Diversifying North Sea industry develops smorgasbord of alternative crudes

The perceived waning of the North Sea oil industry, reflected in the remodeling of the Brent benchmark, belies a sector that continues to transform, with a continuing influx of new companies and proliferation of non-standard crudes derived often from under-explored regions.

The decision by Platts, part of S&P Global Commodity Insights, to include a non-North Sea crude oil, WTI Midland, in the Dated Brent benchmark from May 2 is the latest change designed to offset declining production of light sweet grades and maintain the integrity of a benchmark used to price oil around the world.

But the decline of crudes such as Brent and Forties has also stimulated fresh thinking and effort by the industry, as well as regulatory change designed to foster investment and remove hurdles relating to decommissioning.

North American companies once at the heart of the industry have given way to smaller newcomers, while stalwart BP has largely pulled back from a swath of pipelines and oil field facilities, confining itself mainly to the West of Shetland area and a stake in Norwegian venture Aker BP.

Alongside newcomers such as Harbour Energy and mid-sized names such as OMV, Norway's state-controlled Equinor has taken on a growing role both sides of the North Sea dividing line, bringing on stream the Mariner heavy oil field in UK waters in 2019 and now considering development of the 300 million barrel Rosebank field, fiercely opposed by environmentalists in the UK.

The political and fiscal backdrop has its challenges, with recent UK tax hikes prompting complaints that the current headline rate of 75% is unsustainable.

However, supply pressures and field decline have spurred moves into less well-known areas such as the Norwegian and Barents Seas, and a ready acceptance of crude grades at one time overlooked.

The latter is reflected in the rise of Johan Sverdrup, a heavier crude that has transformed Norwegian prospects and become the region's pre-eminent oil export. Prices for Sverdrup crude have been buoyed by the sanctioning of Russia's Urals, previously a go-to feedstock for European refiners, with the grade even trading recently at slight premiums to Dated Brent. Platts assessed Sverdrup crude at a 30 cent premium to Dated Brent on April 28.

With production of the medium-sour grade now at 720,000 b/d, Sverdrup accounts for around a quarter of North Sea production and has found demand as far afield as Turkey and East Asia. Sverdrup exports outside Northwest Europe and the Baltic amounted to some 140,000 b/d in 2022.

Less noticed are smaller, unconventional crude streams such as Kraken, one of the heaviest crudes on the global market, with an API gravity of 14. It is said to command prices close to the Brent benchmark thanks to its low sulfur content, which enables blending of the grade directly with fuel oil, without refining, to create low-sulfur bunker fuel.

New fields coming on stream are also changing the quality of long-established crude grades. The Grane field came on stream in 2003 as Norway's first heavy crude field, with an API of 19, but has shifted to become a medium grade as fields such as Edvard Grieg have been tied in to the facility.

Such medium and heavy grades, the latter mainly from the UK, now make up half of all crude loaded in the region. Majors such as BP and Shell, with significant trading operations, often play a role marketing such smaller crude streams.

Gas impetus

If the shift has been toward heavier crudes, Europe's energy crisis is also spurring a new push for gas resources, which in turn could unlock associated lighter crudes and natural gas liquids.

Equinor has been broadening its footprint to the north in the gas-prone Norwegian Sea, where it recently brought back on stream the revamped Njord oil hub. Njord is likely to become an increasing source of gas and light liquids with the addition of new tie-in projects and the decline of the original Njord oil resources.

Authorities in Norway are also renewing calls for a gas pipeline connection to be built from the Barents Sea to unlock recent discoveries and supplement the current low level of Barents Sea oil production. The need for a large-scale gas transport solution has been backed by Var Energi, a company majority owned by Italy's Eni that operates the one producing Barents Sea oil field, Goliat.

A new pipeline "would enable exports of natural gas from the Barents Sea to customers in Europe, unlock material proven resources and support further exploration of this highly prolific area," Var said on April 24.