The Norwegian oil and gas projects pulling in investment

Matthew Farmer 13 January 2021 (Last Updated January 12th, 2021 18:14)

Despite 2020’s disruption to the oil and gas industry, Norway’s statistics agency has released figures showing the country did no worse than expected. In the coming year, the agency expects a dip, but continued investment in large projects has meant 2021 could keep international investment flowing into Norway.

The Norwegian oil and gas projects pulling in investment
State-owned production company Equinor ‘s Johan Sverdrup development will extract at least 1.7 billion barrels of oil in its 50-year lifespan. Credit: Ivar Aasen

In November, the official Norwegian statistics agency Statistics Norway released figures showing how 2020 has changed the country’s oil and gas industry. While the agency’s estimates for 2021 rose in Q4, they stand 9% below what it expected for 2020 one year before.

Statistics Norway estimates companies invested $20.9bn in extraction and pipeline transport across the whole of 2020. After capital expenditure cuts, Covid-19, the oil price war, and continuing low demand, this figure approximately matches the estimate the agency made in November 2019. As such, the figures suggest the largest cuts have yet to come.

The agency’s estimates Norwegian field investment in 2021 to be worth approximately $18.4bn. This stands 27% higher than the agency’s previous 2021 estimates, but lower than current estimates of 2020 expenditure.

While spending will dip in 2021, the expected fall has shrunk. Norwegian producers have kept their faith in Norwegian projects, perhaps partly down to the state-owned nature of dominant force Equinor. Still, large developments expanded throughout 2020, and more projects seem set to keep investment coming in 2021.

Johan Sverdrup extension

State-owned production company Equinor ‘s Johan Sverdrup development will extract at least 1.7 billion barrels of oil in its 50-year lifespan. The field was first approved in 2019, with a phase two expansion proposed in May of the same year. The expansion will include a new processing platform, with service company Aibel starting assembly in 2021. Installation will come in spring 2022, with production starting in the fourth quarter.

Aibel has valued the platform as worth approximately $1.2bn. In December 2020, Aker Solutions won a contract to hook up the field’s fifth platform, worth $57m. While spread across multiple years, these investments show significant investments will continue in 2021.

The company has high hopes for its deep-sea field. In April 2020, during Norway’s first lockdown and an oil price war, Equinor announced it would accelerate the ramp-up of the field. In November, with new Covid-19 restrictions in place, Equinor announced that it would again increase its capacity, aiming for 500,000 barrels per day by the end of the year. However, not every day was as prosperous, as strikes threatened production in October.

The environmental credentials of the field hint at the reasons for Equinor’s enthusiasm, and why Norway continues to attract investment. If planned platform electrification goes ahead, each barrel would produce 0.67 kg of CO₂ in its production. This compares to a Norwegian average of 9kg per barrel, in turn significantly less than the 18kg global average. If Equinor anticipates stricter carbon pricing in future, the Johan Sverdrup extension remains largely futureproofed.

New fields on the Norwegian continental shelf

While Equinor carries out a majority of work on the Norwegian continental shelf, it is not the only operator with big plans. ConocoPhillips made significant discoveries in 2020, promising development after its current slate of projects.

The company started production on the Tor II field in December 2020, 12 months after receiving approval. Despite Covid-19, the project arrived within its estimated timeline and ConocoPhillips foresees it extending to 2050. In the coming year, the company will bring another six wells online, bringing capital investment up to $730m.

French giant Total owns the largest share of the licenses here, along with Vår Energi, ConocoPhillips, Equinor, and Petoro. The operator estimates the cost of supply for this field to remain below $30 per barrel, allowing profitability during the pandemic. These low costs compare well to other global fields, again hinting at why Norway has maintained consistent investment.

In September 2020, the company announced it had submitted plans to develop the Breidablikk field after agreeing terms with its co-owners. Equinor would operate this field, with ownership split between Petoro, Vår Energi, and ConocoPhillips.

Between them, the companies would invest $2.13bn to retrieve 200 million barrels. This would require 23 wells and four seabed templates connected to the Grane platform. This investment would draw first oil by 2024. The platform’s current lifetime expands to 2043, but ConocoPhillips has already posed the idea of extending this.

On 22 December, the company announced a discovery in the Slagugle prospect in the Norwegian Sea. ConocoPhillips’ COO Matt Fox said: “This discovery marks our fourth successful exploration well on the Norwegian continental shelf in the last 16 months. All four discoveries have been made in well-documented regions and offer low cost-of supply resource additions.”

While development of this may come beyond 2021, the promise of 75 million to 200 million barrels could attract similar investment to that on the Breidablikk field.

Northern Lights Project

Norway pioneered some of the world’s first carbon capture and storage (CCS) projects. The latest and greatest of these comes in shape of the Northern Lights CCS Project, operated by Equinor. 

In May, Shell and Total announced their investment in the project, forming a joint venture with Equinor to operate it. As oil and gas producers reduce their carbon emissions, the project presents a large-scale carbon offsetting opportunity for all involved. In press statements, Equinor has said the company’s route to net-zero emissions will rely on this project.

Equinor president and CEO Aders Opedal said: “The Northern Lights project could become the first step to develop a value chain for CCS. Development of CCS projects will also represent new activities and industrial opportunities for Norwegian and European industries.”

The project would take CO₂ from one nearby industrial cluster, but would focus on shipments of liquid CO₂ from industrial areas elsewhere. Unusually, the project would then store the emissions in subsea formations that have not seen previous extraction. Equinor confirmed this potential within the Johansen and Cook formations with a wildcat well drilled in March 2020.

For full-scale injection, the operating companies will construct a terminal, pipeline, and subsea injection equipment. The operating company has stated the project will use an investment of $800m . 

The company has also signed many memoranda of understanding with companies looking to explore the potential of CCS. Microsoft will develop digital technologies around the project, in exchange for using its carbon offsetting potential. Mitsubishi Heavy Industries will help develop the CCS value chain in Norway and Japan. Eight other companies interested in the project’s use for their business have also signed memoranda with the project developers. 

The Norwegian government made its final investment decision in December 2020. Wasting no time, Equinor awarded engineering procurement and construction contracts worth $150m in mid-December. Aker Solutions and its subsidiary received contracts for onshore development and installation of a CO₂ injection system. 

The final investment decision also activated a site preparation and jetty construction contract worth $35m. Works for these begin in January 2021, with completion expected in Q1 2024. Later that year, the plant will begin operations.

Statfjord Øst improvements

December also saw Equinor announce recovery improvements on the Statfjord Øst field. With license partners Petoro, Vår Energi, Spirit Energy, Idemitsu Petroleum, and Wintershall Dea, Equinor submitted plans to improve the field.

Statfjord Øst came online in 1994 and has already had its lifespan extended until 2040. The improvements would mean four new wells, a new pipeline, and modifications to the Statfjord C platform. With a cost of $340m, these would improve the field’s recovery factor by 6%. Drilling would begin in 2022, with works completed by 2024.

At the start of 2020, the company planned to decommission the Statfjord A platform in 2022. This became one of the company’s few deferrals in 2020, made before the onset of the pandemic. In that decision, Equinor gave the platform another five years.

In 2021, the company will continue work to enhance recovery in the Gudrun field, worth $280m. The company hopes to finish construction and start up a water injection plant by the end of the year, extending its field life by 3 years.