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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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The Next Major Challenge For Norway’s Oil Industry

Lofoten Norway

The next challenge for Norway’s oil industry may not come from another oil price crash. It could come from a political uncertainty over which new areas Western Europe’s biggest oil and gas producer should open up for drilling to stem an expected decline in production after the mid-2020s.

Norway has a temporary ban in place for petroleum activity off the scenic Lofoten archipelago of the Lofoten, Vesterålen, and Senja islands. The two biggest parties, however—the Conservative and Labor parties—have been in favor of conducting an environmental impact study in those areas, in what would be a first step toward studying possible oil and gas exploration in the area.

For years, those parties have compromised with their smaller junior partners—who firmly oppose drilling off Lofoten—in various coalition governments to keep the area off limits to the petroleum industry.

In recent months, though, signs emerged that the Lofoten chapters of the Labor party, the party currently in opposition and on friendly terms with the oil industry, are now opposing an environmental impact study for the picturesque island area in Norway’s Arctic Circle.

If Labor gives in to pressure from environmentalists and demands a permanent off-limits ban for the Lofoten islands, environmentalists could start asking for bans in the Barents Sea, Norway’s Petroleum and Energy Minister Terje Søviknes told Bloomberg in an interview last week.

“If the environmentalists win this one, the focus will quickly move to the Barents Sea,” Søviknes told Bloomberg.

If the Labor party were to flip on this issue, it could also send a mixed message to the oil industry by undermining Norway’s image as a country with a stable and predictable oil policy, according to the minister. Related: Venezuela Takes Unprecedented Action To Stabilize Currency

“That rocks what’s perhaps been the most important competitive advantage for the Norwegian oil industry: that we’ve had stable framework conditions regardless of political changes,” said Søviknes, a member of the Progress Party that governs a coalition led by the Conservative Party, and also consisting of a junior partner, the Liberal Party.

The Liberal Party’s participation in the coalition came at a price for the parties wanting to start an impact study in Lofoten—the Liberals had demanded that the area stay off limits for consideration for exploration.

In its political platform signed in January 2018, the coalition government vowed to “not allow petroleum activities or investigate the impact of such activities in maritime areas outside Lofoten, Vesterålen and Senja from 2017-2021.”

Labor still firmly supports exploration in the Barents Sea, the party’s spokesman on energy policy, Espen Barth Eide, told Bloomberg in response to the minister’s comments.

The Norwegian Petroleum Directorate (NPD) has estimated that the Lofoten, Vesterålen, and Senja areas could hold 1.3 billion barrels equivalent of oil and gas resources.

While it has kept this area off limits so far—and at least until 2021 as the current government has promised—Norway bets on expanding exploration in the Barents Sea, where most of its yet-to-be discovered oil lies.

There is still a lot of oil to be discovered on the Norwegian Continental Shelf, the NPD says, estimating that the undiscovered resources are equal to around 40 Johan Castberg fields. Johan Castberg in the Barents Sea is estimated to have recoverable resources of 450-650 million barrels of oil equivalent, field operator Equinor says.

Another Equinor-developed field, the giant Johan Sverdrup in the North Sea, is slated to start production in late 2019 and will be the main contributor to Norway’s rising oil production until 2023. Related: What Caused Oil’s Longest Losing Streak In Years?

But from the mid-2020s onward, production offshore Norway will start to decline “so making new and large discoveries quickly is necessary for maintaining production at the same level from the mid-2020s,” Torgeir Stordal, Director exploration at the NPD, said in the directorate’s 2018 resource and exploration report in June.

In July, the NPD said that exploration and development activity is currently high and recovered from the oil price slump, but warned that Norway would need additional large discoveries.

“If production is to be maintained at a high level, there must be larger discoveries than what has been the average over the last ten years. The possibility of making large discoveries is greatest in areas that have not been explored much,” Stordal said.

While the industry is exploring the areas that Norway is opening in the Barents Sea, the scenic Lofoten archipelago may be permanently spared the scene of oil rigs. In 2021, the environmental opposition, the advance of renewables, and the price of oil, would likely be very different from what they are now, but Norway’s biggest parties may still have to rely on smaller parties’ coalition support, and those junior partners want the Lofoten area untouched by oil drilling.

By Tsvetana Paraskova for Oilprice.com

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