpiling

Even that’s not all in the bad news department that would explain why Big Oil is less than eager to tap Norway’s Arctic oil and gas wealth. The most anticipated well to be drilled in the Barents Sea was one in an area that Norway calls Korpfjell. It’s believed to hold massive oil and gas reserves, but the only thing Statoil found there was a non-commercial amount of natural gas. All this is enough to put off any supermajor looking for fast profits in the post-2014 world.

For Norway, tough times may be coming if Statoil, Lundin, Aker BP, Rosneft, Wintershall, and OMV—along with the string of private equity-backed energy independents still interested in the Arctic—fail to make a meaningful discovery in the near future. The country’s oil production is currently half of what it was in 2000. It will continue to decline (although gas production is growing) unless more discoveries are made.

It will be difficult to make discoveries without Big Oil’s deep pockets, but Statoil isn’t giving up. It’s planning another intense drilling campaign for this year because its pipeline is pretty empty: $6-billion Johan Castberg is the only significant Arctic project in this pipeline.

By Irina Slav for Oilprice.com

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