IHS World Markets Energy Perspective | |
Significance | Energy Minister Terje Riis-Johansen has resigned from his position on account of rising criticism over his management of growing problems on the Norwegian Continental Shelf (NCS), and will be replaced by fellow Centre Party member Ola Borten Moe. |
Implications | Indeed, Riis-Johansen's term in office draws to a close at a time when Norway is witnessing the worst start to a drilling year ever, with all six Barents, Norwegian and North Sea wells drilled so far this year having come up dry. The news is aggravated by the Norwegian Petroleum Directorate (NPD)'s revised investment guidance for 2011, which has been lowered by 6% in light of as-yet-unapproved projects. |
Outlook | Moe, who has been cited as being more flexible on opening the controversial Lofoten and Vesteraalen area to oil and gas drilling, might be able to take a few important steps in that direction given the mounting pressures on the NCS, although he is constrained by his party's official position to hold back from environmental surveys in that region. |
Departure of a Farmer
Energy Minister Terje Riis-Johansen has resigned after three years of controversial rule that have been accompanied by stiff criticism of his alleged lack of a clear strategy for the Norwegian energy sector, the country's most crucial one. The two projects that finally tripped up Riis-Johansen, a former farmer, include the recently confirmed Sima-Samnanger power line project in Norway's west that will see high-voltage transmission capacity "mutilate" the so-far-untouched region. Also during his tenure, a final investment decision for Norway's prestigious Mongstad carbon capture and storage (CCS) project has been delayed twice (see Norway: 3 March 2011: Mongstad CCS Faces Further Delays in Norway). Finally, Statoil has experienced a number of serious safety incidents at different offshore hydrocarbon developments that have been the subject of investigations by the Petroleum Safety Authority Norway (PSA). Since the company was seen to have escaped lightly from these incidents, critics had called for more regulatory scrutiny of NCS safety issues in light of last year's US oil spill disaster (see Norway: 1 February 2011: New Gullfaks Revelations Raise Serious Offshore Safety Questions in Norway).
Riis-Johansen is replaced by a fellow Centre Party contender, Ola Borten Moe, a young party minion. Moe's takeover of the ministry could mean some —at least under certain conditions. He supports the informal environmental assessment that the Labour-led Norwegian coalition government is expected to decide upon soon. An environmental impact assessment (EIA) is seen as a prerequisite for future oil and gas exploration in the region that is so far guarded closely by environmental groups. While Moe follows the party line that rejects a formal impact assessment during the current parliamentary term, he is open to Lofoten drilling, if safety measures, spill preparedness and job prospects are improved significantly in the area.
Year Starts with Record Dry Spell
Moe also arrives at a time when the first six wells drilled in the Barents, Norwegian and North Sea by oil majors Statoil and Eni SpA this year have failed to strike hydrocarbons, results that have been described as Norway's worst start to any drilling year on record. The dry holes are discouraging given oil companies' high ambitions of drilling a total of 22 wells in the north this year, an 83% boost over the 13 wells drilled in the Barents and Norwegian Seas last year. Disappointing drilling results last year prompted the NPD to revise its undiscovered reserves estimates downward by 21%, from 20.8 billion boe in its 2006 survey to only 16.4 billion boe in the 2010 review (see Norway: 17 January 2011: Norway Slashes Reserve Estimates for Undiscovered Oil and Gas). Industry representatives maintain that oil and gas companies have yet to find a way to unlock the potential of Norway's Arctic region, but do remain committed for now as the Barents and Norwegian Sea play a crucial role for the country's energy security outlook.
In the meantime, Statoil has begun to drill its last Barents Sea well for the year, while four wells are still scheduled to be drilled by Total, GDF Suez, Dong Energy and Lundin Petroleum in 2011. So far, the Barents Sea is home to only two developments: the Goliat oilfield that Eni plans to start up in 2013 and Statoil's Snøhvit gas field. Additional gas finds in the Barents Sea would also mean a boost for Snøhvit as the development's partners are hoping to add more LNG processing capacity that would only be commercially viable if there were a significant increase in production from the region. Similar to the Barents Sea, the Norwegian Sea has also performed below expectations in recent years; Royal Dutch Shell reported three dry appraisal wells in the northern part of its Ormen Lange field, which led the NPD to cut the field's vast reserves estimates by 24%, down to 292 bcm.
Outlook and Implications
In light of continued uncertainty over Norway's remaining undiscovered reserves potential, Statistics Norway has cut its investment expectations in the Norwegian energy sector by 6% this month, down from the 135.8 billion Norwegian krone (USD24.34 billion) forecast in the fourth quarter of 2010. Despite disappointing drilling results, last year's forecasts included projects that had not been approved by the Norwegian government yet, including the prospective Valemon, Jordbaer, Eldfisk 2 and Ekofisk South developments. While Norway does not seem to be doing itself any favours in including unapproved projects in investment forecasts, only to revise them down later, the expected increase in project funds flowing into the country this year still marks a 13% boost over 2010 levels and underlines the continued interest oil and gas companies have in further exploring the NCS and its surroundings.
Given the growing pressures Norway's offshore industry faces though, the new energy minister might actually find himself handed more leverage vis-à-vis opponents of Lofoten and Vesteraalen drilling going ahead. It will nevertheless remain difficult, if not impossible, for Moe to kick-start practical development activities there in the short term given the Centre Party's commitment to refrain from initiating a formal EIA that would automatically trigger development of the region before 2013. Nonetheless, since Moe, as his party's rising star, is expected to stick around, more movement on the matter could potentially be expected further down the road.