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The Norwegian Continental Shelf: Holding Its Own

There are developing countries with more business-friendly oil & gas exploration tax policies. But, with high technology, vast industry knowledge from decades of experience, and the impending opening of exploration blocks in the highly-promising deepwater Norwegian Sea and Barents Sea, the rumours of the Norwegian Continental Shelf's demise have been greatly exaggerated.

There is a rumour going around.



Norway's continental shelf (the rumour goes) is approaching maturity after more than 30 years of oil and gas development. Today's high production level - which makes Norway the 7th largest petroleum-producing nation on earth and the 3rd largest exporter - cannot be sustained forever. And as the Norwegian sector of the North Sea begins to go dry, oil companies that have been loyal for decades will turn their gaze south to well-endowed developing countries whose tax and licensing policies seem to whisper, "Come hither!"


That rumour sounds plausible enough. Angola, Nigeria, Brazil and other low-cost countries have established themselves as serious producers, and competition for offshore investment has never been greater. Worse, it's been a while since anyone discovered a giant field in the North Sea. Naturally the oil companies are weighing their options. They're in business, not in love.


Yet it is precisely their business savvy that keeps international oil companies wedded to the Norwegian Continental Shelf. The simplest part of their calculus concerns resources. Big new oil and gas fields are surely lurking out there. They also know that Norway's cluster of high-technology service companies can turn even marginal reservoirs into profit centres, and that the stable political scene lets them plan for the long-term. So rumours of the shelf's maturity are - well, premature.


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Gas for 100+ Years & Oil for 50+
"I still see a great potential for the Norwegian Continental Shelf, especially for gas," says Norwegian Prime Minister Kjell Magne Bondevik. "The production horizon that we can see for gas is about 100 years, and for oil, 50 years. But there may be much more than that to find."


That's because the Norwegian shelf extends far beyond the North Sea. That body of water, shared with Great Britain, is oh-so-familiar. But to its north lies the much larger Norwegian Sea, where the oil companies see great untapped potential, and still farther north is the Barents Sea. There Norway's coastline turns west and runs all the way to the Russian border - a longitudinal point that is farther east than Istanbul, Turkey. The Norwegian Barents "has barely been touched", says Finn Roar Aamodt, Director General of the Norwegian Oil Industry Association. Interestingly, wildcatters in the Russian half of the Barents have discovered 10 major gas and condensate fields and 125 or so other potential structures, some thought to contain oil. None has been developed; but one gas find, Stokmanovskaya, is nearly three times larger than the North Sea's largest gas field.


intsokcluster400x247.jpg (80821 bytes)Norway's established and emerging oil and gas clusters guarantee a bright future for the Norwegian Continental Shelf.










"The big future discoveries off Norway - those with the potential to change the overall picture - are expected to be made in the deepwater Norwegian Sea, off the Lofoten coast in the Norwegian Sea and farther north in the Barents Sea," says Tor Fjæran, Statoil's Norway exploration head. "These frontier areas are not heavily explored, and there are lots of hydrocarbons to be found."


Even in the well-mapped North Sea, only half the estimated recoverable oil and a fifth of the recoverable gas has been extracted, according to official figures. The two dozen or more licensees active there continue to look for small- and medium-sized reservoirs that they can tie back to existing infrastructure.


In the deepwater Norwegian Sea, 3 of 9 wildcat wells drilled so far have hit pay dirt. One of them revealed the Ormen Lange gas field, Norway's second largest, in water depths ranging from 800 m to 1,100 m. Norsk Hydro plans to bring it onstream in 2007 by way of a subsea production system and pipeline that will dispatch the unprocessed gas 100 km to shore for treatment. The most recent find in the area came in 2003, when Statoil unexpectedly struck oil while drilling for gas in the Ellida field. This prompted newspapers to herald a "new golden age" of oil production, but Fjæran remains cautious. "I'd like to believe that, but more holes have to be drilled," he says. Even without Ellida his estimate of Norway's undiscovered resources - 28 billion barrels of oil equivalent - is almost 30 percent higher than what the Norwegian Petroleum Directorate calculates. Mr. Fjæran thinks most of those extra barrels, worth US $180 billion at December 2003 prices, are in the Norwegian Sea.


That area was well represented in the Norwegian government's 18th exploration licensing round, announced in December 2003. Of the record 95 blocks opened for license applications, most were in the attractive deep parts of the Norwegian Sea.


"I expect the companies to follow up this extensive announcement of blocks with extensive applications, so that the round leads to increased and efficient exploration of frontier areas of the shelf," says Norwegian Petroleum and Energy Minister Einar Steensnæs.


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Optimism About NCS Exploration
While determined to prolong Norway's hydrocarbon age by boosting exploration and investment, Steensnæs decided to extend a temporary ban on drilling in sensitive cod-spawning waters off the Lofoten archipelago. Seismic surveys indicate this may be the most promising spot off Norway. But he reopened parts of the Barents Sea after a two-year-long study concluded that the benefits of petroleum activity there outweighed the minimal environmental risk. The total area he offered was three times larger than the previous licensing round encompassed, and the oil companies' response was guardedly positive. 


"We are optimistic and believe there are many opportunities to make large and medium-large discoveries in the Norwegian Sea," said Norske Shell's exploration manager, Christian Bukovics. He added: "As a company we are very interested in the Barents Sea, particularly the eastern parts."


While vast resources remain off Norway, it's not just a rumour that offshore Africa and South America can be cheaper places in which to operate. On top of strict environmental rules, Norway imposes a marginal tax rate of 78 % on oil production. The industry group Kon-Kraft has proposed slashing that rate so that Norway can better compete with the balmy south for investment. So far, however, the government seems to think what it's offering is well worth the premium.

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