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    Norway Oil & Gas Key View


    September 20, 2022 - Fitch Solutions Sector Intelligence

     

      • Oil & Gas
      • Norway
      • Key View
      • Fitch Solutions

      Norway Oil & Gas Key View

      • 20 Sep 2022
      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Key View: Norway's oil and gas output will rise over 2022, driven by the start-up of new projects and high oil and gas prices spurring production. However, declines are expected over the long term, as new fields coming online will be unable to offset natural decline at existing fields and decreased upstream investment for more than a few years. Investor interest in exploration is expected to continue over 2022 and 2023 and strong participation in the country's APA 2021 licencing round from both international and domestic players will ensure an uptick in exploration activity over the coming quarters. Norway is uniquely positioned to benefit from Europe's push to diversify away from Russian oil and gas, which could stimulate new exploration and development investment in the Norwegian offshore over the coming years. Its push to lower carbon emissions may see it remain a world leader in oil and gas technology.

      Headline Forecasts (Norway 2020-2026)
      Indicator 2020 2021e 2022f 2023f 2024f 2025f 2026f
      Crude, NGPL & other liquids prod, 000b/d 2,002.8 2,044.1 2,142.6 2,244.1 2,297.3 2,320.2 2,341.2
      Dry natural gas production, bcm 112.3 115.2 120.4 121.6 122.8 122.7 123.9
      Dry natural gas consumption, bcm 4.0 4.3 4.5 4.6 4.5 4.4 4.4
      Refined products production, 000b/d 333.8 325.3 237.5 235.1 232.8 228.1 225.8
      Refined products consumption & ethanol, 000b/d 235.5 259.4 247.9 244.3 240.9 237.7 234.7
      Brent, USD/bbl 43.21 70.95 105.00 100.00 88.00 88.00 85.00
      e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

      Latest Updates And Key Forecasts

      • Stronger oil and gas prices and the lessening Covid-19 impact will ensure investment in exploration continues over 2022, supporting positive capex growth over the near term. We anticipate 2022 and 2023 exploration efforts to climb higher than 2021 as investment returns, though at lower levels than previous years prior to Covid-19 with 57 wells registered in 2019. Strong interest in the country's APA 2021 licencing round from both international and domestic players will ensure an uptick in exploration activity over the coming quarters.
      • Exploration activity into H122 is accelerating, with 17 exploration wells completed in H122. 14 of these were wildcat wells. Discoveries were made in 6 of the 17 exploration wells, two of which are located in the Barents Sea close to the Johan Castberg discovery, further boosting reserves available for the project.
      • For 2023, we expect growth in crude oil and condensates to rise further by 4.1% y-o-y as new fields contribute to higher output. This is notably thanks to the start-up of the Johan Sverdrup Phase II, expected in Q4 2022, which will add additional production capacity of around 220,000b/d, and raise overall peak plateau capacity at the field to 755,000b/d. This is therefore a key project helping to maintain Norwegian output over the coming years. As of an August 2022 update, the project remains online for a Q422 start-up. Phase III would aim to further increase reservoir recovery, rather than accessing new reserves. This would therefore see increased oil recovery efforts and drilling more wells. Total recoverable reserves from Sverdrup are estimated at 2.7bn bbl, although Equinor gave a range of 2.2bn-3.2bn boe.
      • According to comments made in august 2022 by Equinor's executive vice president for the Norwegian upstream, the company is considering a third phase of development for the Johan Sverdrup field.
      • In May 2022, a consortium of ConocoPhillips (35.1%), TotalEnergies Norge (39.9%), Vår Energi (12.4%), Equinor Energy (7.6%) and Petoro (5%) submitted a plan for development and operation (PDO) to the Norwegian Ministry of Petroleum and Energy for the NOK10.5bn (USD1.2bn) Eldfisk North project. The plan includes the installation of a three-by-six slot subsea production system with 14 wells - nine will be producers, while the other five will be water injectors. The resource potential of the new offshore Norwegian project is expected to range between 50-90mn barrels of oil equivalent.
      • We forecast Norway's net crude oil exports to peak at 2.12mn b/d in 2026, on the back of increased production at Johan Sverdrup and the closure of the Slagen Refinery reducing refinery crude uptake. Norway is well placed to benefit from increased demand for its exports as countries seek to diversify away from Russian oil amid rising Russia-West tensions. Norway has already significantly benefitted by soaring oil prices over recent months, which will help spur investment into the country's upstream sector over the near term. However, the country's refined fuels net exports is expected to fall to near zero in 2022, following the closure of the Slagen Refinery.
      • Norwegian gas output will increase further in 2022 by 4.5% to 120bcm, driven by output from new fields coming online and increased output at existing fields. Production will be incentivised by soaring gas prices and higher European demand for non-Russian gas, although operations at key fields continue to experience technical and maintenance problems which presents downside risk to our forecast. Without increased investment in exploration and development, Norwegian gas production will remain broadly flat over the long term, totaling approximately 116bcm in 2031. However, the current high gas prices and the higher European demand for Norwegian gas could stimulate further gas project developments over the coming years, providing upside risks to our forecasts.
      • Norway's actual production will remain heavily correlated with demand from Europe, which has surged over 2021 and into Q122. The Russian invasion of Ukraine and the high diplomatic and political tensions between Europe and Russia are seeing European decrease intakes of Russian gas as they aim for a diversification of gas supplies. In addition, Russia has increasingly reduced or cut gas supplies to several European countries as a result of these increased tensions. This ensures that European demand for gas other than Russian gas will remain high, which could stimulate further Norwegian gas production.
      • In May 2022, Equinor, Vår Energi, Spirit Energy and Petoro have submitted a PDO of the Halten East gas and condensate project in the Norwegian Sea. Under the PDO, the consortium has agreed to invest around NOK9bn (USD945mn) to develop an area near the Åsgard field, which comprises six gas and condensate discoveries. The project is planned to be delivered in two phases. The first phase will include the drilling of six wells between 2024 and 2025, while Phase two will begin in 2029. Production from first two wells is slated for 2025
      • In February 2022, Equinor has secured approval from Norway's Ministry of Petroleum and Energy to develop the NOK6.5bn (USD742.0mn) Phase I of the Kristin South project in the Norwegian Sea. Phase I includes the installation of a subsea template at the Lavrans discovery. A total of five wells are planned to be drilled as part of the field developments. Four of them will be at the Lavrans discovery, while the other well will be at Kristin Q. First production is scheduled to be achieved in 2024. The remaining two wells at Lavrans are planned to be operational in 2025.
      • We expect Norway's gas exports to rise by 4.5% in 2022, supported by soaring gas prices and strong European demand. Norway will remain a vital gas supplier to the EU in the coming years as the diversification of supply away from Russian gas remains a key goal. Increased competition from LNG imports will help to counteract high gas prices, but strong demand for the key European market will ensure a long-term future for all production output. We expect gas production and thus trade to decline through the final years of our 10-year forecast on slowing availability of supply for gas exports.
      • The Baltic Pipe, which will connect gas supplies from Norway to Poland, via Denmark, is expected to be completed by Q422. The Baltic Pipe will have a capacity of 10bcm, enabling the transportation of Norwegian gas to meet a large bulk of Poland's domestic gas demand. Construction of the project was halted in May 2021; however, work has since resumed as of March 2022. The pipeline will help partly reduce central Europe's dependence on Russian gas supplies.
      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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