Production from the North Sea is expected to enter into a new growth cycle over the next five years, growing to around 4.7 million boe/d by 2025. Johan Sverdrup will play a key role in maintaining this trend. This article assesses the outlook for the North Sea, illustrated by three key drivers: production, breakeven prices for new projects, and total spending.
Figure 1 shows production from the North Sea, split by country from 2010 to 2025. Norway and United Kingdom make up about 90% of the region’s production. As a result of natural decline of mature fields, production declined historically from 5.5 million boe/d in 2010 to 4.3 million boe/d in 2014. After a period of growth in 2015-2017, the decline was resumed, with this year’s supply expected to fall to around 4.4 million boe/d. With the first phase of the Johan Sverdrup project expected to start producing by the end of 2019, and the second phase in 2022, renewed production growth is expected from next year, leading to around 4.7 million boe/d produced by 2025. From 2020 and going forward, Johan Sverdrup is estimated to be the field with the second most significant contribution to production, after the giant Norwegian field, Troll.
Figure 2 depicts estimated economically recoverable resources for the top five non-producing fields in Norway and the United Kingdom, which are the main North Sea countries holding undeveloped potential in terms of remaining discovered resources. Breakeven oil prices as of sanctioning date for each oil field and corresponding gas prices for gas fields are also displayed on the graph. The field holding the largest resources of 2,200 million boe is the first phase of Johan Sverdrup operated by Equinor and forecasted to come online in 2019. The second phase of the giant field is awaiting final development approval from the government, which is expected to be reached in 1Q 2019. The construction works on site started in December 2018, and the field is anticipated to begin production in 2022. The sanctioned phase of the field has an estimated breakeven oil price of just around $21 per bbl. The unsanctioned phase enjoys a breakeven oil price of $32 per bbl, indicating that development is profitable even under the lower oil price environment that currently prevails. In addition, two significant in size Norwegian gas fields - Troll West and Martin Linge - are currently being developed and are seen to start producing in 2020-2021. In the United Kingdom, two large sanctioned fields are expected to come online this year: an oil field Mariner with 300 million boe of resources and a gas field Culzean with about 250 million boe of estimated resources. The start-up of the former was delayed to the first half of 2019 because of weather problems, while development of Culzean is progressing ahead of schedule towards a 2019 start-up. In terms of remaining discoveries, Bentley and the second phase of Bressay are the biggest fields waiting to be developed. However, commercial exploitation is not expected until mid-2020s.
Figure 3 displays total spending in the North Sea over the period 2010-2025. Investments (capex and exploration capex) have declined steeply from the peak levels in 2013-2014 to a low of $20.8 billion in 2017. The increase in spending before 2014 was primarily from mature fields in the Norwegian North Sea, such as Troll, Ekofisk, Eldfisk and Gullfaks, as well as the more recent Edvard Grieg and Jasmine discoveries. Key contributions to investments post 2017 are from the development of discovered resources, primarily the Johan Sverdrup field, as well as the Culzean field, both of which are expected to start producing by the end of 2019. Post 2020, discoveries in the Oseberg and Ekofisk areas, the Grosbeak discovery (Gjøa area) as well as the redevelopment of the Hejre field in the Danish North Sea are expected to see increasing investments.
Largely driven by Norway, North Sea oil and gas production is expected to enter a new growth phase next year and reach 4.7 million boe/d by 2025. Commercial development of long-awaited Johan Sverdrup field will play a key role in stable supply in the medium term. Both Norway and United Kingdom hold significant untapped resources in discoveries made in the past. The economics of many of these fields is favorable even under a Brent oil price of $60-65 per bbl. Timely development of the remaining resources and successful exploration performance in the future will be crucial for the long-term production in the region.