NORWAY – Macro View on Challenges & Opportunities in backdrop of Western Europe’s Oil Giant

Norway possesses the largest petroleum reserves in Western Europe and is a leading Oil&Gas
producer in the European region. The petroleum sector in Norway had been a crucial
contributor in the country’s economy, with approximately 20% share in the GDP and accounts for
45% of export revenues in 2014. Norway’s entire Oil&Gas reserves are located in its offshore
region, which comprises mainly of Norwegian Continental Shelf (NCS). The NCS is divided into
three divisions; the North Sea, Norwegian Sea, and the Barents Sea, of which the North Sea area
yields bulk oil production. The major crude oil producing fields in 2014 were Troll and Ekofisk,
both located in North Sea area of NCS. Due to the dynamic upstream sector of Norway, a great
potential for petroleum exploration is there in the Barents Sea, which holds the majority of
undiscovered petroleum resources; which can definitely match the active North Sea area in
resource development. An important upstream player in Norway is a government-controlled
company; Statoil, which delivers approximately 70% of country’s Oil&Gas production, and is the
front-runner in attracting investments to Norway’s petroleum sector.

According to latest industry facts, Norway has approximately 8000 million barrels of crude oil as
proved reserves and clocked oil production of 1948 thousand barrels per day in 2015. In terms
of natural gas, it has 1.9 trillion cubic meters of proved gas reserves and 117.2 billion cubic
meters of natural gas production in 2015. Due to mature oil fields, the oil production had
reduced currently as compared to past years, and it also reflects the oil market down-slide in
last two years. Although overall investments in the upstream sector had declined in recent years
due to weak global oil markets, a meager 10% dip is noted in total investments inflow as of
August 2015 vis-a-vis previous year. The majority of investments had been diverted towards
operations shut down and plant facilities removal at old mature fields. Despite the decrease in
global oil consumption and weak industry sentiments along with pressure to cut carbon
emissions, the government has solid plans to move ahead with firm initiatives. In August 2015,
Norway progressed with the development plan of its Johan Sverdrup gas field in the North Sea to
instill fresh confidence in the global petroleum business investors’ community and
simultaneously boosting the sentiments of Norwegian Oil&Gas sector in wake of low oil prices
scenario. Johan Sverdrup Oil&Gas field is projected to start production by the end of 2019, with
expected oil production in the range of 315,000 to 380,000 barrels per day in its first project phase.
Initial investments in this field development project had been finalized in the range of NK
(Norwegian Krone) 117 billion to NK 120 billion. The Norwegian Petroleum Directorate (NPD)
although views this plan as an affiliated long-term strategy and as per official announcements in
January 2016, the petroleum investments in Norway (excluding exploration business) will fall to
NK 135 billion in 2016. However, in August 2016, Bente Nyland, head of NPD stated that oil
companies were showing more willingness to complete development plans; as shown by Statoil
which submitted field development plans to the NPD for its Utgard & Byrding oil and gas
discoveries. High input costs level coupled with low oil prices has posed significant challenges
for oil companies; forcing delayed operational activities and postponed development projects.
But it also brings a positive impact as innovative efforts are seen in existing projects for
achieving operational efficiency and reduction in exploration costs. The forecasted investment
cycle in 2017 also looks bleak with investment value amounting to NOK 150.5 billion as
companies are presumed to be on cost-saving mode; mothballing projects to decommission
aging installations at offshore oil and gas fields. Altogether, the current uncertainties
prevailing in Norway’s petroleum sector are due to contingent factors like reservoirs capability
to deliver, initiating new fields, drilling new development wells and continuity of operational
fields.

The natural gas sector showed more resistance towards depressed global energy markets. The
gas production increased in Norway and gas sales touched 117.2 billion cubic meters in 2015
due to spur in European gas demand. The mode of gas exports to European gas market is
mainly through Norway’s widespread pipeline infrastructure. In the recent wake of Brexit,
Norwegian gas exports to Britain will not get affected; as entrusted by Tord Lien, Norway’s EU
affairs minister. While Norway is not an EU member, but it pays for access to the European gas
market and may just have to negotiate a new trade agreement with London after Brexit. Some
minor gas export to other global customers was also done through LNG option. In terms of
natural gas resources realization, there are two new gas fields scheduled to start production by
the end of 2016 or 2017; namely Martin Linge field in the North Sea holding an estimated 0.7
trillion cubic feet of recoverable gas and the Aasta Hansteen field in the Norwegian Sea holding
approximately 1.6 trillion cubic feet of recoverable natural gas.

From an opportunity perspective, the commencement of Sverdrup gas field project in a declining
oil market conditions has been a boon from project management aspects. It is being developed
with lower input costs and the majority of investments is done in Norwegian currency, which is
putting the project already in profit due to a drop in the value of Norwegian Krone against the US
dollar. Adding to this profit story, the Norwegian suppliers and service providers have proven
cost competitive and Statoil has awarded several contracts to domestic suppliers and EPC
contractors. Overall, the Sverdrup gas field project will prove to be a great lifeline opportunity
for Norway’s petroleum sector.
Norway is also an important LNG (Liquefied Natural Gas) industry player in Europe. In 2014,
Norway delivers 60% of European LNG requirements through its LNG exports. Total LNG
exports from Norway in global gas trade were 5.3 billion cubic meters in 2014. Moreover,
Norway is the forefront runner in fast-growing European small scale liquefaction industry. It has
three small-scale liquefaction plants through which LNG is distributed by tanker trucks to port
facilities & industrial consumers. The pivotal challenge of small-scale LNG industry is the
absence of proper infrastructure. In short to medium term scenario, the question is as to which
group will commit efforts first to improve the infrastructure. Customers want economic supply
options and suppliers are disinclined to invest in costly infrastructure. Therefore, the need of
the hour is to create investment opportunities in all elements of small-scale LNG value chain.

Summarizing Norway’s role in the global petroleum industry, the Norwegian government
anticipates that the industry will take steps to secure the assets and execute efforts for
minimizing costs; thereby promoting efficiency in all business operations. However, the
government is taking concrete steps to revive the sector by maintaining a steady petroleum
policy. On 29th August 2016, Norwegian Prime Minister Erna Solberg launched the country’s
24th oil licensing round for new exploration areas, majorly off Northern Norway; the focal point
being prospective exploration acreages as a way to maintain high-value potential of Norwegian
petroleum sector.

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