Continued impasse over the dwindling fortunes of crude has cast a pall over Western Europe’s biggest oil-producing nation Norway. As per data compiled by Bloomberg based on Norwegian Petroleum Directorate data, energy explorers in Norway found less than 5 million barrels of oil and gas for every exploration well drilled in 2015. This is the lowest ratio since 2006 and compares poorly with a 27 million-barrel average over the past 25 years.
The setback comes mainly on the heels of persistently diminishing returns from the North Sea. For offshore players, this could not come at a worse time as global rig rates are slated to fall further. We feel this may mar production and push the cost structure northward at a time when major players like Statoil ASA STO and Royal Dutch Shell plc RDS.A are postponing expansion plans and slashing planned capital investments.
Our apprehension stems from the fact that Norway is a major player in the oil and gas global arena. According to the Energy Information Administration, which provides official energy statistics on behalf of the U.S. Government, Norway is Europe’s largest petroleum liquids producer, the world’s third-largest natural gas exporter, and an important supplier of both liquids and natural gas to other European countries. The Baltic nation is also the largest oil producer and exporter in Western Europe. The country is also has a favorable geographical position to fulfill European needs via its extensive export pipeline infrastructure, while the rest is exported as liquefied natural gas.
The energy space in the Baltic nation also witnessed stiff wage negotiations from unions in the recent past that hurt the stability of the industry. To blunt the impact of receding returns, the major players in the Norwegian space are steadily shifting their focus to another relatively unexplored area in the Arctic – the Russian maritime borders. The area known as Barents Sea Southeast is slated to be doled out with licensees. Experts believe drilling could begin in the area as soon as in 2017.
To add to the woes of oil and gas majors having a substantial stake in Norway, the country is witnessing political pressure to force offshore producers to power offshore North Sea projects from clean sources in land. This is greatly contested by the energy majors lobby Norwegian Oil and Gas Association comprising prime foreign names like BP Plc BP and Exxon Mobil Corp. XOM with a considerable stake in Norway. Our apprehension also rises from the fact that forcing offshore projects to procure power from land-based clean sources is bound to increase project costs.
Finally, we feel that stable functioning of the Norwegian oil and gas industry is vital for the U.S. given the online crude carnage. After all, in 2008, West Texas Intermediate (WTI) crude futures hit a record high of more than $145 per barrel. However, currently WTI is hovering around only $38 per barrel.
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