Norway's Natural-Gas Output May Drop After 2020, Gassco Chief Bjordal Says

Norway, the world’s second-biggest gas exporter, will need to make significant discoveries to maintain output at today’s pace after 2020, the head of the nation’s gas pipeline and processing company said.

“The next 10 years look good and after that things look more uncertain,” Gassco AS Chief Executive Officer Brian Bjordal said. “It’s very simple mathematics -- you take 100 billion cubic meters out per year and you try to find a discovery that is equivalent to that. If these are smaller fields, you can’t retain your ability long term.”

Norway is turning to gas to make up for declining oil production from its aging North Sea fields. Oil output peaked in 2000 and is forecast to drop 6 percent this year, cutting into the government’s budget, which relies on the petroleum for 22 percent of its revenue. Norway, the biggest foreign gas supplier to the U.K., hasn’t made a significant gas discovery since the Ormen Lange field in 1997.

The expansion into gas may also be hampered by a slump in global prices because of increased production from shale deposits in the U.S. and liquefied natural gas plants.

Statoil ASA, Norway’s biggest oil and gas producer, in February cut its output target for 2012. The company has said conditions are challenging after its gas prices fell 35 percent in the first quarter and 12 percent in the three months through June. Benchmark U.S. gas prices have fallen 27 percent this year, extending a two-year decline.

Norway produced about 100 billion cubic meters of gas last year, double the amount at the start of the past decade. Gassco ships the fuel through the Vesterled, Langeled and Europipe links, among others.

Very Efficient

“There has to be activity, you can’t just rely on something will happen,” Gassco’s Bjordal said. “The Norwegian continental shelf has to have a certain activity to retain its production level.”

Still, Bjordal said Norway, with its proximity to European markets, will be able to withstand the challenge of rising unconventional gas production and LNG.

“Most of the investments are sunk costs and I very strongly believe that we have a very efficient, well operating system,” he said. “I can’t see that anybody can come up with a system which will bring in that kind of volumes with that kind of reliability and predictability.”

Reliability of supply is one of Norway’s biggest assets and Gassco has taken measures to ensure that the shutdown of processing units in January is unlikely be repeated, Bjordal said. Freezing weather cut supplies from Gassco’s Kaarstoe processing plant, halting production at Royal Dutch Shell Plc’s Ormen Lange field and stopped shipments from the Nyhamna terminal, disrupting supplies to the U.K.

“People were worried, but we managed to fix it in a very short period of time,” Bjordal said. “We’ve done a lot of work to reassure ourselves that we are doing the right things, that we are prepared, so I can’t see that we have identified any kind of issues related to that that will indicate that there’s a risk of re-occurrence.”

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net