Incentives, government support driving Norway’s conveyor belt of projects
Offshore operators in Norway are forging ahead with new field developments, taking advantage of temporary tax breaks, higher oil prices and Europe-wide gas shortages. The UK, in contrast, has been in a state of virtually suspended animation, with the government seemingly prioritizing net zero and offshore wind over investment in new sources of oil and gas.
According to the Norwegian Petroleum Directorate’s recent review of activity offshore Norway, five fields started production last year in the Norwegian Sea and North Sea (one of which, Yme, was a redevelopment). In addition, companies submitted development proposals (PDOs) for eight new projects, and the NPD expects “dozens” more in 2022, most likely due to the easing of fiscal terms by Norway’s government in mid-2020 to sustain the industry through the Covid crisis. The project upsurge should drive up investment across the sector during 2023-25, leading to consistently high production toward 2030.
Some companies are looking much further ahead. Last November Equinor submitted an amended plan for Oseberg in the North Sea which is now on track to produce 3.2 Bbbl of oil, more than three times the original target when operations started in 1988. But oil production is also in the tail-end phase, so the partners are seeking to convert the field center to produce primarily gas, extending activity to 2040. Plans include the addition of two new compressors to boost recoverable volumes, and partial electrification of the field center and the Oseberg South platform to meet future power needs and reduce emissions. In the Norwegian Sea, Equinor plans topsides modifications to the Aasta Hansteen spar platform to accommodate production from the deepwater Asterix gas discovery from 2026 onwards. And in the same sector, the company recently commissioned Aker Solutions to supply a fifth subsea compression module to extend the life of the Åsgard gas field.
Emerging hubs
Equinor and Aker BP are driving the majority of the higher-end new projects. Both operate fields in the proposed North of Alvheim and Krafla Area (NOAKA) development in the northern Norwegian North Sea, which envisages multiple tiebacks of unmanned platforms and subsea wells to a new hub facility, operated by Aker BP. They are working toward a final investment decision (FID) by the end of 2022. In the southern North Sea, Aker BP’s Fixed FEED Alliance is undertaking engineering for a new central hub/production platform at the Valhall field and tie-in of gas-condensate from the nearby greenfield King Lear development. These measures should help the Valhall area remain in production through 2060.Assuming the company secures approvals for its planned merger with Lundin Norway, Aker BP will also partner with Equinor in Norway’s other major new development, the (up to) $8.4-billion, 500-MMboe Wisting project in the Barents Sea, which is on course for FID later in the year. Production could start in 2028 through a circular FPSO and potentially continue for 25 years.
Wood Mackenzie has predicted that Norway’s new Labor administration - which has affirmed its commitment to the sector’s long-term future – could sanction up to 25 new projects of varying sizes in 2022, incurring combined investments of over $30 billion, with NOAKA and Wisting likely to account for over one-third of the 2.5 Bboe-plus to be developed. And five further offshore electrification projects should also go forward to support existing and new field developments.
Assuming the temporary tax incentives are rescinded later this year, as originally planned, the outlook for new oil and gas projects beyond 2022 may depend on future commodity prices and political developments in Norway, with the government set to sanction more floating offshore wind projects to help the country meet its ‘clean energy’ targets. These will add to the already high workloads of the Norwegian supply sector: rising material and equipment costs could also impact the economics of new projects. In addition, the new government is thought to be considering scrapping the country’s long-standing tax rebate on exploration, which could slow the pursuit of replacement offshore reserves.
UK projects on hold
In the UK North Sea, 2021 was notable mainly as the year of major upstream projects that did not go ahead. Work on the 170-MMboe Cambo development west of Shetland was suspended after partner Shell announced it was putting further investment on hold, following sustained opposition from environmental lobby groups and Scotland’s government. In addition, the Oil & Gas Authority rejected Shell’s proposal to develop the HP/HT gas field in the UK central North Sea as a tieback to the company’s Shearwater complex. The company is, however, understood to be considering an alternative plan. More recently, bp revealed it was reviewing the future of the Foinaven oilfield west of Shetland, which may or may not lead to a redevelopment.
Sir Ian Wood’s 2014 recommendations on MER (maximizing the economic recovery of the UK’s remaining offshore resources) seem a long way off. And according to OGUK, the main representative body for the UK’s offshore oil and gas industry, only one new field was approved for development (the Evelyn Phase 1/Gannet E expansion tiebacks to the Triton FPSO), with numerous brownfield projects also securing approval. “We note that due to challenges and uncertainties surrounding the operating and investment climate at present, progress on a number of new projects has been deferred,” said an OGUK spokesperson, “leading to a lower number of approvals than had been anticipated. There is still a strong pipeline of projects under active consideration, with continued focus on investment conditions being key to their progression.
“Companies have continued to reinforce their commitment to investment in the UKCS. However, there is a challenging environment towards the industry in the UK, despite the initiatives the industry is taking to decarbonize, and this is currently having an impact on investor sentiment. It is important that the government continues to reinforce its support for the sector and the need for new investment to support security of supply and to enable our industry to effectively contribute towards the shared net zero goals.”
Despite higher oil prices and unprecedented pressures on Europe’s gas suppliers to fulfil deliveries, investment in the UK North Sea in 2022 will likely remain near 20-year lows, according to Wood Mackenzie. Although the consultants expect higher production at 1.6 MMboe/d, helped by start-ups such as Harbour Energy’s Tolmount, Shell’s Arran and NEO Energy’s Finlaggan, “there are question marks over government and E&P appetite for new developments,” said North Sea upstream analyst Neivan Boroujerdi.
Windfall tax
Compounding the industry’s situation are recent calls from the UK’s opposition parties for a windfall tax on offshore oil and gas companies to subsidize domestic consumers struggling with soaring energy bills. According to Boroujerdi, the government may be tempted. “The UK’s track record has been to vary tax rates with prices…There would be strong resistance from producers, who would typically stop investment in response. But if the government is already considering winding down the sector, this threat may not be as persuasive as it has been in the past.”
Wood Mackenzie still expects up to 10 UK offshore projects to go forward for sanction this year. One of the government’s key criteria for new developments is a commitment to offshore electrification: OGUK has stressed repeatedly that its members are fully onboard, with various oil and gas companies investigating potential area-wide offshore wind/hub investments. “There are several initiatives for offshore platform electrification across the UK continental shelf,” said the Body’s spokesperson. “Most of them are at concept/select phase of their project cycle. It is a complex and challenging task as platforms were not initially designed to be electrified and access to reliable decarbonized sources of power are not yet available. The GreenVolt project is an example of the potential for synergies between platform electrification floating windfarm deployment acceleration.” Green Volt will use a grid-connected floating wind farm offshore eastern Scotland to supply all power required by a large oil and gas platform, with a potential reduction of 500,000 metric tons (551,156 tons)/yr in the facility’s CO2 emissions.
Recently the Oil and Gas Authority awarded grants to three consortia investigating the use of renewable energy to power UK North Sea developments. One, led by Orcadia, involves connecting the proposed heavy oil polymer project on the Pilot field in the UK central North Sea to wind farms in the area, with backup power from gas or ‘net-zero’ fuels, supported by batteries.
“What we have is an industry which is changing and is aligned in its commitments through the North Sea Transition Deal, the aims of which including accelerating the energy transition in the UK and creating new jobs,” said the OGUK spokesperson.
