Norway to Revamp LT Developments, Opens South-Eastern Barents Sea to Exploration
Norway reiterated its interest in maintaining high production levels, announcing the results of the Awards in Predefined Areas (APA) 2014 and a revision of the ice edge calculation that could allow companies to explore further inside the Arctic Circle. Meanwhile, Oslo also launched its 23rd licensing round.
Despite the effort, these attempts will soon face a reality check. Recent news has made clear that new gas could soon come to Europe via Iran, Iraq and Turkmenistan, creating even more risks for the profitability of new offshore projects. The financial dimension could then add to the political opposition and the public resistance to projects in the Arctic.
APA 2014
“Today’s award of new exploration acreage provides new tangible exploration opportunities for the companies. Most of the exploration activity on the Shelf is carried out in mature areas” reads a note published by the Norwegian government.
The country awarded 54 production licences mainly in the North Sea (34) and in the Norwegian Sea (16). It awarded ownership interest to 43 of the 47 companies that applied. Almost half of the companies will be offered operatorship.
“The Government will maintain a predictable and high level as regards award of new acreage for petroleum activity” Minister of Petroleum and Energy Tord Lien commented on Tuesday.
The majority of the fields will be controlled by Norwegian companies, with Statoil (8) and Lundin (6) leading the way. Total is the only foreign company that obtained more than 3 operatorships.
"These are very positive news for Statoil and the whole industry. Access to new quality acreage is essential to ensure continued exploration activity and value creation on the NCS,” Irene Rummelhoff, senior vice president for NCS exploration in Statoil, said in a separate note.
Despite these comments, last weeks have hinted at a decreasing interest for the NCS.
According to data released by Gassco last week, dry gas deliveries from Norway to Germany, Belgium, France and the United Kingdom fell by 1.5% to 101 billion standard cubic metres. Coherently, Asker-based TGS and Wood Mackenzie recently depicted a grim outlook for 2015, expecting a year-on-year slow down in investments.
Oslo could obviously reverse the tide in the following years, but this would come at a cost. Despite the opposition, politicians would be called to step up efforts to keep Norwegian waters attractive for national and international companies.
23RD LICENSING ROUND OPENS SOUTH-EASTERN BARENTS SEA TO EXPLORATION
In a sense, this happened on Tuesday. The Ministry of Petroleum and Energy announced the 23rd licensing round, offering 57 blocks and opening the south-eastern Barents Sea.
“By initiating petroleum activity in the south-eastern Barents Sea we reach yet another milestone for Norwegian petroleum activities. For the first time since 1994, we will explore an entirely new area on the Norwegian Shelf. This will generate unique possibilities for value creation, growth and employment opportunities, particularly for Northern Norway,” Minister of Petroleum and Energy Tord Lien commented in a separate note.
The Norwegian government decided to stop petroleum activity near the ice edge during the current parliamentary term (2013-2017), but it committed to an update of the current situation of the Arctic. According to the government, a new report on the ice edge will be presented in the spring of 2015.
Prime Minister Erna Solberg said that Oslo has to take into consideration ice movements, working to ensure both high environmental standards and petroleum activities. According to the government, the new licensing round includes time restrictions for exploration drilling in order to ‘safeguard the consideration for important environmental assets.’
The provisional environmental measures will be soon followed by a proposal to change the Norwegian approach to the Lofoten-Barents Sea, which is expected to open the door to new acreages.
Reporting the events, Reuters wrote that the government invited companies to drill in acreage 60 to 70 kilometres north of the previous drilling borders.
‘The proposal, which the minority government may struggle to get through parliament, is symptomatic of a gradual broader northwards move by oil-producing nations with access to Arctic waters as existing wells start to run dry’ wrote the news agency.
In addition to political hurdles, recent events suggested that the Norwegian Arctic plans might remain a dream also for financial and technical reasons.
Last week, Statoil followed GDF Suez and Dong Energy, giving clear signs of a decreased interest for exploration in the Arctic. The Norwegian company did indeed hand back the majority of its oil and gas exploration licenses in the Arctic. It just maintained one in Greenland.
"We have now completed the working programme and have no further obligations, and we don't see any potential in taking on further obligations in these licenses," spokesman Knut Rostad commented in that occasion.
SIGN OF VITALITY: CONTRACTS FOR SVERDRUP
Also on Tuesday, Kvaerner announced the final signing of the final contract for delivery of the steel jacket substructure for the riser platform at the Johan Sverdrup field. The letter of intent was signed in June 2014.
‘Today's milestone also illustrates that this industry is well used to significant shifts in the market cycles, and that we are able to combine demand for immediate changes with long term development of the industry’ Kvaerner wrote on its website.
Norwegian companies are showing a strong cooperation. They are working as a team, and this is clearly good news for them. In this sense, despite the drawbacks represented by low oil prices, the Norwegian industry is taking the right decisions to maintaining its central role in Europe.
This could be the right approach to survive other emerging threats.
Increasing competition might soon come from countries like Iran and Turkmenistan, which are discussing opportunities to export their gas to Europe in cooperation with Azerbaijan. This could decrease the attractiveness of the Norwegian Continental Shelf, but the strong bond connecting Norwegian companies is likely to pay out in the long run.
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci