Petroleum revenue down by more than 200 billion in Norway, yet the oil industry is expected to be sustainable for many generations to come

January 30, 2015

– Summary of key points presented at the Ministry of Finance Meeting

 

Today, Norway’s Minister of Finance, Siv Jensen, invited Jarand Rystad, CEO at Rystad Energy, and other experts to a dialogue around the recent oil price collapse as well as challenges and opportunities consequential to the Norwegian economy. Since Rystad Energy has its expertise in oil and gas analysis, Jarand Rystad focused on the analysis of the Norwegian oil and gas industry, and did not provide political advice. He concentrated on communicating facts and forecasts on the relationships in the oil sector with the highest relevance to the Norwegian economy.

Jarand Rystad’s main messages were:

The oil price has collapsed due to three “shocks”  

  • Supply shock from shale oil and OPEC: 700 kbpd more oil in the market;
  • Demand shock from Europe: 600 kbpd less oil demand (hence excess of 1.3 mbpd in the market);
  • OPEC shock: Saudi-Arabia has many good reasons not to react to a lower oil price: To effect Iran, Russia and other OPEC countries; to stop the growth in US shale oil; to delay offshore and oil sand projects; to stimulate the world economy 

 

The oil price is likely to stay low for another year if Saudi-Arabia continues its current politics

  • Massive market imbalance - it takes time to slow down oil production
    • Thousands of shale wells drilled and yet to be set into production
    • Saudi-Arabia may “want” a crisis and has heavily raised the numbers of rigs
  • Weak global economic growth
  • Strong stock build-up, including oil tankers

 

The oil price will increase some in 2016 and 2017, but shale oil defines a ceiling  

  • Large spare capacity in shale at 70-80 USD/barrel - will reduce growth rate

 

The oil price will rise significantly from 2018  

  • OPEC and shale oil will not provide enough oil from 2018 given the supply erosion from today’s oil prices
  • Prices above hundred dollar per barrel required to stimulate sufficient developments
  • Large offshore projects will provide extra, needed volumes – but uncertainty on Brazil’s capabilities
  • Further price increase required to balance the market into the 2020s
  • New slowdown may arise in 2020s due to shale oil production

 

Income of Norwegian oil activities will be significantly reduced in the short and mid-term

  • On average, Norway’s income was at 345 billion NOK from oil activities in 2010-2013
  • For 2014, this is expected to be just under 300 billion NOK
  • In 2015, we are expecting NOK 130 billion, hence NOK 215 billion down vs the average between 2010-2013
  • In 2016, we are expecting income at NOK 150 billion
  • In 2017, we are expecting income at NOK 240 billion
  • In 2018, we are expecting income at NOK 330 billion
  • Further rise for the following years

 

Norwegian oil investments and costs are significantly lowered in 2015, but the downfall stops

  • Expected 10% downfall n 2015
  • Johan Sverdrup main contributor for stop in downfall in 2016
  • A weak rise in 2017, and further growth for many subsequent years
  • Tough short term market for the oilfield service industry – some regions will be hurt specially

 

Basis for activity growth in the Norwegian oil industry for many generations to come

  • Future growth in production, number of platforms and rigs – more service intensive
  • Production of more than 3 million barrels per day still expected in 2040 – even within the 2 degree scenario
  • The NCS with competitive cost levels – only offshore staffing is expensive in Norway
  • Competitive supplier industry – specifically within subsea, seismic, equipment, drilling, offshore shipping, shipyards
  • Low Norwegian currency strengthens competitive advantage in the short-term

 

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Rystad Energy

Fjordalléen 16, 0250 Oslo, Norway

Phone: +47 24 00 42 00

jarand.rystad@rystadenergy.com