Norway’s new Barents Sea Castberg crude sparks market excitement

Norway's launch of novel crude brand Johan Castberg from the Barents Sea is prompting a flurry of excitement as the first cargoes are said to have fetched strong prices, while traders weigh the logistical implications of the remote Arctic location.

In late-March, Norway's Equinor and Var Energi -- majority-owned by Italy's Eni -- finally launched production from the $8.2 billion Castberg project, 240 km north of the Norwegian mainland, after lengthy delays and cost overruns.

The grade is relatively light, though less so than many North Sea crudes, with an API gravity of 34.7 and sulfur content of 0.16%. A particular attraction is the low level of vacuum gasoil produced when it is refined, and high yields of middle distillates such as jet fuel and gasoil, according to analysts.

"Johan Castberg is moving well, [with] people quite keen to give it a go," one market source told Platts.

Other sources likened Castberg and its specific characteristics to Alvheim, another Norwegian grade, which often trades at a premium to North Sea benchmark Platts Dated Brent. "Alvheim-type quality is highly sought after," one source noted.

Castberg also stands out for relatively high production levels expected to materialize quickly; a "plateau" level around 220,000 b/d should be achieved in the first half of 2025 thanks to numerous wells already drilled, according to Equinor. Field reserves are estimated at 450 million-650 million barrels, with the potential for this to be increased thanks to recent nearby finds. The grade should help stem a forecast decline in Norway's oil production expected toward the end of the decade.

Robust production volumes should facilitate spot trading in the grade after the first test cargoes were shipped under tenders designed to introduce the crude to the market in April, according to market participants. A little over 135,000 b/d of Castberg crude is expected to load in May, according to a loading program seen by Platts on April 8.

Pricing rationale

The Castberg startup is a landmark event partly due to its location, some 1,500 nautical miles from Northwest Europe's main refining center, Rotterdam. Harsh winter weather repeatedly delayed the project's final start-up phase, on top of multi-year delays stemming from the pandemic and welding quality issues at a fabrication yard in Singapore.

Its remoteness means the crude is likely to be sold on a CIF (cost, insurance and freight) Rotterdam basis and potentially delivered using shuttle tankers managed by the partners -- an arrangement common for North Sea crudes loaded offshore, market participants said. Among a range of sources surveyed, one trader voiced concerns over the freight and possible demurrage implications of bringing crude from the remote FPSO (floating production, storage and offloading vessel).

However, participants also reported Castberg cargoes for May arrival trading at a premium of $4-5/barrel above Dated Brent on a CIF Rotterdam basis, and a CIF Spain cargo trading around a $5/b premium.

By comparison, Platts assessed Alvheim crude at a $4.65/b premium to Dated Brent on a CIF Rotterdam basis on April 15.

Equinor did not immediately respond to a request for comment on delivery plans.

Longer delivery times and corresponding price adjustments are in any case now routine in a North Sea market where US WTI Midland crude has become a refining staple, reflected in the grade's incorporation into the Platts Dated Brent assessment process in 2023. Platts is part of S&P Global Commodity Insights.

Barents expansion

Castberg is also not unprecedented in its location, being the second oil field to go into production in the Norwegian Barents Sea after Goliat, a project brought on stream by Eni in 2016; that project was accompanied by heavy criticism from Norwegian authorities over safety violations by the operator, likely helping spur Eni's subsequent decision to hive off its Norwegian business into the Var joint venture.

Goliat production fell to around 22,000 b/d in 2024, although Var hopes to invest in tying in recent discoveries to the existing FPSO. Goliat crude is lighter than Castberg, with an API gravity of 41.3.

Var is a proponent of industry expansion in the Barents Sea -- as Norway debates whether to build a lengthy pipeline connecting the Barents to the North Sea gas export grid, and also laying subsea cables to take low-carbon power to offshore oil and gas facilities, in line with emissions reduction measures in the North Sea.

However, these arguments are far from resolved, with Var currently not a partner in the potential next major Barents Sea oil project, Wisting, located even further north, some 300 km from the mainland.

The Castberg startup "reinforces the role of the Barents Sea as a major energy provider to Europe, while creating value for all stakeholders [and] major ripple effects in northern Norway," Var said in March.