Norway's Oil and Gas Investment in Steep Decline
The challenging market for Norwegian oil and gas looks set to continue throughout 2016 with the news that firms are slashing their investments by more than 13% this year.
According to figures released by Statistics Norway February 24 on the basis of the body's latest survey, oil and gas investment for 2016 for oil and gas extraction and pipeline transport is expected to fall by 13.3% to Nkr163.9bn (€17.3bn) when compared with the corresponding estimate given in 2015.
The decrease in investment is the second year running that investment has shrunk in the Norwegian oil and gas sector. Though the decrease is sharper than that seen in 2015, 2015 – the first full year after the oil price collapsed in 2014 – was also a year of a steep fall in spending for the Norwegian oil and gas market, with investment decreasing in that year by 11.5% on 2014. The decline follows a period of strong growth for the Norwegian oil and gas sector. From the period from 2010 to 2014, investments in oil and gas activity grew by 68% in nominal terms, Statistics Norway says.
Exploration and oil prices cause deep cuts
Statistics Norway's revised oil and gas investment figure for 2016 also downgrades by 4.1% its November estimate. Statistics Norway indicated that this downward revision was largely due to decreased investment in exploration and companies' concerns over lower oil prices.
"The exploration estimate decreased by 25.5% to Nkr16bn (€1.6bn)," it said. "The further decline in oil prices seen in recent months have contributed to more uncertainty among oil companies regarding the long term oil prices. The price decline also results in distinct lower cash flow in the oil companies. These conditions affect both the will and the ability to make investments in the oil companies.
"Exploration investments do not affect production in the short run. Thus are these kinds of investments easy to cut. Many oil companies on the Norwegian Shelf have only exploration activity and can therefore only cut these kinds of investments."
UK faces similar challenges
Norway is not the only country to experience an oil and gas spending crisis in the past week. On February 23, industry association Oil & Gas UK also said that oil and gas investment was set to fall in the UK.
The UK, which like Norway, has in recent decades seen strong activity and investment in its oil and gas industry has been rocked by falling oil prices.
Oil and Gas UK said that total capital expenditure is expected to be around £9bn (€11.4bn) for 2016, down from £11.6bn in 2015 and £14.8bn in 2014.
Investment is also set to drop drastically with the association saying that the industry is expected to approve fresh capital of just £1bn (€1.26bn) in new projects this year, compared with an average of £8bn (€10.1bn) in the previous five years.