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Equinor has decided not to build a ship-to-ship reloading terminal onshore northern Norway to handle the crude oil that would come from the Arctic field development Johan Castberg, because costs would be too high, the Norwegian major said on Friday.
Equinor, together with its partners Vår Energi and Petoro, has studied several solutions for an oil terminal at Veidnes in Finnmark county, which would have served to reload crude oil from the Johan Castberg oilfield when it comes online in 2022. However, the partners have concluded that the costs would be too high, and the oil terminal would incur much higher financial losses than exporting the oil from Johan Castberg directly to the market.
In the middle of 2018, the Norwegian Parliament approved the development plan for the Johan Castberg oil project in Arctic waters of the Barents Sea. The project is set to cost US$5.4 billion (49 billion Norwegian crowns) and is scheduled for first oil in 2022.
Recoverable resources at the Johan Castberg field under development are estimated at 450-650 million barrels of oil equivalent.
After the oil price crash in 2014, Equinor and its partners changed the plan concept and tried different solutions to halve the initial capital expenditures and to make the project profitable at below US$35 a barrel of oil, compared to the original breakeven oil price of above US$80 a barrel, Equinor said last year.
Anders Opedal, executive vice president for Technology, Projects and Drilling in Equinor, said in a statement today:
“In a demanding period for the industry we have managed to develop Johan Castberg into a profitable project. We have however not been able to develop a profitable export solution for the Johan Castberg oil involving a terminal at Veidnes. The partners are therefore discontinuing their
studies of ship-to-ship oil transfer for Johan Castberg in Finnmark.”
Johan Castberg was expected to boost the economy of Norway’s Arctic region, creating thousands of jobs and reviving the local oilfield services sector.
Equinor’s decision to abandon an oil terminal project, however, would mean fewer jobs. Norway’s biggest oil workers’ union, Industri Energi, said that it was “very disappointed” that Veidnes would not host an oil terminal.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
The decision by Equinor not to build a ship-to-ship reloading terminal to handle the crude oil that would come from the Arctic field development Johan Castberg by 2022 because of high costs shows the IEA’s claim to be not only self-delusional but also false.
In a statement today, Equinor said that while it has managed to develop Johan Castberg with recoverable resources estimated at 450-650 million barrels of oil equivalent (mboe) into a profitable project, it hasn’t been able to develop a profitable export solution.
Against this background, Norway’s oil production has been declining by an average annual rate of 2.5% from 2.6 mbd in 2008 to 1.84 mbd in 2018. Still, the new production from the Johan Sverdrup field in the North Sea could bring online some 660,000 barrels a day (b/d).
Meanwhile, US oil production could average less than 11 mbd in 2019 and not 12.29 mbd as the US Energy Information Administration (EIA) is claiming and around 10 mbd if not less in 2020. Whilst it will take Brazil more than 10 years before it is able to raise its oil production significantly above the current production of around 2.6 mbd. And with break-even price of $40 per barrel, Brazil needs oil prices exceeding $80 a barrel to attract major foreign investments as evidenced by the recent flop of its oil auction.
Therefore, instead of adding 2.1 mbd of non-OPEC supply as the IEA is hyping, the US, Brazil and Norway would be producing 1.44 mbd less in 2020.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London