Norway's cutbacks only a minor obstacle

May 25, 1998
Norway's Delayed and Deferred Field Development (35,188 bytes) Norway recently deferred 12 oil field developments and reduced oil exports as part of a plan to buoy crude prices, but these will not hold back a production boom for long. This is the view of Wood Mackenzie Consultants Ltd., Edinburgh, which said the cutbacks will be only a superficial wound for Norway's oil industry, rather than inflicting any lasting damage.
Norway recently deferred 12 oil field developments and reduced oil exports as part of a plan to buoy crude prices, but these will not hold back a production boom for long.

This is the view of Wood Mackenzie Consultants Ltd., Edinburgh, which said the cutbacks will be only a superficial wound for Norway's oil industry, rather than inflicting any lasting damage.

"Norway has enjoyed six consecutive years of strong economic growth," said Wood Mackenzie, "and there has been a significant rise in oil and gas investment levels over the last 2 years. However, the economy is showing signs of overheating, and the government has now decided to delay a number of oil and gas developments in an attempt to help cool the economy.

"In addition to these forced delays, a number of new fields that should have contributed significantly to Norwegian production in 1998 have suffered development delays or reduced output due to problems during the start-up phase."

Wood Mackenzie said some production will be lost this year because of development delays caused by overambitious time and cost targets, heavy contractor workloads, and unexpected fabrication and reservoir problems.

?sgard, Varg, and Tordis ist all have been hit by development delays, said Wood Mackenzie, while Norne and Njord, which were brought on stream in late 1997, have suffered start-up problems.

Norne production was halted for several weeks after operator Statoil AS discovered that installed skimmers were inadequate for water conditions in the field, while Norsk Hydro AS experienced problems with development drilling in Njord.

"Although several development programs have suffered serious delays," said Wood Mackenzie, "total oil and natural gas liquids production has been maintained on a par with end-1997 output (almost 3.3 million b/d).

"This is a result of better-than-expected production performance from mature fields-particularly Ekofisk where output has recently been increasing. Despite the delays, production is expected to increase strongly towards the end of the year, mainly as a result of increased production from Norne and Njord and several of the delayed developments coming on stream."

Development delays

In March, the Norwegian government said that 12 offshore development projects would be held back by 12 months (OGJ, Mar. 16, 1998, p. 34).

Wood Mackenzie said that, of the 12 projects, only 3 were expected to contribute significantly to the future oil and NGL production profile: Grane, Fram, and Snorre 2 (see table).

Grane and Fram are both at an early stage of development and, therefore, not expected to have their ultimate start-up dates delayed significantly because of the approvals moratorium. Snorre 2, operated by Saga Petroleum AS, is expected to have start-up delayed by the full 12 months (OGJ, May 4, 1998, p. 49), although Saga says the extra time will be used to rationalize the development plan.

Statoil has put Heidrun Nord development on hold, while the remaining deferred projects are mainly small satellite developments. Valhall water injection was still under negotiation at the time of the freeze and would likely have been delayed anyway.

Production cuts

In early April, Norway's government agreed to support the move, led by Mexico, Venezuela, and Saudi Arabia, to cut global oil exports in a bid to revive flagging oil prices (OGJ, Mar. 30, 1998, p. 22). Norway agreed to reduce output by 100,000 b/d beginning May 1, with cuts to be spread across all oil fields except those that traverse national boundaries-namely Statfjord, Murchison, and Lulita.

The analyst points out that the production cuts are expected to last until yearend, although the government has reserved the right to terminate the cuts earlier if the restraint is having no effect on crude oil prices.

Wood Mackenzie earlier predicted that Norway's production would reach a record average of 3.44 million b/d this year, but revised the forecast down to 3.29 million b/d following the project deferrals and production curb.

"Despite all this," said Wood Mackenzie, "our forecast for Norwegian oil/NGL production shows sharply rising output levels towards the end of 1998, and this is expected to continue into 1999. As a result, the average 1999 oil/NGL production forecast shows a jump of 450,000 b/d compared with the average figure for 1998. With the next OPEC (Organization of Petroleum Exporting Countries) meeting in June looming, the projected rise in Norwegian output must be a cause for concern."

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