In the medium-term, Norwegian E&P industry is set for output increase, particularly driven by start-up of Johan Sverdrup planned for 2020. By 2025, total supply is estimated to reach the highest levels observed during the early 2000s. However, maintaining this production level might prove challenging in the longer-term given weak exploration performance that plagued the industry since 2011. This article assesses the outlook for the Norwegian E&P industry, illustrated by three key drivers: production, discovered resources and spending.
Figure 1 shows oil and gas production in Norway, split by project and life cycle, from 2010 to 2025. Total oil and gas output in Norway stood at 4.1 million boe/d last year, expected to decrease by around 200 thousand boe/d in 2018 driven by decline on producing fields. However, from 2019 onwards, total supply is anticipated to start to grow again led by start-up of currently sanctioned and unsanctioned fields. Among the largest fields to enter commercial development is Johan Sverdrup with the first phase of development planned to be brought on stream in 2020, followed by the second phase in 2022. The field is forecasted to contribute nearly 600 thousand bbl/d of oil by 2025. Next year, we expect start-up of Martin Linge adding more than 100 thousand boe/d at plateau, and by the end of this year first gas from Aasta Hansteen field. In the longer-term, Johan Castberg is set to contribute additional 170 thousand bbl/d of oil to Norwegian E&P industry. Coupled with other discoveries expected to begin production in the future, Norwegian oil and gas supply is forecasted to increase to over 4.5 million boe/d by 2025 reaching all-time high levels of production observed in the beginning of the last decade. However, keeping output stable in the longer-term might prove challenging given lack of significant discoveries that are planned for development post-2025.
Figure 2 shows the discovered volumes in Norway from 2005 to mid-2018. The Johan Sverdrup field accounts for over 30% of the country’s discovered resources over the last ten years. The field was discovered in the Avaldnes prospect in September 2010 by Lundin Petroleum. Additional appraisal drilling in the Aldous Major South prospect led to a further discovery by Equinor (then Statoil) in mid-2011, increasing the resource estimate for the field. In 2012, Equinor made another large discovery in the nearby Geitungen prospect, further extending the Johan Sverdrup field. Other significant discoveries include the 2007 Edvard Grieg discovery, as well as Johan Castberg (formerly Skrugard), a large discovery in the Barents Sea made by Equinor in 2011. Johan Castberg was approved for development by the Norwegian government in June of this year. Post 2011, the discovered volumes in Norway have declined significantly, averaging around 400 million boe per year, with almost all of the discovered resources yet to be sanctioned. The largest discovery so far this year was the OMV-operated gas/condensate Hades/Iris in the Norwegian Sea, discovered in April, with estimated recoverable resources of 140 million boe.
Figure 3 shows the spending in Norway from 2010 to 2025. Total spending levels have increased significantly from $36 billion in 2010, peaking at $51 billion in 2013, followed by years of reduced activity and investments. Capital and exploration expenditures decreased by 31% and 24% respectively during 2015-2016, bottoming in 2016 at $17.5 billion. A gradual recovery in investments is expected going forward. However, the level of expenditures achieved back in 2013/2014 is not expected to be reached even by 2025. The majority of investments over the next three years will be made in developing key discoveries such as the second phase of Johan Sverdrup and Johan Castberg. After 2020, significant investments are expected to be allocated to the Alta field, as well as the Wisting project and Shell’s Ormen Lange subsea compression project.
Conclusion
Norwegian oil and gas production has been trending at 3.8-4 million boe/d since 2010. Supported by volume contributions from new projects forecasted to come on stream in the medium-term, and Johan Sverdrup in particular, oil and gas supply in Norway can grow to all-time high levels of 4.5 million boe/d witnessed in the beginning of the previous decade. However, for the industry to support stable production after 2025, successful exploration results are needed as current discoveries waiting in the pipeline to be developed are not sufficient to offset decline on maturing fields, which is expected to force total production down post-2025.
