Summary
VAST OIL AND GAS RESOURCES on the ncs
The Norwegian Continental Shelf (NCS) still holds vast oil and gas resources, more than sufficient to ensure production, export and value creation to benefit the country for a long time to come.
However, realisation of these resources requires an ambitious path that will need careful consideration and hard work. Forecasts point to an expected decline in overall production on the NCS after 2025. Smart exploration and robust investments will be needed to curb this decline. If investments falter, the stage will be set for a rapid dismantling of our petroleum sector.
Extraction of seabed minerals, CO2 storage and offshore wind could become profitable new industries; assuming they prove themselves cost-effective, and that they can stand up to competition with alternatives. These new industries are also well-suited to reinforce and benefit from already established value chains and the many lessons already learnt.
Oil and gas going forward to 2050
The Norwegian Offshore Directorate seeks to provide data and analyses to support decision making for developing the NCS. The preparation and development of alternative scenarios for total oil and gas production up to 2050 is a key part of these efforts. All three scenarios presented here do indeed indicate production decline, but with very different trajectories.
What this production decline entails will ultimately come down to a number of factors including how much exploration is undertaken and how quickly, as well as the pace of technological progress and development. It’s worth noting that this generally accepted production decline is in line with the objectives of the Paris Agreement.
In the basic scenario multiple discoveries are made and brought on stream, accompanied by investments aimed at increasing recovery from existing fields. Despite this, resource growth will not be sufficient to offset the overall gradual decline, due to diminishing production from the major, mature fields.
In contrast, the high scenario will mean vigorous exploration, many discoveries, rapid technological development and eager investors willing to take a chance on the NCS, bolster production and thus help mitigate shrinking government revenues up to 2050.
Finally, a look at the low scenario reveals sluggish exploration activity and investment, thus leading to rapid dismantling of the petroleum sector and the inevitable significant drop in revenue for the government.
Substantial resources still in the ground
The NCS still contains large undiscovered oil and gas resources. To secure our objective to maximise the value of the resources on the shelf, the resources first need to be found. Finding these resources will mean more exploration, both in more frontier areas and close to the extensive infrastructure already in place.
There are interesting opportunities when it comes to undiscovered resources, both in familiar and less-explored areas. More extensive and detailed information, better data coverage, new work methods and pioneering technology open the door for fresh approaches in exploration, which could result in more profitable discoveries in the time ahead.
The ability to consistently incorporate new learning and the will to seek new knowledge and develop new technology are also important contributors that can enable us to unlock the values in challenging reservoirs, and also in smaller discoveries. And development of advanced methods to improve recovery from existing fields represent a very significant upside potential.
Profitable exploration
There is no question that exploration is a profitable activity. The Norwegian Offshore Directorate conducted an analysis of exploration activity over the past 20 years which confirmed that exploration for oil and gas on the NCS helps deliver incredible value for the broader community.
In concrete terms, we’re talking about more than 2000 billion Norwegian kroner (net present value). In fact, discoveries have generated value amounting to more than three times the costs devoted to exploration during this period.
Discoveries that have resulted in actual production have already offset total costs for all exploration investments in this period. The current track record shows a respectable 50 of 190 discoveries achieving development and production. That leaves around three-quarters of the discovered resources still waiting. The investments already made will continue to generate revenue as more discoveries come on stream.
Another takeaway from the analysis is that, while larger discoveries contribute most to value creation, a combination of many small discoveries can also deliver very substantial value across the board.
Robust activity
A large number of PDOs (plans for development and operation) were submitted to the Ministry of Energy in 2022, all of which secured approval during the course of 2023. The spike in PDO submissions can mainly be attributed to the temporary changes in petroleum taxation introduced in 2020.
These changes have helped facilitate more developments, paving the way for a swifter path from planning to production. The Directorate’s analysis confirms that this has had a substantial positive impact on value creation.
Increased gas export capacity from the Barents Sea
The Norwegian Offshore Directorate’s projections indicate that nearly two-thirds of all undiscovered resources are in the Barents Sea. The challenge here is that, without a firmer commitment to increase gas export capacity, these gas resources and values could remain locked in the subsurface for quite some time.
Designing and building more extensive infrastructure in and around this area is a prerequisite for developing oil and gas resources already proven. An increase in gas export capacity would also mean incentives for further gas exploration. There are a number of existing opportunities in the Barents Sea worthy of more detailed study.
Foundation for long-term production
What are Norway’s advantages? Vast remaining resources, well-developed infrastructure, low operating costs and stable, practical overall framework conditions. This tried and tested model suggests that Norway has what it takes to continue in its role as a competitive producer and exporter of oil and gas for the foreseeable future.
But there’s more. Huge volumes of CO2 resulting from power generation and industrial activity in Norway and Europe can be stored in the subsurface on the NCS. This presents a range of opportunities which are generating substantial interest and activity.
The Norwegian Offshore Directorate has also mapped significant mineral resources on the seabed which could contribute to the global supply of critical minerals. The first licensing round is expected to open in 2024. Time will tell whether this could prove to be an important new industry that can create value for Norway as a whole.