One of the world’s leading petroleum exporters, Norway’s oil and gas exports account for about half of the country’s total exports and have enabled it to build the world’s largest sovereign wealth fund, worth more than $1 trillion, as compared to Alaska’s $63.7 billion Permanent Fund, also built from oil wealth.
But new oil and gas discoveries are needed to generate more wealth and protect jobs, Norwegian Energy Minister Tina Bru said June 24, when she announced the ministry was looking to offer 136 additional blocks for oil and gas exploration in less explored, frontier areas on its shelf, including 125 blocks in the Arctic Barents Sea that had not previously been available for drilling. She said the action was especially needed after “challenging” economic losses in recent months, due in part to the coronavirus pandemic.
“Regular access to new exploration areas is crucial to maintaining activity on the Norwegian continental shelf,” Bru said.
With North Sea oil production having peaked, interest in the frontier areas of the Norwegian Continental Shelf have increased.
The licensing round had previously been postponed pending a new management plan for the Barents Sea as a result of an ongoing debate between the Socialist Left and the Conservative party, which Bru is affiliated with, about the “ice edge” or how far north industry should be allowed to drill for oil and gas. Earlier in June Conservatives prevailed and the new Barents management plan and a new edge of ice were adopted by the Norwegian Parliament.
Drillers offered incentives
Also, in early June the Norwegian Parliament approved putting 8 billion kroner (approximately US$826 million) into an incentive package for the country’s oil industry. The tax benefits in the package were to help oil and gas companies launch new projects, including in the Arctic.
According to The Barents Observer, if the subsequent returns of the companies were included, “the value of the package is … as big as 39 billion kroner” (US $4.3 billion).
The support package was backed by the Center Party, the Progress Party and Labour.
The ruling minority government coalition of Norway Prime Minister Erna Solberg, a Conservative, initially proposed more modest incentives.
The next licensing round, Norway’s 25th, in which the frontier area blocks will be offered, is expected to be announced in September after consultation on the proposed areas for oil drilling, the ministry said.
Norway joins OPEC+ in production cuts
At the end of April Bru announced production cuts. Although not part of OPEC+, she said the reduction would contribute to a faster stabilization of the oil market.
“We will cut Norwegian production by 250,000 barrels per day in June and by 134,000 barrels per day in the second half of 2020. In addition, the start-up of production of several fields will be delayed until 2021. Consequently, the total Norwegian production in December 2020 will be 300,000 barrels less per day than originally planned by the companies. The regulation will cease by the end of the year,” Bru said.
The base case used by the Energy Ministry was 1,859,000 barrels of oil per day. Thus, a cut of 250,000 barrels per day gave an upper limit for oil production from the shelf of 1,609,000 barrels per day in June. A cut of 134,000 barrels per day in the second half of this year translated into maximum of 1,725,000 barrels per day.
“We are currently facing an unprecedented situation in the oil market. Both producers and consumers benefit from a stable market. We have previously stated that we will consider a cut in Norwegian production if several big producing countries implement significant cuts. The decision by the Norwegian Government to reduce Norwegian oil production has been made on an independent basis and with Norwegian interests at heart,” Bru said at the time.
Norway’s O&G factoids
Oil was first discovered in the Norwegian waters of the North Sea in the late 1960s. Today, the oil and gas industry is Norway’s largest industry, followed by the service and supply business, which includes more than 1,250 companies.
Norway, like Alaska, is known for its cutting edge technology and its strict environmental protection laws and enforcement.
The country’s oil industry is not nationalized in the same sense as Venezuela where the government owns the oil companies. Norway-based Statoil, for example, is publicly traded, with the Norwegian government holding 67% of its shares.
