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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Norway Desperately Needs Large Oil Discoveries

Norway Rig

Thanks to costs cuts and large oil discoveries made before the oil price crash, Norway will be able to sustain its oil and gas production over the next five years. But reduced exploration drilling and lack of big discoveries in the past two years spell trouble for Western Europe’s biggest oil and gas producer after 2023, authorities fear.

Nearly two-thirds of the undiscovered resources are thought to be located in the Barents Sea, the Norwegian Petroleum Directorate (NPD) directorate said last week in its review of the Norwegian Continental Shelf in 2017.

However, last year’s exploration campaign in Norway’s Arctic was a flop. Oil companies are not giving up on Barents Sea exploration, but firms and authorities alike have now lowered expectations about the possibility of a huge discovery in those areas.

“In the part of the Barents Sea that’s currently open, you’ve sort of tried the elephants -- the big opportunities,” Bente Nyland, Director General of the Norwegian Petroleum Directorate, told Bloomberg in a recent interview. “You’re now down to the next generation in size,” Nyland noted.

The authority would be happy with any discovery of around 500 million barrels of oil, Nyland told Bloomberg.

Last year, the most promising exploration well Korpfjell—the first well drilled in the Norwegian section of a formerly disputed area between Norway and Russia, and the northernmost wildcat well drilled on the Norwegian shelf—was a disappointment compared to expectations that it could contain more than 250 million barrels of oil equivalent, or even 1 billion boe. Related: Can We Afford Renewable Energy?

The disappointing Barents Sea campaign led to just 11 companies applying for production licenses in Norway’s 24th licensing round that offered 93 blocks in the Barents Sea and 9 blocks in the Norwegian Sea. Statoil, Aker BP, and Lundin were all applying, but the NPD said that “The applicant landscape could indicate that some parties are prioritizing exploration in mature areas this time around,” commenting on the applications.

Last year, companies drilled a total of 34 exploration wells offshore Norway, down by 3 compared to 2016, the NPD said, expecting the number of exploration wells this year to be roughly the same as in 2017. Last year, half of the wells were drilled in the Barents Sea, 12 in the North Sea, and 5 in the Norwegian Sea. For comparison, the 2016 drilling campaign included 5 wells in the Barents Sea, 3 in the Norwegian Sea, and 29 in the North Sea.

Last year, exploration activity in the powerhouse of Norway’s oil industry, the North Sea, was at an 11-year-low, but this year Statoil, for example, will be prioritizing the more mature areas on the shelf like the North Sea to take advantage of tie-ups of potential new discoveries to existing infrastructure.

The plans that companies have submitted for drilling this year indicate that most exploration wells will be drilled in the North Sea, the NPD said, in what could be some relief for authorities that oil firms will not snub again exploration in the area that has made Norway a leading oil and gas producer.

But Norway needs more, and larger, oil discoveries, and sooner rather than later.

“If petroleum production is to be maintained at the current level beyond 2025, it is absolutely essential that additional profitable resources are proven, also larger discoveries,” the NPD said. Related: Geopolitical Wildcards Could Push Oil Beyond $70

The need for more exploration and larger discoveries was the underlying theme of the Directorate’s review of 2017. “Too few exploration wells”, “only minor discoveries”, and “exploration activity must increase” were phrases used too often in an otherwise positive review that showed record gas production, cost cuts across the board, and leveling off of the decline in investments.

Norway’s total oil and gas production increased for a fourth straight year in 2017, thanks to higher gas production. Oil production, on the other hand, dropped to 1.59 million bpd from 1.61 million bpd in 2016, down 2 percent, mostly due to an unplanned maintenance shutdown at the Goliat oil field. This year, oil production is estimated to drop by another 2 percent to 1.55 million bpd, and the decline is expected to continue until 2020, when the giant Johan Sverdrup—expected to start production in late 2019—will help Norway to increase its oil production until 2023, the NPD said.

The total oil and gas production increase will continue toward 2023 – perhaps even reaching the level of the record year 2004, the authority said, but noted that back in 2004, oil accounted for most of the production, while in 2023, gas will account for about half of the production.

While Norway’s oil production is expected to increase over the next five years, after 2023 the industry faces another decline if no large discovery is made soon.

By Tsvetana Paraskova for Oilprice.com

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