INTERVIEW: Norway’s Castberg project heralds new impetus in Arctic oil and gas

Norway's soon-to-be-launched Johan Castberg oil field is the next stage in an industry expansion in the Barents Sea that requires more exploration and potentially a new gas pipeline from the Arctic to European markets, upstream regulator Torgeir Stordal said in a recent interview.

Speaking at the headquarters of the Norwegian Offshore Directorate, Stordal, its director general, said there were grounds for optimism over development in Barents Sea waters, with some bigger companies taking a renewed interest in gas exploration.

Recent seismic imaging, particularly in the western Barents Sea near the Norwegian Sea, had produced "super-modern" images of "daunting" quality, and companies are looking at drilling potential, Stordal told S&P Global Commodity Insights.

Johan Castberg, which is expected on stream in the fourth quarter, with a capacity of 220,000 b/d, should help kick-start the next Barents oil development, Wisting, as the Castberg facilities can be a staging post to the more remote site, he said.

State-controlled Equinor postponed a Wisting final investment decision in 2022, saying it would target the end of 2026. Stordal said logistical concerns such as helicopter fuel capacity are the main challenge, reflecting the location being 300 km north of the mainland.

"The most challenging thing is the distance -- with Castberg in place you have an installation roughly half way, which helps a lot," he said.

Plans to strengthen emergency preparedness in the Barents were set out recently by Equinor, which operates Castberg alongside Var Energi -- majority-owned by Italy's Eni.

Barents pipeline

Stordal said he was confident of continued European demand for Norwegian gas, and a preference for pipeline gas. However, he said there was an urgency to resolving how to export from the Barents Sea, as core production in the North Sea is set to decline.

"We don't think Europe's needs are covered with the current volume that we have. After 2025 -- also in the gas area -- the [production] decline will be quite steep," Stordal said. On the question of Russian gas and whether it might return to Europe, he stressed he had no view or forecasting role, but added, "I've not met anyone who thinks there'll ever be Russian gas in our generation."

Barents Sea progress on gas has been a "chicken and egg" problem, with a lack of infrastructure deterring exploration, and the lack of discovered volumes deterring infrastructure development, he said.

Norway's one LNG facility, at Melkoya Island in the Barents Sea, is expected to be full until the early-2040s with gas from the Snohvit field. Equinor has yet to back a gas pipeline option -- promoted by pipeline operator Gassco -- which would run hundreds of miles south to Norway's gas grid. "Our focus... is exploration and to ensure we're able to see the full potential in the Barents Sea," CEO Anders Opedal said, adding Equinor was "working together with Gassco to [do] early planning" in the event of success.

Stordal stressed the need to step up exploration, saying the latest seismic imaging had sparked interest, with attention no longer on the eastern Barents near the border with Russia -- the latter garnered much interest after the countries ratified their sea border in 2011, but with scant results.

"We think the Barents Sea benefits from new data... better reprocessed data, which we believe will improve the understanding and hopefully lead to a new era of exploration," Stordal said, noting there were various export options, including a second Melkoya LNG train.

"There is gas locked in there," he said. "We don't have a lot of time -- in the next three-to-four, maybe five years, we'll have to find out if there's scope for going via this [pipeline] route."

"There's a group of companies looking at a few prospects... and if they decide to drill and explore, that would be great."

"Generally pipeline gas has many advantages, and as long as there is a significant market in Europe, which we believe there is... pipeline gas would be competitive," he added.

North Sea

The need for exploration is also true of the North Sea as production decline could undermine infrastructure hubs and pipelines, Stordal said. The major Johan Sverdrup oil field, on line since 2019, is expected to start declining around the end of this year.

Even long-standing routes are not sacrosanct and oil and gas flows could be redirected eventually, Stordal said. "We have a fantastic infrastructure in place and we'd like to make sure we use that... That means we need to explore in time," he said.

Long term, "you should expect to see that some fields decide a different route," he said. "If you look at the overall export system, it has branches to several countries on the continent and routes into the UK. Over time -- I'm talking about a couple of decades away -- it may be some of these are not going to be filled."

Stordal defended Norway's licensing regime, which has been restricted by the current government on environmental grounds, with new licensing confined to "pre-defined" -- or mature -- areas, rather than the "numbered" rounds that covered more far-flung targets. Some commentators forecast a return to the latter after the 2025 elections.

Almost all the North Sea is open for exploration under the current system, with a similar situation in the Norwegian Sea, Stordal said.

He voiced his satisfaction at the shape of the Norwegian industry, including a shift from what he called "semi-interested" global companies to sizable, but dedicated companies such as Var Energi and Aker BP. The UK's Harbour Energy is now a significant player after it bought assets from Germany's Wintershall Dea.

Some smaller companies had struggled to progress new developments, he added.

"We have a few very solid companies -- the most important thing is that we have enough companies who are willing to explore and who are able to invest," he said.