In the run up to this week’s ONS (Offshore Northern Seas) conference in Stavanger, the short-term prognosis for the Norwegian oil and gas industry wasn’t good. Statistics Norway pointed to a nearly 20% drop in investment in the sector, estimated for 2017.
The sector, echoing global trends, is continuing to cut spending, as oil prices continue to hover below US$50/bbl. Yet, there are some who are bullish about the prospects for a return to activity. Jarand Rystad, founder of Norwegian analyst firm Rystad, said late last week: “After the toughest downturn ever for the Norwegian oil sector, we see light in the end of the 2015-2017 tunnel.”
Petro Arctic last week pointed to the huge investment pipeline shaping up in the far north, including the Barents Sea, with Statoil’s Johan Castberg, Lundin’s Alta/Gohta and OMV’s Wisting finds, alongside Aasta Hansteen in the Norwegian Sea. “These planned projects will significantly increase activity in the region,” says Petro Arctic. According to Petro Arctic’s forecasts, some NOK 500-600 billion will be spent in the region up to 2030.
Many at ONS this week will hope both Rystad and Petro Arctic are right. Last week, Statistics Norway revised its estimates 2016 investment down 1.5% to US$20.2 billion (NOK 165.3 billion), which would equate to a 17.5% drop compared to spending in 2015. For 2017, the figure falls again, to $18.4 billion (NOK 150.5 billion), an estimate 1.8% lower than the previous estimate for 2017, and 18.6% lower than the corresponding estimate for 2016.
Statistics Norway says almost the entire decrease from the last survey is due to lower estimates in shutdown and removal, which fell 25%, as several shutdown and removal projects have been postponed. But, the estimate for exploration has also decreased. However, the estimate for field development has increased, thanks to the submission of two plans for development and operation (PDO) earlier this quarter (Statoil submitted a PDO for the Brydling – previously called Astero – and Utgard fields in August).
According to Rystad, two fundamental issues challenge the oil industry today, one short-term and one long-term. In the short-term, it is timing over the oil market rebalance, shale’s role in plugging a potential supply gap in 2017-2018, and whether offshore projects, like the three big fields in the Barents Sea; Johan Castberg, Alta/Gotha and Wisting, be competitive and reach a final development decision.
Long-term, the issue is related to climate ambitions, according to the Paris agreement, he says, and how different fossil fuels fit in.
“Based on facts we have gathered and analyzed, we can conclude that 1) oil market will rebalance very soon, 2) oil prices will be up in Q4, however, 3) shale will be able to deliver sufficient new volumes in 2017, putting a temporary limit to the oil price recovery, however, 4) marginal costs for shale will increase rapidly, 5) bringing new offshore projects back to a competitive position in 2018 and onwards, 6) including the three Barents Sea stand-alone projects and 30 subsea projects in Norway, 7) field development projects that also are sustainable from a climate perspective.”
“Thus, after the toughest downturn ever for the Norwegian oil sector, we see light in the end of the 2015-2017 tunnel.”
Perhaps hedging its bets, this year’s conference is also featuring sessions on nuclear energy, as well as wind and solar energy, alongside the more traditional oil and gas focus.
OE and its staff are attending ONS. We are on stand 370 in Hall 3.
Image from ONS/Kallen.
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