Norway’s decision in the early phase of the pandemic, in March 2020, to protect its petroleum industry by lowering taxes, maintaining production and investment activity in an economic setback, appears to pay off well. The strategy to renounce on short-term revenue, in order to safeguard industrial capacity and competence, showed positive results already in 2022, as output increased over the preceding years. The trend is likely to persist for several years.
Norway shows commitment to the offshore oil and natural gas industry. In hindsight, lowering petroleum taxation was a wise move by two succeeding governments and mainstream politicians. Petroleum extraction is expanding. Revenue from oil and gas in 2023 is estimated at about US$100 billion, close to three times the average for the preceding decade. The petroleum activities provide jobs and industrial challenges, especially in coastal communities. The oil and gas revenues bolster Norway’s economy, although only a tiny fraction is spent directly over the budget. The rest, savings from oil and gas revenues, have made the world’s largest sovereign wealth fund.
In Norway, petroleum activities are gaining political acceptance. The climate-and-environment-motivated lobby remains more vocal than effective. The Left Socialist Party, a parliamentary support for the current Labour-Centrist coalition cabinet, precludes awarding licenses to virgin maritime areas; only zones already awarded, and licenses relinquished, are currently under consideration, representing significant acreage.
High prices and enhanced political acceptance prepare the ground for rising oil and gas investment in the coming years. In June 2023, the government approved 19 oil and gas projects, totaling an investment estimate of about US$20 billion, concerning new prospects as well as developing fields already in production.
Resource potential/prospectivity. Maintaining and developing petroleum industry capacity is essential, considering Norway’s resource potential. Its maritime territory of 2.1 million km2 (800,000 mi2) dwarfs the Gulf of Mexico’s 1.6 million km2 (600,000 mi2). About one half of the area is estimated to have sedimentary rocks with a petroleum occurrence. Measured by exploration, the Norwegian Continental Shelf (NCS) a not very mature oil province; in almost 60 years, only 1,200 wildcat wells have been drilled.
The issue concerns Norway’s potential and willingness, as well as the European market. The potential is sizable, but it would require exploration, success and investment. Limited exploration means that the notion of resource base maturity should be applied with caution to the NCS, especially as the little-explored northern waters are opened. Some areas are well- explored and appear as fully mature, with fewer, smaller and more adverse prospects. Other areas are hardly explored. As part of a parliamentary agreement, no new areas are to be opened for exploration until 2025.
Large prospective areas are fallow, not subject to petroleum activity. According to estimates by the Norwegian Petroleum Directorate, about one half of the area, i.e., one million km2, contains rocks with a petroleum potential. More than one half of this territory, ca. 600,000 km2, has, in principle, been opened for petroleum activities, but it is far from fully explored. Areas not opened comprise parts of the Barents Sea, parts of the Norwegian Sea close to coasts, the territory around Jan Mayen, territories offshore the Lofoten and Vesterålen Islands, as well as most of Skagerrak, the sea connecting Norway with Denmark and Sweden.
Exploration history. Exploratory drilling has taken place on blocks representing a small part of the prospective territory, less than 50,000 km2. The historical, cumulative finding rate has been 43%, against 23% on the UK Continental Shelf: in Norway, with less drilling, more resources have been found than in the UK.
The Norwegian part of the North Sea has been less-explored than the UK portion. The central and northern parts of the continental shelf, i.e., the Norwegian Sea and the Barents Sea, have been comparatively little-explored. The government estimates, conservatively, that the remaining volume of liquids and gases is comparable to that extracted since 1970. Norway might have the potential to remain a significant oil and gas exporter for at least a couple of more generations. Recent discoveries highlight the potential. Critical questions are Norwegian willingness and the market.
The Norwegian part of the North Sea, the southernmost part of the continental shelf, has been much less explored than the neighboring UK side, but with more finds. The Norwegian Sea, the middle part, in theory has indications of an oil and natural gas potential almost as large as the Gulf of Mexico, but with far less exploration, due to technical challenges and high costs.
The Barents Sea, the northernmost part, has promising geology with both oil and natural gas finds in recent years. In geological terms, it is composite. The eastern slice has structures in common with adjacent Russian maritime areas, with a higher potential for natural gas; the western slice has structures in common with other Norwegian areas and higher potential for oil. This is a separate geological formation.
Portions of the Barents Sea have been subject to seismic studies, as well as exploration drilling, but most of the area has not been subject to up-to-date seismic surveys and even less to exploration. The regional geology has large structures that, in theory, have an oil and gas potential.
Investment challenges. Apart from concerns about climate and the environment, rising petroleum investment is fraught with economic risks. In this business, high returns are accompanied with a high price risk typical of oligopolistic markets. Oil prices are unstable at any level because of shifting priorities and relations among key exporters.
The European natural gas market depends on relations with Russia. It is also shaped by the European Union (EU), whose energy policies are subordinate to climate concerns and not very successful. The EU will not tolerate long-term contracts, but price volatility impedes investment. In several countries, political support for the “green shift” is dwindling, but the EU seems persistent. Norway would welcome an EU, and UK, recognition that natural gas is a fuel for the future, also in Europe.
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