3. Activity level on the Norwegian Continental Shelf
War and the energy crises characterized the year 2022. The Russian export of pipeline gas through Nord Stream 1 and Yamal was shut down completely in 2022, and exports via Ukraine were reduced significantly. This development has also had consequences for the global LNG market, since most of Russia´s pipeline gas has been replaced by increased imports of liquefied natural gas. It will be crucial that Norwegian natural gas supplies to Europe to remain at a high and stable level going forwards.
The temporary adjustments to the petroleum tax system, passed in the summer of 2020, have had the desired effect and the activity level on the NCS is stable. Development plans for 18 new developments and 13 plans for the further development of fields in production were submitted under the temporary adjustments. New calculations carried out by Menon Economics for the Ministry of Petroleum and Energy show that the projects sanctioned under the temporary adjustments will yield investments of 440 billion kroner. These investments are expected in turn to provide employment equating to approximately 158,000 man-labour years from 2020 to 2029.
Relatively low levels of new oil and gas investments globally in recent years, economic recovery following the pandemic and international value chain bottlenecks, coupled with war and the energy crisis have led to increased costs and inflation across several countries. These effects are also felt by the operators on the NCS, causing activity levels to be constantly assessed and adapted to suit the prevailing circumstances.
Oil production development and global demand
In 2022, 97.8 million Sm3 of oil were produced on the NCS, as illustrated in Fig. 1. This is a slight decrease compared to the 2021 level. The decrease must be seen in relation to production delays from newer fields, as well as a focus on increased gas production due to the European energy situation.
Global oil demand in 2022 stood at approximately 99.8 million barrels per day, according to the IEA. Global demand in 2023 is expected to rise by 2.2 million barrels per day to a total of 102 million barrels per day. This growth is driven primarily by increased demand in China as a result of restarting its economy following the pandemic. Global demand is now higher than it was prior to the pandemic.
Fig. 1: Historic petroleum production on the NCS (Mill. Sm3 o.e.)
Gas production development and European demand
In 2022, 124 billion Sm3 of natural gas were sold and supplied from the NCS. This is an 8% increase from 2021. Demand for natural gas in Europe from the NCS has been high due to the reduced supply of Russian pipeline gas and the desire to become independent of Russian energy. Norway is now Europe´s largest single supplier of gas.
According to the IEA, OECD European gas demand dropped by 13% (over 70 bcm) in 2022. Extremely high prices coupled with subsequently lower demand in the energy and industry sectors, temporary crisis measures, and mild winter temperatures contributed to the decrease. The IEA anticipates a further drop in demand of approximately 5% in 2023, but this development is uncertain.
Exploration activity, APA 2022, APA 2023
In 2022, 34 exploration wells were started (29 wildcat wells and five appraisal wells), as illustrated in Fig. 2. A total of 12 oil and gas discoveries were made, yielding a gross resource growth of 52 million Sm3 o.e. Approximately 35 exploration wells are expected to be drilled in 2023.
In the Awards in Pre-defined Areas (APA) for 2022, 25 companies were awarded shares in 47 new production licenses. These were broken down into 29 blocks in the North Sea, 16 blocks in the Norwegian Sea and two blocks in the Barents Sea.
In May, the Ministry of Petroleum and Energy announced APA 2023. The APA areas were extended since APA 2022 with 78 blocks in the Barents Sea and 14 blocks in the North Sea.
As a result of the budgetary agreement between the Socialist Left Party (SV) and the Norwegian government, there will not be a 26th. Licensing Round in this Parliamentary term.
Fig. 2: Exploration wells started on the NCS (Source: NPD)
Investments
Offshore Norge presented its investment analysis for the NCS in December 2022. The analysis includes estimates for investment levels on the NCS over the next five years. In 2023, investments are expected to stand at 187.1 billion kroner. This is an increase of approximately 6% compared to investment levels for 2022 and calculated at current rates.
The increase is seen in relation to several new projects starting up over the coming years, with a large proportion of the investments set to take place between 2023 and 2026. The estimated investment level in the coming years is higher than that indicated a year ago. Tight national and international markets, along with continued disruptions to international value chains amplified by the war in Ukraine, point to pressure in numerous sectors. A weakened Norwegian krone also means an increase for investments made in foreign currencies.