Page 6 - Euroil Week 49 2019

EurOil COMMENTARY EurOil
Norwegian challenges persist despite Sverdrup
Norway is benefitting from Sverdrup’s launch in October, but its oil and gas industry still faces challenges
NORWAY
WHAT:
Production levels in Norway have recovered thanks to Johan Sverdrup’s launch in October.
WHY:
Output this year has been affected by unplanned outages, partly because of maintenance work postponed during the market downturn.
WHAT NEXT:
Norway has few large projects in the pipeline, and none anywhere near the size of Sverdrup.
THE launch of the Johan Sverdrup oilfield in October was a saving grace for Norway’s oil and gas industry, which has been plagued by unplanned outages this year that have caused production to slump.
The giant North Sea field came on stream two months ahead of schedule and under budget, giving an immediate boost to Norway’s output. National production had been lagging behind forecasts for 28 straight months to the end of September, largely because of unscheduled maintenance. This was despite the Norwegian Petroleum Directorate (NPD) slashing its pre- diction for 2019 oil output to a 30-year low of 86.2mn cubic metres, or 1.48mn barrels per day (bpd). The biggest disruption was at Equinor’s Snorre field, where a platform was shut down in early March until mid-August after a riser broke off and fell into the sea.
Sverdrup is already producing almost 400,000 bpd, with the rate expected to reach 440,000 bpd by the summer of 2020. Its early launch resulted in national production beating the NPD’s fore- cast by 4.5% in October.
Sverdrup’s output is slated to rise further to 660,000 bpd in 2023, pushing national oil and gas production to a peak that year not far below the record achieved in 2004. It will be accounting for around a third of Norway’s total yield by that point.
But Sverdrup has not solved all of Norway’s problems. Gas production climbed by 50.3% month on month to 9.3bn cubic metres in October, recovering from a 15-year low seen in September. But it was still 13.6% below forecast, according to the NPD.
Besides the impact of outages, Equinor is restraining supply because of a glut on the Euro- pean gas market, which has been flooded this year with cheap LNG. Its Russian counterpart Gazprom is under similar strain, suffering a 45% drop in profits in the third quarter because of lower export volumes and weaker gas prices in Europe.
Lower Asian gas prices have driven more LNG supplies to Europe. The US and other LNG suppliers have a raft of new projects in the pipe- line, which could mean the oversupply is here to stay.
Norway’s operational difficulties this year are partly the result of Equinor and other produc- ers delaying maintenance work during the oil
market crisis to cut costs. According to the Petro- leum Safety Authority (PSA), oil companies reduced the number of man hours dedicated to operations and maintenance on production facilities by 30% in 2015 and then by an addi- tional 12% by 2017. The level subsequently recovered last year.
Operators are unable to push back necessary maintenance runs any further. And some of the costly unscheduled outages have occurred because work that should have been done years earlier is still pending.
The next question is where Norway will source new supply after Sverdrup’s plateau is reached in 2023. There are few other major projects on the way, and none anywhere near as large as Sverdrup. Around the same amount of discoveries are being made today as were two decades ago, but their average size has shrunk considerably, driving up per-barrel develop- ment costs.
“In the long term, it appears that the down- turn that began in 2013, when output and prices fell, may have marked the turning point for Nor- way’s oil industry,” Statistics Norway (SSB) said in a recent report. “Resources on the continental shelf are becoming more and more marginal, it appears. New fields contain much less oil and gas than in the past.”
These weakened prospects help explain why a number of international oil companies (IOCs) have withdrawn recently from Norway to focus more on higher-margin plays elsewhere. The most recent deal saw ExxonMobil agree to sell its upstream assets in the country to local producer Var Energi in September for $4.5bn. ™
P6
w w w . N E W S B A S E . c o m Week 49 12•December•2019