January 5, 2017
Author: Veronika Akuliniseva, Analyst, Rystad Energy
Publisher: PESGB Newsletter, January Edition
Hydrocarbon production in Europe is expected to continue to decline in 2017 and will be driven by output decrease in many contributing countries. Norway, however, is anticipated to again lead the supply growth in the region, after negative additions seen last year. Being the leading country in terms of production growth in 2016, the UK is estimated to deliver a marginal growth in volumes this year with an increase in crude output, counter balanced by negative additions from gas volumes. This article assesses the 2017 E&P outlook for Europe, illustrated by the three key drivers: production, resources and spending.
Figure 1 depicts 2017 production growth for a selection of countries in Europe, split by oil and gas. Norway holds the highest market share in the region with total production estimated at around 4 million boe/d. Total production in Europe is expected to decrease by around 80 kboe/d in 2017, similar to the decline level experienced last year. The largest contributor to falling production is the Netherlands, where output is declining by nearly 130 kboe/d, which is led by a mature asset base and the Groningen field in particular. Positive additions in supply are now anticipated in Norway, Italy, UK, and Greece. Increase in Norwegian supply is fully driven by gas volumes, with fields such as Troll East and Valemon increasing gas production this year. Oil fields, on the other hand, show a decreasing trend, which is driven by a lack of significant new oil projects scheduled to start producing in 2017. In the UK, however, crude oil production is estimated to increase by 40 kboe/d, driven by the fields that started producing in the last couple of years and are now ramping up output (e.g. Arbroath, Solan, Conwy). At the same time, gas volumes are declining. In total this will deliver a marginal increase in output year-over-year. Finally, growth in Italian supply comes predominantly from mature fields such as Monte Alpi, Cerro Falcone and Monte Enoc, where production is recovering after the disruptions at the Viggiano plant that took place last year.
Figure 2 shows the total remaining resources as of January 2017 for top five countries in Europe, split by proven, probable and possible, and not yet discovered volumes. Norway holds the largest remaining hydrocarbon reserves in the region, which account for 50.7 billion boe, with proven volumes constituting 28% of the total. The risked undiscovered potential in the country is estimated to equal 17.3 billion boe. Total remaining recoverable resources in Europe stand at 141 billion boe in 2017, with 50% of the volumes not yet discovered and only 20% proven. The chart also shows the estimate of resource life or the number of years it will take to produce all resources at the current production rate. In the Ukraine and Italy, this number is high at around 100 years consistent with low production level. On the other hand, Norway and the UK are estimated to have the resource life of 36 years, as not only resources, but also current production level in those countries is notably higher. The Netherlands has the lowest resource life, which is the result of a lower production rate and lower recoverable volumes, especially when compared with the leading countries.
Figure 3 shows total 2017 spending for selected countries in Europe, split by brownfield and greenfield types of cost. Greenfield cost is the total capital expenditures spent on greenfield projects in a given year, and this category includes both well and facility types of investment. Brownfield cost comprises well and facility capex spent on already producing fields, as well as operational costs associated with operating oil and gas fields. This year, the UK is forecasted to have the highest investments in Europe totaling around $32 billion. The proportion of mature fields in the UK’s portfolio and thus a high level of operational cost per boe is the leading driver for considerably higher total brownfield cost estimated for the country. Total spending in Norway is anticipated to reach $25.5 billion this year with greenfield part contributing 35% of the total. Investments in the remaining countries will mostly be related to brownfield projects, as very little contribution is expected from new projects in the coming years. Total spending in Europe in 2017 is currently expected to reach $73.8 billion, which is around $0.5 billion lower than that spent last year.
In 2017, we expect hydrocarbon production in Europe to continue to decline with the Netherlands anticipated to have the highest output decrease in the region. Nevertheless, a number of countries will show supply growth this year led by increasing gas production in Norway and some crude additions delivered by Italy, and the UK. Norway is also estimated to hold the largest remaining reserves in Europe and will spend the most on greenfield projects this year.
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Contact: Veronika Akulinitseva, Analyst
Phone: +47 24 00 42 00
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