All offshore roads lead north

All offshore roads lead north

Despite a slump in oil prices, there has been a surge of activity in the North Norwegian offshore sector. Herman Jorgensen, managing director of GAC UK and former general manager at GAC Norway, explains why.

The offshore energy industry is suddenly paying serious attention to the remote arctic waters off northern Scandinavia.

It has long been suspected that major energy reserves lie in oil and gas fields beneath the south eastern Barents Sea. But a historical territorial dispute between Norway and Russia has meant that, until earlier this year, the reserves have remained largely unexplored.

The momentum began to gather when a border agreement was signed in 2011. In a milestone development last year, Norway’s Minister of Petroleum and Energy was able to launch a new round of offshore licensing permits. It was the first licensing round in 20 years to open new exploration acreage in Norwegian waters. Of the 57 licenses on offer, 34 were in an area never before opened for hydrocarbon exploration.

After this announcement, Kirkenes – the port closest to the newly opened fields – has seen a steady and sustained increase in calls by offshore support vessels.

No one company or body has an accurate picture of the hydrocarbon resources in the Barents Sea. Analysts believe there could be as many as 2 billion barrels of oil and gas. Even before drilling began, observers noted an increase in shipping activity. Energy companies, it turned out, were conducting seismic surveys and other essential preparatory work. By early 2016 the Norwegian authorities announced they were ready to begin authorising exploration wells.

Although energy prices crashed in 2015, interest in the Barents Sea oil and gas fields has remained strong. The sheer size of the potential hydrocarbon deposits mean that energy companies see establishing and maintaining a presence in the area as a key strategic goal.

Ultimately though, the speed at which the new fields develop will depend on the trajectory energy prices take. The low price of crude oil that ran through 2015 and into 2016 forced oil companies to trim their investment plans with offshore projects often being the first to be scrapped. But oil prices are volatile. They can recover quickly. It is also clear that the point at which offshore operations become profitable has been falling.

Technical innovations and the spreading standardisation of pipelines and drilling equipment have been pulling down costs – and the gap between profitability and unprofitability has never been smaller. All this means that projects that once looked prohibitively expensive now look feasible and that the outlook for the Barents Sea projects is far from gloomy.

For GAC, which has a major presence in Norway, recent developments have brought its operations in the Barents Sea port of Kirkenes into sharp focus.

In Kirkenes GAC is providing a full range of offshore services including marine surveys, bunkering and equipment provision. We also act as a broker to source supply vessels and work closely with other local partners, all of which means we are well placed for the expected influx of offshore operations in the next few years.

The next few years are going to be pivotal for both the development of oil and gas operations in the Barents Sea and also the infrastructure to support these operations in north Norway.

In every way the region is waking up to its latent potential. What this means for Kirkenes as a logistics base – we will have to see.

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