Norway Oil & Gas Report Q1 2014 - New Market Report

Although oil output is on track to register its 12th consecutive year of decline on an annual basis, the fall should be less pronounced than the previous year's 8%. With a strong response to licensing rounds, high levels of investment, highly prospective frontier acreage, and discoveries in mature areas, Norway retains a number of strengths and opportunities despite the continued downtrend in production. However, we note that as new projects come online from the end of the decade, production is on track to rebound. With sizable untapped gas potential and our forecast for steady reserve additions, production decline should be mitigated, with overall gas output remaining flat over the forecast. We expect Norway to retain its role as key supplier of gas to Europe.

The main trends and developments we highlight in Norway's oil and gas sector are:

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* 2014 is expected to see record levels of capital spending in Norway with around US$36bn directed towards the upstream oil and gas sector. This may however mark a peak in investment with expenditure set to fall in 2015.
* Despite the strong interest in both mature and frontier areas of Norway, oil and gas sector costs have been increasing at almost twice the rate of overall inflation. Growing concerns about rising costs is expected to make companies more cautious on investment, a trend that has already manifested through Statoil's decision to delay its US$15.5bn Johan Castberg project.
* The giant Johan Sverdrup field has been delayed by up to one year, and is now not expected to see first production until late 2019. The delay has largely been put down to the growing complexity and costs associated with the project. We anticipate other major Statoil developments, such as Johan Castberg, may also see delays as a result.
* Oil production remains in a downtrend, with maturing reservoirs - exacerbated by persistent challenges and volatility associated with planned and unplanned maintenance. We anticipate 2013 oil output to average 1.82mnb/d, though declines will be less than in previous years due to the growing implementation of improved oil recovery programmes.
* The longer-term outlook for production is more encouraging though our forecast has been altered due to delays to the Johan Sverdrup development. Nevertheless, oil output from Goliat, Ivar Aasen and Edvard Grieg will add critical volumes to production through to 2017, while the start up of Johan Svedrup should help reverse oil production decline by 2020. As a consequence, we forecast oil output of 1.76mn b/d by 2022, which includes initial volumes from Johan Castberg.

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