Need to open additional areas

12/12/2010

The Norwegian petroleum industry’s contribution to the government budget is set to fall by NOK 58 billion from 2010 to 2015. To slow down that decline, new and attractive exploration acreage must be made available. This is a matter of urgency because of the long time lag between exploration and production.

Big opportunities for value creation are offered on the Norwegian continental shelf (NCS) for a long time to come. The Norwegian Petroleum Directorate estimates Norway’s total resources to be 84 billion barrels (13.4 billion standard cubic metres) of oil equivalent.

About a third of this has been produced, roughly another third has been discovered but not produced, while the final third remains to be found.

At the same time, the trend on the NCS is that exploration activity is too low, there are too few discoveries and those which do get made are small in relation to the “elephant” fields found off Norway earlier.

Production decline

The fall in oil output during recent years and expectations of a further contraction in coming years make it crucial that all interesting and promising areas in resource terms are explored.

Report no 38 (2003-2004) to the Storting on the petroleum activity describes a desired long-term development trajectory for Norwegian oil and gas production. This assumes that government and industry are able to take the necessary measures.

One of the government’s most important contributions to achieving this goal is to ensure that the industry has a steady supply of adequate, promising acreage to explore and that exploration policy is predictable.

For its part, the oil and gas industry must contribute to the efficient mapping and exploration of the areas allocated to it.

The waters off Lofoten, Vesterålen and Senja in northern Norway are those parts of the NCS where geological conditions hold out the promise of large new discoveries.

Found in 1997, Ormen Lange ranks as the last major field to be identified on the NCS. Without new and attractive exploration acreage, Norway and the industry face a number of challenges:

- the production decline will continue

- revenues to the community will contract in step

- without access to new exploration targets, the need for labour will fall and thereby reduce purchasing power in the economy

- specialist expertise will disappear abroad or leave the workforce through retirement, and the basis for replacing or extending this know-how will no longer be present

- fewer opportunities will exist to counteract population decline in peripheral regions

- the supplies industry will lose its domestic laboratory because the driver for innovation has disappeared

- the financial freedom of action to make a commitment to renewable energy will be reduced

- Norway will lose resources required to develop the technology it needs in the future, but which does not exist today.

A number of reports from the government, individual companies and the industry confirm that oil and gas operations off Lofoten, Vesterålen and Senja will have positive spin-offs for the region.

Open and shut

Large parts of the three petroleum basins on the NCS – the North and Norwegian Seas and Barents Sea South – have been opened for oil and gas activities.

But extensive areas off Norway remain closed to petroleum operations, including the whole of Barents Sea North, Troms II, Nordland VII, parts of Nordland VI, near-shore areas off Nordland county and the Skagerrak strait between Norway and Denmark.

Great differences exist between the geological knowledge of these areas. Thirty times as many wells have been drilled per square kilometre in the North Sea as in the Barents Sea, for instance.

Roughly 1 000 wells in all have been drilled on the NCS, with the Barents Sea accounting for only a fraction of these – just over 60 at the end of 2006.

The latter waters are accordingly poorly mapped, and seen as a high exploration risk. Areas off Nordland, on the other hand, are considered very promising because the oil industry is familiar with their geological structures from projects elsewhere in the Norwegian Sea.

It is accordingly important to consider not only how much acreage gets awarded, but also how promising such areas are for finding oil and gas.

Long periods

Time frames in the oil and gas industry are longer than most people appreciate. Not infrequently, it can take 10-15 years from the start of the process for opening an area of the NCS to activity until possible discoveries come on stream.

Bearing these lengthy time frames in mind is important in the discussion on opening new areas for exploration activity.

Roughly speaking, this period can be divided into a political phase lasting about four years, a design phase of around six years and a project execution phase before production starts which can last for anything from two to 15 years or more.

Political process – about four years
For a new part of the NCS to be opened for oil and gas activity, the Storting (parliament) must give its approval. A couple of years of impact assessments often precede such a decision.

This is followed by a further political process lasting a couple of years related to the formal opening of the area and the award of production licences through the licensing system.

Project phase – around six years
The new area must be investigated with the aid of seismic surveys and exploration drilling, which usually takes two-three years. Many projects get no further because the well is dry.

Should oil and/or gas be encountered, however, appraisal wells are drilled to establish the size of the discovery. Prospects for commercial development must then be clarified, production solutions assessed, and a plan for development and operation (PDO) submitted for official approval.

Project execution – two to 15 years or more
The technological challenge faced is crucial for how long it takes to reach the production phase. Ekofisk, Norway’s first commercial oil discovery, was found in 1969 and came on stream two years later in 1971. But things do not move so fast when major technological hurdles are encountered.

The Snøhvit gas field in the Barents Sea was discovered in 1984, but than two decades passed before its resources could be produced and exported as liquefied natural gas (LNG) from the Melkøya terminal in northern Norway. The time lag since the licence award was even longer.

Many other technologically demanding projects on the NCS have also had a long gestation. They include Ormen Lange, which now sends its gas to the UK, and Kristin, which was particularly challenging because of its high reservoir pressure and temperature.