A highly acclaimed Oxford professor who’s considered an expert on energy research has thrown cold water on Norway’s hopes for a new oil era in the Arctic. Dieter Helm doesn’t think oil prices will rise much higher and are more likely to fall, making costly oil investments in the Barents Sea unprofitable.
Helm, addressing an annual gathering of top oil industry officials in Sandefjord this week, said that an oil price of USD 50 a barrel is in fact high in historical perspective, even though it’s half of what it was just a few years ago. He thinks the current level of around USD 54, which has doubled in the past year but remains far below record levels, will eventually decline because there’s “plenty” of oil around that can be produced profitably at a price of USD 50 a barrel or even lower.
He also predicts that oil prices will fall again, telling newspaper Dagens Næringsliv (DN) that oil-producing countries will vigorously pump up their resources when they discover that prices are falling. Helm believes demand for oil will peak during the next 10 years, as digitalization and electrification of economies take over.
Risky business in forging ahead
Helm thus warned Norway against developing its Arctic areas, as it’s controversially doing now. Norway’s state oil ministry just granted 56 new production licenses in what it called the country’s “best known areas,” claiming that “many players see great and long-term business opportunities” in Norway’s petroleum resources. Most of the licenses (36) were granted in the North Sea along with 17 in the Norwegian Sea and three in the Barents. A total of 33 companies applied for production and operating licenses and 29 were offered shares in one or more fields, 17 of them as operators.
While companies like Wintershall of Germany proudly announced that they had been awarded licenses on the Norwegian Continental Shelf, news bureau NTB noted that oil majors like Shell pulled out of the 23rd licensing round and ExxonMobil isn’t active off Norway. Norwegian fields are no longer as attractive to international oil giants, noted economist and professor Klaus Mohn. A spokesman for Norway’s own Statoil, which won the majority of licenses, acknowledged that offshore activity was “more demanding” now because of the need to lower costs and set harder priorities.
‘Is it worth it?’
Helm also claimed that exploring and producing in the Barents Sea is especially risky. Costs are still “very high,” he told DN, and oil companies have to ask themselves “whether it’s worth it.” He cited “technological challenges” as well. “The question is whether you have the technology,” Helm said, and even if companies do, he added that the prospect that demand can peak within the next decade makes the idea that there are large discoveries to make in the Barents “less attractive” than it was just five years ago.
“It’s very risky,” Helm said, purely from a business standpoint. In addition come all the concerns about climate change and environmental damage that oil activity can cause.
Helm does think Norway’s economy will ultimately prevail over the next few decades despite a shift away from oil. “Norway is one of the few countries that has the political institutions, the social structure and education system to manage through this change,” he told DN. He also said Norway was an attractive place to live: “Would you rather live in the smog of Beijing, or Oslo?” he queried.
Norwegians still bullish
Top Norwegian oil analyst Jarand Rystad of Rystad Energy and industry veteran Ståle Kyllingstad said they don’t share Helm’s predictions. “His belief that oil demand will peak during the 2020s is not very well-documented,” Rystad told DN. Kyllingstad, meanwhile, claims Norway has the technology to bring down costs “and they will come down.” Others have pointed out that oil prices have doubled since this time last year, and prospects for the industry were improving, not deteriorating further.
Helm got some support earlier at the Sandefjord conference from oil industry veterans like Eivind Reiten, a former CEO at Norsk Hydro when it was still in the oil business. Reitan said he doesn’t think the oil business will manage to keep costs down when oil prices rise. Statoil CEO Eldar Sætre wondered, meanwhile, whether the business was “operating in our own echo chamber” and not playing an active-enough role in promoting the oil industry’s importance for Norway’s economy. He’s still pushing for rights to explore and drill off some of the most scenic portions of the Norwegian coast at Lofoten, Vesterålen and Senja. “We need new possibilities and new areas” for oil activity after 2020, he said.
Statoil’s Sætre then took off for Switzerland to attend the annual World Economic Forum in Davos, which attracts top politicians and industry executives from around the world. He noted once there that oil investments have been “much lower” the last two years and are expected to be even lower this year. He thinks Statoil is now positioned, however, to live with lower oil prices. “We are more robust in a low-price regime than we were a few years ago,” he said, and he’s still bullish on oil activity in Norwegian waters. Analyst firm Wood Mackenzie confirmed that Statoil is among oil companies that have continued to invest during the past few “crisis” years, standing for fully 40 percent of investment decisions made in 2015 and 2016.