OSLO Oct. 19, 2007 (Dow Jones Newswire)
Norway's ministry for oil and energy Friday told the stakeholders of giant oil and gas field Troll that it won't approve a plan to accelerate Troll gas production because it would result in a direct loss of 65 million barrels of oil.
The decision, which follows months of wrangling between stakeholders and Norway's authorities, won't affect the quantity of gas recovered from Troll over the field's lifetime. It will however reduce the speed at which gas will be produced in the short-term, putting paid to plans to build an associated new gas export pipeline between Norway and Europe.
Industry watchers said the news doesn't bode well for north-west European gas supply security.
John King, managing partner of consultancy Eclipse Energy Group said: "There's a direct impact from 2011-12. It's a very important announcement because a very stable, reliable 10-20 billion cubic meters of gas a year supply that was expected to come into north-west Europe - either the U.K. or the Netherlands - appears to be off the market."
The energy ministry, taking advice from Norway's Petroleum Directorate, or NPD, said pursuing the Troll Future Development, or TFD, plan, as laid out by the field's operator StatoilHydro ASA (STO) and licensees, could result in the loss of up to 600 million barrels of oil for the duration of the field.
Gas in hydrocarbon reservoirs helps to maintain high pressure, which enables better oil recovery. Many oil producing fields with small associated gas volumes reinject the gas to help maintain reservoir pressure and enhance oil output. Some Norwegian fields are in the process of switching to become predominantly gas producing, from mainly oil producing after the recoverable oil and been extracted.
NPD spokeswoman Eldbjorg Vaage Melberg said the ministry's decision was based on advice from the NPD, a resource management body which is tasked to ensure that all resources on the Norwegian continental shelf are developed in an economic way. "If you produce the gas too fast, you'll lose the oil," she said, adding that "you'll not lose the gas if output remains at the same pace."
StatoilHydro Vice President Ola Morten Aanestad said the company is "disappointed" with the decision by the ministry. Aanstead said the Troll "partnership was of the opinion that we'd found a balanced resources drainage strategy where we could increase the gas and still improve oil recovery."
The TFD project has been stopped with immediate effect, along with the gas network expansion project in its current form StatoilHydro said.
Chief Executive Helge Lund said: "StatoilHydro's commitment to realizing the full potential on the NCS remains the same." He added that the work undertaken on the TFD project will contribute to the long term development of the Troll resources.
"We are working on a number of projects in Norway and internationally that will contribute to strengthening our position as an important and reliable long-term supplier of natural gas to Europe," Lund said.
StatoilHydro will now look to other development and export solutions for Norwegian gas, which would likely have been tied-into the TFD and export project. "In the Norwegian Sea there are some gas discoveries that don't have transportation, where we will need new (export) capacity to develop them in a fairly short time. We will look at various opportunities," Aanestad said.
European players with an interest in the export pipeline - which would have been landed in either the U.K., the Netherlands or Belgium - will be disappointed that there won't be a new source of reliable pipeline gas to bolster supplies.
"This announcement is very much a wake up call for the traded markets of NW Europe and the U.K. in particular. A major expected supply is now missing," Eclipse's King said.
He added that while in the short term, the U.K. can expect to see increasing gas supply from Norway, with Ormen Lange build up to 2010, which "might give a reasonable feeling of comfort over the next years...U.K. output is falling very quickly, so there will be a need for a new pipeline to offset that by 2012-2013."
"The important thing about pipeline gas is that it's in the market once developed, whereas LNG can be diverted to other locations around the world," King noted. He added that the expected extra gas from Norway for Europe won't be there now, so by 2012 "either prices will go up, or new gas has to be imported, or demand has to come down."
But he ceded that given the five year perspective, "it's difficult to immediately see where that gas is going to come from," leaving European consumers facing little other prospect than higher prices unless there's a significant demand-side response between now and then.
U.K.'s Centrica PLC (CNA.LN) had long been lobbying Norway for the pipe to arrive in the U.K. to help offset declining U.K. production.
Troll contains one of the largest oil volumes remaining in Norway, as well as huge gas reserves. The field was the biggest Norwegian producer of both oil and gas between 2000-2004. Other stakeholders in Troll are ConocoPhillips (COP), Royal Dutch Shell PLC (RDSA) and Total SA (TOT).
Copyright (c) 2007 Dow Jones & Company, Inc.
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