Norway lays plans to arrest production decline

Opening areas of the Norwegian Continental Shelf (NCS) currently closed to oil and gas activities could increase investment by NOK 200-250 billion (US $28.1- 35.2 billion) in 2022-40. So says a recently released report prepared by KonKraft, a collaboration forum for the Norwegian Oil Industry Association (OLF), the Federation of Norwegian Industries, the Norwegian Shipowners Association, and the Norwegian Confederation of Trade Unions (LO). The KonKraft reports were.

The report, commissioned by Odd Roger Enoksen, former energy minister, was submitted to Energy Minister Terje Riis-Johansen at the Top Management Forum on Dec. 2, 2008.

“This study focuses on measures which can combat a future decline in oil and gas output,” said Per Terje Vold, chief executive of the Norwegian Oil Industry Association (OLF). “It also shows that Norway stands to lose substantial revenues, expertise, and investment if today’s politicians fail to make wise choices over the next couple of years.”

The report opens with an assessment of the NCS today. After almost 40 years of virtually uninterrupted growth, overall production of oil and gas on the NCS has reached plateau at a daily rate of four to 4.5 MMboe. It is expected to remain at this level for the next seven years. Around 2015, however, overall production is expected to begin to decline.

Many of Norway’s large oil fields have yielded more than 60% of their reserves. Gullfaks and Statfjord, for example, have produced 90%. These fields are approaching the end of their lives and have limited potential to increase production.

According to the Norwegian Petroleum Directorate’s (NPD) forecasts, only about half of the country’s total oil and gas resources will have been produced by 2015. That leaves 25-26 Bboe remaining on the NCS at that time. Today, 45% of these remaining resources have yet to be discovered.

Oil output already has fallen, the report says, but the overall level has so far been kept high by rising gas production. Unfortunately, gas production will not be able to offset the declining flow of oil after 2015 unless new measures are adopted.

Initial measures put forward in the report are more or less a continuation of the approach Norway is taking today – increasing oil recovery from resources in areas already open to the industry, maintaining a high level of exploration, and investing in new technology and modes of operation.

In addition to these measures, the report states that finding and developing large reservoirs is imperative. According to Vold, that means opening new areas for exploration. “Opportunities for new finds are greatest in areas currently closed to petroleum activities,” he said.

The report cautions that if access to new areas is postponed until 2020, there will likely be a substantial reduction in activity, which means there will be a consequent low level of investment in the 2020s. That in turn could result in a scaling back of important activities, leading in the longer run to the loss of knowledge and expertise in key industry areas.

According to Vold, “A strong petroleum industry represents the best basis for developing a diversified energy cluster in Norway, which also pays growing attention to renewable sources.” In fact the petroleum sector contributes one-third of the Norwegian government’s revenues and accounts directly and indirectly for roughly 250 000 jobs in Norway.

If the report’s recommendations are adopted and lead to good decisions, the oil and gas industry is likely to continue to play an important role for the country beyond 2040.

A summary of the KonKraft report is available at http://www.olf.no/news/extending-petroleum-access-could-mean-big-spending-boost-article18905-291.html.