Having declined to the level witnessed back in 2014, oil production in Western Europe is on the verge of expanding by 19% in 2020 and hitting the 3.5 million bpd mark by 2025, particularly driven by the ramp-up on Johan Sverdrup and start-up of the Johan Castberg field in Norway. This article assesses the Western European E&P status and outlook, illustrated by the three key drivers: oil production, breakeven prices and capital spending.
Figure 1 depicts oil and condensate production from the Western Europe region, split by country, from 2010 to 2025. Historically, oil production has been declining due to the natural decline on mature fields, hitting a 2.6 million bpd mark in 2014. While oil volumes managed to rebound to 2.8 million bpd between 2015-2016 thanks to the ramp-up on several important developments in both UK (Golden Eagle, Kinnoull and Franklin & Franklin West) and Norway (Goliat, Gudrun and Edvard Grieg), last year oil output in Western Europe again decreased to the level witnessed back in 2014. At the same time, Norway and the United Kingdom contributed 93% of the region’s oil output with Denmark, Netherlands and others accounting for just about 180,000 bpd. Looking forward, Western Europe’s oil production is expected to grow by an impressive 19% in 2020 and exhibit a CAGR of 2.4% in 2021-2025. As such, oil volumes are anticipated to hit 3.5 million bpd in 2025, adding nearly one million barrels per day over the next five years. Such increase in production this year is particularly driven by the ramp-up of the first phase of a giant Johan Sverdrup field in Norway, which began producing in October 2019. Holding over 2 billion barrels in oil reserves, the field is expected to add 360,000 bpd of oil in 2020. We will also see oil growth from several fields in the UK, namely Claire Ridge and Mariner, which cumulatively are estimated to account for 70,000 bpd of additional oil. In the medium term, we anticipate the start-up of the already sanctioned Johan Sverdrup Phase II and Johan Castberg, which together will increase oil production by 300,000 bpd in 2023. While there are no discoveries of similar size expected to be put on stream before 2025, there are many mid-sized fields that are waiting in the pipeline to be developed in both the UK and Norway. In combination with the fields mentioned, these will be enough to offset declining output on mature fields and help reach oil production of 3.5 million bpd by 2025.
Figure 2 depicts estimated economically recoverable resources for the top five non-producing oil fields in Norway and the United Kingdom. Breakeven oil prices as of the sanctioning date for each field are also displayed on the chart. In Norway, the field holding the largest resources of over 600 million bbl is the second phase of Johan Sverdrup, sanctioned in May 2019 and forecasted to come online in 2022. Along with Johan Castberg, it is also the field with the lowest breakeven price, around $25 per bbl. The third phase of the giant field is awaiting approval, which is expected to be reached by 2026, and has a breakeven price around $38 per bbl. In the United Kingdom, three of the five largest discoveries, Halifax, Lincoln and Lancaster, are operated by Hurricane Energy and located in the West of Shetland region of the UK Continental Shelf. The Halifax field, discovered in early 2017, has estimated recoverable resources of around 800 million bbl with sanctioningexpected by 2027. Lincoln (full field development) is expected to be sanctioned by 2022 and has a breakeven of $32 per bbl; the tie-back of a Lincoln well to the Aoka Mizu FPSO is planned already this year. Similarly, Equinor is expected to reach the final investment decision on the Rosebank discovery, holding an estimated 300 million bbl of oil resources, by mid-2022.
Figure 3 shows capital spending on oil fields in Western Europe from 2010 to 2025. Investments have fallen from the peak of $35.7 billion in 2014 to just $16.8 billion in 2017, as a result of years of reduced activity triggered by the oil price collapse. Since 2018, we have seen a gradual recovery driven by increased sanctioning activity in a higher oil price environment. Johan Sverdrup Phase II and Johan Castberg fields in Norway have been the main sources of capital influx, amounting to nearly $3 billion in both 2018 and 2019. In the medium-term, capital expenditures are expected to continue to increase driven by higher spending on unsanctioned discoveries. Rosebank/Lochnagar, Lincoln, Lancaster and Clair South fields in the UK and Wisting Central & Hanssen, Krafla/Askja, and Liatarnet in Norway will see the largest spending contributions. Overall, oil field capital investments are currently forecasted to reach $18.4 billion in 2020 and grow to over $20 billion by 2025.
Western Europe’s oil supply, with Norway and the United Kingdom as key contributors, is set for a renaissance this year and a growing trajectory going forward. The flat development over the last few years is expected to be reversed thanks largely to Norway’s Johan Sverdrup and Johan Castberg fields. Unsanctioned discoveries, both in the UK and Norway, with favorable breakeven prices and sizeable resource potential, will further contribute to investments and support production growth in the region going forward.