Page 10 - FSUOGM Week 01 2021

FSUOGM COMMENTARY FSUOGM

While demand recovered towards the end with some NOK100bn ($10.6bn) in tax relief in
of the year, the wider industry anticipates that June, in a bid to help companies stay afloat and
national demand levels will contract in 2020 continue investing. The country’s willingness to
for the first time in two decades. This should provide so much support is hardly surprising,
position the country to see a strong recovery in given the major role that oil and gas plays in the
oil consumption this year, but much is likely to Norwegian economy. The incentives package led
depend on the government’s ability to distribute to a flurry of new investment announcements.
recently approved vaccines effectively. Many of these projects had been shelved at the
New Delhi has already come under fire for onset of the crisis.
its poor handling of the national lockdown, as Exploration in Norway has also fared better
well as its use of specially run trains to shuttle than in the UK, in large part thanks to the coun-
stranded migrant workers back to their villages. try’s supportive fiscal regime. Norway allows
The latter strategy effectively rendered the first companies to deduct almost 80% of their explo-
null and void. ration costs from taxable income.
At the same time, Norway also imposed its
Europe: North Sea remains profitable own cuts to production this year, in a show of
The mature North Sea region has a reputation for solidarity with OPEC+.
comparatively high production costs. But oper-
ators worked hard after the 2014 oil price crash FSU: Tighter margins
to cut expenses, which made the sector more As members of the OPEC+ alliance, Russia,
resilient in the face of the 2020 market collapse. Kazakhstan and Azerbaijan committed to dras-
As such, most North Sea production remained tic cuts to their oil production this year.
profitable even at the height of the market cri- Russia alone took over 2mn barrels per day
sis in April. This said, the downturn has led to of oil supply offline beginning in May. It restored
a significant drop in investment, particularly in 500,000 bpd in August and expects to bring a
the UK. further 125,000 bpd back on stream this month.
Prior to the coronavirus pandemic, UK Further increases will be negotiated with its
operators were expected to take final investment OPEC+ partners on a monthly basis.
decisions (FIDs) on 14 upstream projects this Producers have implemented these cuts
year. All but one – namely, Apache’s approval by closing down older, less profitable wells at
of the Gair oilfield before the market crisis took mature fields in Western Siberia and the Vol-
hold – were delayed. ga-Urals region. They have also delayed growth
The number of wells sunk in UK waters more at greenfield projects in the Arctic and Eastern
than halved this year, with exploration drilling Siberia. The risk is that some mature projects
seeing the biggest decline. The lull in activity will may never return to operation, undermining
weigh down on production numbers in the years long-term prospects for Russian oil supply.
ahead. Russian oil producers boast some of the low-
The UK government provided support to the est production costs in the world. But the out-
industry in the form of its job furlough scheme put cuts, combined with weak oil prices, have
this year but has not offered any tax relief. It has squeezed their margins considerably.
also delayed publishing its “transformational” During the 2014 oil price crash, the ruble’s
sector deal, promised by the UK Conservative resulting collapse wreaked havoc on Russia’s
Party in its 2019 election manifesto, which aims finances at large. But it also helped prop up Rus-
to support the industry through the energy sian oil firms’ earnings by inflating the value
transition. of their exports. This time around, they have
Norway, in contrast, provided the industry enjoyed no such relief, as Russia’s government

The North Sea proved
more resilient to low oil
prices than it did in the
last downturn thanks to
cost-cutting measures
undertaken since 2014.

P10 www. NEWSBASE .com Week 01 06•January•2021