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Oil production in Norway may be in decline, but the country retains considerable upside gas potential and should continue to be a major force in European energy supply for decades to come. Discoveries of considerable size are clearly still possible, with the Sverdrup (formerly Aldous/Avaldsnes) prospect containing a potential 2.2-2.8bn barrels of recoverable oil. This should stimulate fresh investment on the part of domestic and foreign operators and delay any decline in output.
The main trends and developments we highlight in Norway’s oil and gas sector are:
- Norway expects its oil and gas output to remain broadly unchanged at around 220mn cubic meters (Mcm) in 2012 and over the next ‘few years’, the finance ministry said in its May 2012 budget update. This represents approximately 3.8mn barrels of oil equivalent per day (boe/d) and is broadly consistent with BMI’s forecasts. It said investment in Norway's offshore sector would rise by around 15% to NOK171bn (US$28.8bn) in 2012.
- Statoil’s highly significant Aldous discovery in the Norwegian North Sea was found to be linked to Lundin Petroleum’s Avaldsnes discovery. The field – renamed Johan Sverdrup – was the single largest hydrocarbons discovery in the world in 2011. Statoil will select a development concept by the end of 2013 and plans to submit a development plan by the end of 2014. The field was initially estimated to hold 1.7bn-3.3bn barrels (bbl) of recoverable oil. First production is targeted for 2018.
- Gas output from the Ormen Lange gas field should result in Norway becoming the world’s second biggest exporter of gas, behind Russia. When Ormen Lange reaches peak production, output should hit 20bn cubic metres (bcm). Ormen Lange is a key development for Norway, and is the country’s second largest offshore field after Troll, which is operated by Statoil. The deepwater field is located in water depths of 1,000m in the south Norwegian Sea and will cost US$11bn to develop.
- Norway will remain a vital gas supplier to the EU. The Ormen Lange, Onyx and Barents Sea Snøhvit projects should ensure that there is no significant decline in gas volumes over the medium term. Production increases look set to outpace consumption growth, ensuring a continued rise in exports. Domestic gas consumption will rise from an estimated 6.0bcm in 2011 to 6.8bcm by 2016 suggesting that net exports will rise to 121bcm. By 2021, we see exports potentially exceeding 126bcm.
- By 2016, liquids volumes look set to fall to 1.82mn barrels per day (b/d). Norwegian oil demand, however, remains very modest. We see demand rising slightly over the next few years from around 218,000b/d in 2011 to 238,000b/d in 2016. Net exports are set to decline at a steady rate from 1.79mn/d in 2011 to 1.59mn b/d in 2016 and just 1.36mn b/d by 2021. It should be noted, however, that the Statoil/Lundin Sverdrup prospect should enter production towards the end of the decade and could significantly boost Norwegian liquids output, as would the development of recent discoveries such as Skrugard. Based on an assumed 2012 average OPEC basket oil price of US$111.47/bbl, we are forecasting oil revenues for the year of US$71.1bn, and total hydrocarbons revenues of US$130.2bn. By 2016, assuming an average US$99.00/bbl, total revenues should be US$116.7bn, easing to US$109.3bn by 2021.
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