Can Norway Remain Europe's Top Gas Supplier While Meeting Climate Goals?

• Norway's oil production could start declining as early as 2025 if new exploration activities are not pursued.
• The Norwegian Offshore Directorate (NOD) has outlined three scenarios for Norway's oil and gas production between 2025 and 2050, all of which show a decline in output.
• Equinor plans to invest $66 billion in oil and gas by 2035, with the aim of maintaining production at around 1.2 million bpd over the next decade.

Norway has been investing heavily both in its renewable energy infrastructure as well as continuing to produce huge quantities of oil and gas for several years. However, with greater pressure from international organisations to curb oil production, a lack of new exploration activities, and worries of a decrease in global demand for fossil fuels in the coming decades, Norway’s oil production could begin to decline from as early as 2025. Norway’s upstream regulator, the Norwegian Offshore Directorate (NOD), reported this month that it expects the country’s oil and gas production to start decreasing from next year if the government does not pursue new exploration activities to maintain Norway’s output. This could prevent the Nordic country from earning billions in revenue. 

Norway has overtaken Russia as the biggest natural gas supplier for Europe, following the Russian invasion of Ukraine and subsequent sanctions on Russian energy. It has reserves of around 7.1 billion cubic metres of oil equivalent (Bcmoe), including around 3.5 Bcmoe of undiscovered resources, according to the regulator. In its report, the NOD set out three scenarios for Norway’s oil and gas production between 2025 and 2050, which all show a decline in output, and all, according to the regulator, adhere to Paris Agreement objectives. 

In the “base scenario”, oil and gas output increases to 243 million cubic metres of oil equivalent (MMcmoe) in 2025 before gradually falling to 83 MMcmoe in 2050. This would largely be owing to a decline in Norway’s bigger oil fields. The “low scenario” shows production falling, starting in 2025, to almost zero by 2050. This is driven by a lack of exploration activity and the drying up of wells in the Barents Sea. In the “high scenario”, production remains high for the next decade before decreasing to 120 MMcmoe by 2050. This is driven by greater exploration in the coming years and the rollout of advanced technologies in the industry. 

The NOD highlighted that the Norwegian continental shelf is still competitive, as it has vast oil and gas reserves and sufficient infrastructure, as well as favourable government policies. The 2000 petroleum tax reform has also helped spur investment in the sector, supporting growth. Further, Europe’s movement away from a reliance on Russian energy has helped Norway to become the biggest supplier of gas in the region, a trend that is expected to continue for several years, with natural gas seen as a transition fuel for the green transition. However, the regulator emphasised that the failure to capitalise on Norway’s massive oil and gas reserves, as shown in the high scenario, would equate to losing “nearly an entire government pension fund” – or around $1.42 trillion. 

Kjersti Dahle, the Director of Technology, Analysis, and Coexistence at the NOD, stated, “This is why we’ll need to ramp up exploration and investment in fields, discoveries and infrastructure moving forward in order to slow the decline in production. A failure to invest will lead to rapid dismantling of the petroleum industry.” Dahle added, “The scenarios reveal stark differences in future value creation and future government revenues from the petroleum activities. The Norwegian Offshore Directorate’s calculations show a difference in net cash flow of about NOK 15 thousand billion between the high and low scenarios.”

This year, two Norwegian firms brought an end to drilling operations in the Barents Sea. While Aker BP’s project resulted in a gas discovery, Equinor made no such find. Preliminary estimates show that the size of the Aker discovery could be between 0.51 – 0.7 million standard cubic metres (Sm3) of oil equivalent. The NOD is calling for more companies to launch exploration activities in the region, as well as for the development of a new pipeline to support increased gas production in the Barents Sea.

While Equinor may have failed to make a discovery in its recent Barents Sea project, it has big plans for oil and gas in Norway. Equinor's CEO, Anders Opedal, recently stated that it is important for Equinor to maintain economic growth and support Europe’s energy security, while also backing the green transition. Opedal said that high levels of investment in oil and gas will continue for “many, many years”, while also emphasising the importance of the electrification of Equinor’s operations to reduce emissions. 

This month, Equinor announced plans to invest $66 billion in oil and gas by 2035, as well as an emergency preparedness plan for Barents Sea activities, following the recent NOD report. The plan earmarks between $5.7 and $6.6 billion a year for hydrocarbons. The company hopes to maintain production at around 1.2 million bpd over the next decade. Funding will boost exploration activities, with plans to drill between 20 to 30 wells a year to ensure a stable output over the next 10 years. This action from Equinor is expected to help Norway avoid the “low scenario” set out by the NOD, as it continues to produce high levels of oil and gas well into the next decade. 

By Felicity Bradstock for Oilprice.com 

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