Norway Mulls Output Cut to Prop up Price

On the eve of a much-hyped Opec meeting, Norway's petroleum ministry told NGW April 8 it would consider helping to rebalance the market and prop up the oil price. As a major oil producer, Norway has 'Opec observer' status: as a member of the Organisation for Economic Co-operation and Development (OECD), it has avoided closer association with the producers' cartel which uses output to influence prices. But demand destruction caused by the Covid-19 virus might force a one-off rethink to reduce the over-supply.

"As part of this effort we have a dialogue with key stakeholders, including other producing countries," it said. "If a broad group of producers agree to cut production significantly, Norway will consider a unilateral cut if it supports our resource management and our economy. We have no further comment on this matter at this time."

Norway is not the only OECD member considering such steps. Ryan Sitton, the head of the US Texas Railroad Commission which serves as an energy market regulator, has held talks this week with the energy minister of Alberta, Canada, to discuss how an international deal could be reached, he tweeted on April 6.

"Alberta, like Texas and other states, has authority to limit production to match supply with demand," he said.

Earlier the commissioner also discussed a global supply cut with Russian energy minister Alexander Novak.

The Covid-19 crisis has caused fuel demand to collapse, prompting the world's biggest producers to discuss co-ordinated action to support prices. The Opec+ group and other major producers are due to hold a meeting on April 9. Norway is among 1o observer countries that has been invited. The others are Argentina, Brazil, Egypt, Indonesia, Canada, Colombia, the US, the UK and Trinidad and Tobago, according to Russia's Tass news agency.

Cutbacks

Norway's upstream sector is already feeling the force of the sudden downturn. Operators have dropped 10 exploration wells from their plans this year, lowering the overall count to 40. The Norwegian Petroleum Directorate (NPD) warned April 8 that further reductions in drilling work are possible.

The 10 wells will be postponed until next year, the NPD said, adding that geophysical surveying plans had also either been delayed or cancelled. The drilling delays may not necessarily have consequences for resources, except in cases where the discovery of new fields is needed to justify keeping late-phase infrastructure in operation.

If low prices persist, fields could be shut sooner than anticipated, reducing the incentive to make new discoveries that can be tied to their infrastructure. This would affect production levels in the longer term.

Cost-cutting measures announced by operators over the past month will also delay development projects, including those aimed at enhancing recovery. Meanwhile at fields in operation, wells that are being postponed because of weak market conditions and/or reduced labour as a result of the Covid-19 pandemic may not be drilled at all. Again, this will impact future production and overall resource recovery.

Delaying and cancelling investments has also affected the labour market, meaning that skilled workers not easily replaced could leave the industry. This would have dramatic consequences for the Norwegian supplier industry.

"What we're seeing is a situation in constant flux. This is why it's difficult at this time to have an overview of the effect of what's happening in the industry," NPD Director Ingrid Solvberg said in a statement. "We're following the activity closely. We're getting the job done and addressing the matters that need addressing. But this is a serious and demanding situation."

Norway's petroleum ministry recently proposed a list of new blocks for inclusion in this year's Awards in Pre-defined Areas (APA) licensing round. It has proposed only 36 new blocks, compared with 90 offered in last year's contest. This marks the smallest offering since 2015, when 35 were offered. All of them are in the Norwegian Sea, with none in either the Barents or North seas, although the ministry noted to NGW that operators could still bid for unawarded blocks in these areas added in previous rounds.