Norway’s decision in
the early phase of the pandemic, in March 2020, to protect its petroleum
industry by lowering taxes, maintaining production and investment activity in
an economic setback, appears to pay off well. The strategy to renounce on
short-term revenue, in order to safeguard industrial capacity and competence,
showed positive results already in 2022, as output increased over the preceding
years. The trend is likely to persist for several years.
commitment to the offshore oil and natural gas industry. In hindsight, lowering
petroleum taxation was a wise move by two succeeding governments and mainstream
politicians. Petroleum extraction is expanding. Revenue from oil and gas in
2023 is estimated at about US$100 billion, close to three times the average for
the preceding decade. The petroleum activities provide jobs and industrial
challenges, especially in coastal communities. The oil and gas revenues bolster
Norway’s economy, although only a tiny fraction is spent directly over the
budget. The rest, savings from oil and gas revenues, have made the world’s
largest sovereign wealth fund.
In Norway, petroleum
activities are gaining political acceptance. The climate-and-environment-motivated
lobby remains more vocal than effective. The Left Socialist Party, a
parliamentary support for the current Labour-Centrist coalition cabinet,
precludes awarding licences to virgin maritime areas; only zones already
awarded, and licences relinquished, are currently under consideration,
representing significant acreage.
High prices and
enhanced political acceptance prepare the ground for rising oil and gas
investment in the coming years. In June 2023, the government approved 19 oil
and gas projects, totalling an investment estimate of about US$20 billion,
concerning new prospects as well as developing fields already in production.
Resource potential/prospectivity. Maintaining and developing
petroleum industry capacity is essential, considering Norway’s resource
potential. Its maritime territory of 2.1 million km2 (800,000 mi2)
dwarfs the Gulf of Mexico’s 1.6 million km2 (600,000 mi2).
About one half of the area is estimated to have sedimentary rocks with a
petroleum occurrence. Measured by exploration, the Norwegian Continental Shelf (NCS)
a not very mature oil province; in almost 60 years, only 1,200 wildcat wells have
The issue concerns Norway’s potential and willingness,
as well as the European market. The potential is sizable, but it would require
exploration, success and investment. Limited exploration means that the notion of resource
base maturity should be applied with caution to the NCS, especially as the
little-explored northern waters are opened. Some areas are well- explored and
appear as fully mature, with fewer, smaller and more adverse prospects. Other
areas are hardly explored. As part of a parliamentary agreement, no new areas
are to be opened for exploration until 2025.
areas are fallow, not subject to petroleum activity. According to estimates by
the Norwegian Petroleum Directorate, about one half of the area, i.e., one
million km2, contains rocks with a petroleum potential. More than
one half of this territory, ca. 600,000 km2, has, in principle, been
opened for petroleum activities, but it is far from fully explored. Areas not
opened comprise parts of the Barents Sea, parts of the Norwegian Sea close to
coasts, the territory around Jan Mayen, territories offshore the Lofoten and
Vesterålen Islands, as well as most of Skagerrak, the sea connecting Norway
with Denmark and Sweden.
Exploration history. Exploratory drilling
has taken place on blocks representing a small part of the prospective
territory, less than 50,000 km2. The historical, cumulative finding
rate has been 43%, against 23% on the UK Continental Shelf: in Norway, with
less drilling, more resources have been found than in the UK.
The Norwegian part of the North Sea has been less-explored
than the UK portion. The central and northern parts of the continental shelf,
i.e., the Norwegian Sea and the Barents Sea, have been comparatively little-explored.
The government estimates, conservatively, that the remaining volume of liquids
and gases is comparable to that extracted since 1970. Norway might have the
potential to remain a significant oil and gas exporter for at least a couple of
more generations. Recent discoveries highlight the potential. Critical questions
are Norwegian willingness and the market.
The Norwegian part of
the North Sea, the southernmost
part of the continental shelf, has been much less explored than the
neighbouring UK side, but with more finds. The Norwegian Sea, the middle part, in theory has indications of an
oil and natural gas potential almost as large as the Gulf of Mexico, but with
far less exploration, due to technical challenges and high costs.
The Barents Sea, the northernmost part,
has promising geology with both oil and natural gas finds in recent years. In
geological terms, it is composite. The eastern slice has structures in common
with adjacent Russian maritime areas, with a higher potential for natural gas;
the western slice has structures in common with other Norwegian areas and
higher potential for oil. This is a
separate geological formation.
Portions of the
Barents Sea have been subject to seismic studies, as well as exploration
drilling, but most of the area has not been subject to up-to-date seismic
surveys and even less to exploration. The regional geology has large structures
that, in theory, have an oil and gas potential.
Investment challenges. Apart from concerns about climate and the
environment, rising petroleum investment is fraught with economic risks. In
this business, high returns are accompanied with a high price risk typical of
oligopolistic markets. Oil prices are unstable at any level because of shifting
priorities and relations among key exporters.
natural gas market depends on relations with Russia. It is also shaped by the European Union (EU),
whose energy policies are subordinate to climate concerns and not very
successful. The EU will not tolerate
long-term contracts, but price volatility impedes investment. In several
countries, political support for the “green shift” is dwindling, but the EU
seems persistent. Norway would welcome an EU, and UK, recognition that natural
gas is a fuel for the future, also in Europe. WO
ONORENG@ONLINE.NO / Øystein Noreng is a professor emeritus at BI Norwegian Business School. He has been an advisor or consultant to the International Monetary Fund; The World Bank; the governments of Canada, Denmark, Norway, Sweden and the U.S.; and energy companies, including Equinor, PDVSA and Saudi Aramco.