Daily Parse | There is no lack of evidence to support the claim that the Barents Sea will be a worthy successor to the North Sea for Norway. It’s the oil itself that’s been hard to come by
Kevin McGwin
On paper, the Barents Sea is a promising oil province for Norway as the country seeks to find new fields that can compensate for declining production from the North Sea, which, barring any major discoveries, can be expected to begin in 2024.
That is not to say that things are not going well for the industry in Norway right now. Output in 2024, according to Oljedirektoratet, a regulator, will be close to the record set in 2004. This is due largely two huge finds: the Johan Sverdrup field, in the North Sea, which began producing in 2019, and the Johan Castberg field, in the Barents Sea, due to come on-line in 2022.
After 2024, however, any growth will, perhaps somewhat worryingly, need to come from projects that must be approved, discoveries that must be developed and resources that have yet to be discovered, Oljedirektoratet said in its 2018 annual assessment.
For now, Oljedirektoratet insists there is still oil to be had under North Sea, proclaiming on its website that the area is “still viable”. The discovery of the Johan Sverdrup field suggests this is true, but, if Norway is to have a future as an oil producer, Oljedirektoratet has repeatedly made it clear that the Barents Sea is where it must happen.
That it is still stumping for the North Sea suggests it may be concerned about the pace of development. If so, its response has been to open the Barents up even further to exploration. When it announced the sale of exploration blocks this past summer, 125 of the 136 blocks on auction were in the Barents (the pink areas in the map above). This is a reflection of the fact that just two of the country’s 88 active fields are in the Barents, despite it housing an estimated two-thirds of its undiscovered offshore resources.
Seen optimistically, this means there is room for growth, and is perhaps why explorers are so enthusiastic about the Barents. While drilling in other parts of the Arctic has been wound down, due either to uncertain profit outlooks for the typically complex (read: expensive) projects, or to the environmental risks associated with drilling in remote areas, the classification of the Barents as an Arctic province has done little to scare off explorers.
Arctic, however, is more a description of the Barents’ location than conditions there: it is easily accessible, the warm water of the Gulf Stream makes it less prone to the challenging ice conditions that plague other Arctic operations and it is in closer proximity to land than most other Arctic projects, meaning that building infrastructure to store, process and move products to market is feasible. Moreover, firms can use Norway’s reputation for environmental responsibility as a shield to deflect at least some criticism of their operations.
In a sign of explorers’ faith in the future of the Barents, Lundin Energy, a Swedish firm, announced it was purchasing existing licenses there, expanding its operations in a province it describes as one of its core exploration areas.
The $125 million deal was announced at the same time as the firm said it expects to begin drilling three exploration wells in the Barents before the year is out. Lundin reckons it may be sitting on gas and oil reserves amounting 800 million barrels of oil, larger than the Johan Castberg field by half.
SEE RELATED: Pumping money into the ground
Such facts would bode well for the future of the Barents if it were not for its lacklustre present. Discoveries have been more modest than hoped, and the existing operations have been plagued by all manner of mishap and, most recently, delays and cost overruns, leading to questions over how long companies would continue to explore there.
“We do have to have some material success at some point,” Nick Walker, a Lundin Energy executive who will take over as chief executive in January, told the Financial Times, a news outlet, in connection with this week’s purchase. “We can’t keep drilling forever.”
Statements like that should have Oljedirektoratet less concerned with how much longer the North Sea will be a viable oil province than with whether the Barents ever will become one.
Further reading
- Lundin increases bet on Arctic oil
Financial Times - Norway’s Equinor hit by cost over-runs, delays to major oil, gas projects
S&P Global Platts - Johan Sverdrup single-handedly reverses Norway’s crude production decline
Bloomberg
Resources
- Acquisition of Barents Sea portfolio from Idemitsu Petroleum Norge
Lundin Energy - Norwegian Continental Shelf (annual publication)
Oljedirektoratet - Johan Castberg (website)
Equinor
The Daily Parse offers a summary and analysis of the main points about a current topic related to the Arctic. Each article includes external articles and resources to give readers a place to begin if they would like to learn more.
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