Despite cost controls, increased efficiency, and higher activity offshore Norway, oil production at Western Europe’s largest oil producer fell in 2018 compared to 2017 and is further expected to drop this year to its lowest level since 1988....MORE
Last year, oil production in Norway fell to 1.49 million barrels per day (bpd), down by 6.3 percent compared to the 1.59 million bpd production in 2017, the oil industry regulator, the Norwegian Petroleum Directorate (NPD), said in its annual report this week. Oil production this year is forecast to drop by another 4.7 percent from last year to reach in 2019 its lowest level in thirty years—1.42 million bpd, the NPD estimates show.
As bad as it sounds, this year’s expected low production is not the worst news for the Norwegian Continental Shelf (NCS) going forward.
Oil production is expected to jump in 2020 through 2023, thanks to the start up in late 2019 of Johan Sverdrup—the North Sea giant, as operator Equinor calls it. With expected resources of 2.1 billion—3.1 billion barrels of oil equivalent, Johan Sverdrup is one of the largest discoveries on the NCS ever made. It will be one of the most important industrial projects in Norway in the next 50 years, and at its peak, the project's production will account for 25 percent of Norway’s total oil production, Equinor says.
The worst news for Norway’s oil production, as things stand now, is that after Johan Sverdrup and after Johan Castberg in the Barents Sea scheduled for first oil in 2022, Norway doesn’t have major oil discoveries and projects to sustain its oil production after the middle of the 2020s.
The NPD started warning last year that from the mid-2020s onward, production offshore Norway will start to decline “so making new and large discoveries quickly is necessary for maintaining production at the same level from the mid-2020s.”
In the report this week, NPD Director General Bente Nyland said:
“The high level of exploration activity proves that the Norwegian Shelf is attractive. That is good news! However, resource growth at this level is not sufficient to maintain a high level of production after 2025. Therefore, more profitable resources must be proven, and the clock is ticking”....
However, here's the difference between Norway and the U.K.:
Since the early 1970s Norway and the UK pumped very similar quantities of oil and gas out of the North Sea, the return from this national natural resource for tax-payers was very different!That's Columbia Uni's Adam Tooze who came to us by way of a retweet from FT Alphaville's Colby Smith.
Professor Tooze was pointing to the Natural Resource Governance Institute who focus on extractive industry policy and advocacy, usually in less developed economies. More specifically, Prof Tooze was referencing:
5 October 2015
The U.K. and Norway oil and gas sectors provide an ideal comparison through which to compare the outcomes from different approaches to oil sector governance. The two countries have equivalent geology and a similar resource base – the North Sea Basin is effectively split down the middle between them.[1] The U.K. and Norway both began offshore exploration and production in the mid-1960s with the first oil discoveries made in 1969. Since then, both countries have produced similar amounts of hydrocarbons: the U.K. has produced 42.8 billion barrels of oil equivalent (boe) and Norway 40 billion boe (figure 1).
Figure 1. U.K. and Norway oil and gas production since 1971
Source: BP Statistical Review 2014 and Norway government data (www.norskpetroleum.no)
Whilst the geology and resource base in each country is similar, the two countries have taken very different approaches to governance of the sector. Since 1986 the U.K. government has had effectively no direct equity participation in the North Sea and has had a fully private upstream sector, with taxation as the only channel of government revenues from hydrocarbons.[2]...MORE
Norway has taken a different approach, with over 50 percent of production coming through Statoil (of which the state owns a majority) and state ownership of assets via the State Direct Financial Interest (SDFI), held through Petoro (wholly owned by the state). Norway generated more than double the revenue the U.K. did from each barrel it produced. The purpose of this article is not to debate whether the current U.K. tax regime is optimal today, but rather examine why the Norwegian approach to oil governance in the past appears to have generated so much more revenue. For other countries seeking to extract more from their resources this case study suggests a valuable lesson: given political stability and competent institutions, a state can have both a relatively high tax burden on its industry and direct ownership of assets, and deliver more revenue for its citizens and still attract investment....
If interested, here are the NRGI's About and funders pages.
