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Activity on the NCS set to remain high

The level of activity in Norway’s petroleum industry has been rising sharply in recent years, buoyed by high energy prices, a positive trend for discoveries and upgrading requirements on older fields. While the peak will be passed this year, investment and activity on the Norwegian continental shelf (NCS) will remain at a historically high level and continue to require substantial capacity at both oil companies and suppliers.

These conclusions are drawn in the business trend report for 2014 from the Norwegian Oil and Gas Association. This notes that the world economy is still fragile six years after the global financial crisis began, energy demand has moderated and oil prices are at their lowest level for four years.

At the same time, costs on the NCS have risen substantially since 2004, a development very much shared with other petroleum provinces. This trend had contributed to a reduction in the robustness of a number of potential field developments. The 2014 report has accordingly been entitled Time for consolidation.

As early as our report for 2012, we assumed that 2014 would be a peak year because a number of the large producing fields on the NCS were then set to complete their biggest modifications,” says Bjørn Harald Martinsen, manager for economics at the Norwegian Oil and Gas Association.

“The current decline in investment therefore represents to a great extent an anticipated correction. Total capital spending on the NCS is estimated to fall from NOK 221 billion this year to NOK 197 billion in 2015, measured in fixed 2014 kroner. It will thereafter lie between NOK 190 billion and just over NOK 200 billion per annum until 2019. “At the same time, estimates for capital spending are relatively robust for oil prices around today’s level over the next few years.

 

After a decade with an overall decline in production from the NCS, a high level of exploration and new discoveries mean that the industry faces a turning point where output could once again recover somewhat. If a return to a clearly declining trend for production is to be avoided from the start of the next decade, however, it will still be necessary to make new discoveries.

A step-by-step expansion of operations based on knowledge, technology and experience has historically been an important yardstick for developing Norway’s petroleum sector. New areas are now awaiting their turn. Following the postponement of a decision on an impact assessment for the waters off Lofoten and Vesterålen until 2017, much of the future for Norwegian petroleum activities will lie in the Barents Sea.

But demanding climatic challenges, restrictions on drilling activity and remoteness from infrastructure also lay the basis for new cost challenges. While these must be overcome by the industry, they call at the same time for government measures which help to bridge the gap between socio-economic and commercial profitability.

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