Norway’s government agency responsible for the regulation of petroleum resources believes that the country’s gas can enable Europe to achieve its energy transition goals. To make this happen, investments in unlocking new oil and gas resources and improving the recovery from existing ones are important to limit the production decline and maintain the country’s role as Europe’s long-term supplier.
While the energy transition momentum seems to have taken a backseat to energy security concerns due to the ongoing global energy crisis, focusing on meeting climate change goals is still very high on Europe’s agenda as shown by its REPowerEU plan. Norway believes that its gas supplier can assist the European Union (EU) in speeding up its energy transition agenda, which is outlined within this roadmap.
While providing a status overview and analyses of the long-term opportunities and challenges for petroleum operations on the Norwegian continental shelf (NCS), the Norwegian Petroleum Directorate (NPD) outlined within its Resource report 2022 that Norway is “a competitive and long-term supplier” of oil and gas to Europe. The energy cooperation between the EU and Norway was further strengthened in late June 2022 in light of the war in Ukraine and the EU’s determination to end its reliance on Russian fossil fuels, intending to ban almost 90 per cent of Russian oil imports by the end of the year.
Europe’s current energy position suggests that the need to increase gas export capacity has grown over the past year, thus, the NPD believes that Norwegian gas “could occupy a key place in the EU’s energy transition.” Aside from providing energy with “a relatively low climate footprint,” gas can be used to balance variable renewable sources such as solar and wind power. In case further resources are proven, gas can also be used to produce blue hydrogen, which “might become an important energy bearer in Europe’s energy transition.”
In addition, the NPD highlighted that hydrogen could strengthen the “competitiveness” of Norwegian gas and help to create a market for carbon capture and storage (CCS). Currently, the Norwegian government is studying whether the gas infrastructure, with some adaptations, can transport both hydrogen and CO2. Europe’s energy transition also has the potential to contribute to increased demand for seabed minerals required to manufacture electric vehicles, wind turbines, batteries, electrical components, etc.
The NPD underlines that the energy transition creates “great uncertainty” about the world’s energy systems and markets up to 2050, thus, developments will depend on the resource position, which could lead to substantial changes to future production and revenues for society.
Unlocking undiscovered resources to limit fall in production
The NPD’s report indicates that roughly half the estimated petroleum resources have been produced from 1971 to the present with oil and gas production contributing about NOK 18 trillion (about $1.9 trillion) to Norway’s gross domestic product, measured in today’s value. Furthermore, the NPD estimates that oil and gas remaining on the NCS equal the amounts produced over 50 years. However, limiting the expected fall in production is important if the NCS is to continue contributing “big value” to society and providing “stable long-term and secure” oil and gas deliveries to Europe.
Kjersti Dahle Grov, acting director for technology, analysis and coexistence (TAS) at the NPD, remarked: “A competitive continental shelf is a precondition for maintaining value creation. Remaining resources, low unit costs, low CO2 intensity and a flexible gas infrastructure make Norway a competitive and long-term supplier of both oil and gas to Europe.”
The Norwegian agency explained that fields on stream contain large remaining resources, with substantial potential for improved recovery which can help to counter the decline, thus, more investment is needed in improved recovery while existing discoveries need to be matured for development. The report underlines that a steadily rising proportion of production after 2030 must come from undiscovered resources with small discoveries accounting for much of this.
The NPD elaborated that when production from a field declines, spare capacity arises in the infrastructure, which increases the incentive to explore for and produce small discoveries, making it possible to bring deposits on stream which are not large enough to be profitable as stand-alone developments. Furthermore, the report warns that bigger discoveries than those being made today are needed to slow the decline in production while the potential for making large discoveries is greater in areas which are little explored or not yet opened for exploration.
“It is important for resource management that the companies not only reap from earlier investment but also explore for and invest in frontier areas on the NCS,” added Dahle Grov.
On 31 December 2021, 36 companies were active on the NCS, where gas accounts for more than half the estimated remaining resources in areas open for exploration. While most of the proven gas lies in the North Sea and the Norwegian Sea, about two-thirds of undiscovered gas resources are expected to be in the Barents Sea, according to the NPD’s report.
Export capacity required to tap into Barents Sea resources
The Norwegian Petroleum Directorate claims that a well-developed infrastructure in the North and Norwegian Seas lowers the financial threshold for seeking and developing gas discoveries and establishing the Polarled pipeline has helped to increase interest in gas exploration in the Norwegian Sea.
On the other hand, such exploration interest is restricted in the Barents Sea by the lack of sales opportunities since the gas liquefaction plant at Melkøya outside Hammerfest, currently provides the only opportunity to deliver gas from this part of the NCS and gas from Snøhvit will fill all the capacity at that facility for a long time to come, underscored the Norwegian agency.
With this in mind, the NPD explains that without greater export capacity, both proven and undiscovered gas resources in the Barents Sea, where roughly half the undiscovered gas resources are expected to lie in unopened areas, are of less interest. In addition, developing oil fields with associated gas also becomes more demanding as the geology in the opened areas of the Barents Sea means that discoveries are unlikely to be large enough to support new export capacity on a stand-alone basis.
“To maintain the competitiveness of the NCS, it is important that the industry has predictable access to prospective acreage. Increased technology development and measures which can keep down unit costs and further reduce the climate footprint will also be significant,” concludes Dahle Grov.
Despite the NCS being one of the mature areas in regard to petroleum activity, Westwood forecasted in June 2022 that exploration activity will continue to thrive in Norway.
At the time, the energy intelligence provider said that more companies are likely to focus on lower-risk ILX drilling to sustain production levels in existing hubs, providing short-cycle opportunities.