Oil investment estimate for 2020 upward adjusted

The estimate for 2020 in the statistics oil and gas, manufacturing, mining and quarrying and electricity supply now indicates a growth by 7.4 per cent from 2019 to 2020. Total accrued investments in oil and gas extraction and pipeline transport for 2019 were NOK 177.5 billion, which is 17 per cent higher than final investments in 2018.  The final investments in 2019 were 2.9 per cent lower than estimated in the previous survey.

Quarterly investment statistics for oil and gas extraction and pipeline transport are included in the survey Investments in oil and gas, manufacturing, mining and electricity supply. For more details about total investments, please see the following article.

Preliminary projections predict a fall in investment in 2021

The investments in oil and gas extraction and pipeline transport for 2021 are estimated at NOK 152 billion. This is 4.1 per cent lower than the estimate given for 2020 in 1st quarter 2019.

The indicated decrease in 2021 is mainly due to low estimates in field development. The estimate in field development is 16.3 per cent lower than the corresponding estimate for 2020. The estimate in fields on stream also show a decrease compared to the estimate given for 2020 in February last year. The estimates for the other investment areas are higher than the corresponding estimates given for 2020, which thus contributes to slow the decline somewhat in 2021.

It is expected to be submitted some plans for development and operation (PDOs) to the government during the present year. Among these are Hod redevelopment and Breidablikk. It is also expected to be delivered PDOs on some projects next year. If the schedules for these plans are realised, the accumulated investment costs in 2021 from these projects will increase the investments in field development, compared to the present estimate. 

As can be seen from figure 2 above, the estimate for 2020 has risen significantly from the initial estimate given one year ago and up to the estimate given in this survey. The 2020 estimate has increased by 17 per cent during this year, and the category field development contributes to 91 per cent of this increase. The increase is mainly due to the submission of 6 new PDOs and a significant cost increase in two field development projects.

It is unlikely that the expected growth of new development projects will result in a correspondingly strong increase in the projections for 2021 that we have seen for 2020. The developments which are expected to be submitted in 2020 will also have accrued investments in this year, so the net increase from 2020 to 2021 as a result of these developments will not be particular large. Therefore, it is not unlikely that the percentage decline in final investments in 2021 will be greater than indicated in this survey.

Moderate investment growth in 2020

Total investments in oil and gas activity in 2020, including pipeline transportation, are estimated at NOK 185.4 billion. This is 1.5 per cent higher than estimated in the previous quarter. The increase is due to the fact that a plan for development and operation (PDO) has been delivered on a new development project. A lower exploration estimate contributes to curb the estimate increase.

The estimate for 2020 is 7.4 per cent higher than the corresponding estimate for 2019, given in the 1st quarter 2019. This is a stronger rise than suggested in the previous survey. Then the projections for 2020 showed an increase of only 4.2 per cent. The more pronounced rise that is indicated now comes both as a result of the upgrading of the estimate for 2020 now and a downward adjustment in the estimate given for 2019 in corresponding measurements last year, as can be seen in figure 2 above.

As mentioned above, it is expected that PDOs will be submitted on some projects this year, one of which will probably be included in the next survey in May. In isolation, these will lead to a further increase in the estimate for 2020. However, as figure 2 also shows, the 2019 estimate increased significantly from the measurement in the 1st quarter to the 2nd quarter of last year, mainly as a result of higher estimates in fields on stream and field development. Although the estimate for 2020 probably will increase as a result of the new developments that are expected to come, it is reason to believe that comparable estimates for 2019 and 2020 will converge in the next survey and with that show a lower growth for 2020 than indicated in the present survey. 

The growth indicated from 2019 to 2020 is mainly due to the higher estimates in fields on stream. In addition, the estimates for field development, shutdown and removal and onshore activity show an increase in 2020 while the estimate for the categories exploration and pipeline transportation show a decrease from 2019 to 2020.

Strong investment growth in 2019

Total investments in oil and gas extraction and pipeline transport for 2019 were NOK 177.5 billion. This is 17 per cent higher than final investments in 2018.

The steep and long-lasting fall in oil prices in the period from summer 2014 to the winter of 2016 stopped almost all new, planned development projects on the Norwegian continental shelf, only a very few projects were sanctioned by the oil companies during this period. This led to a fall investments in field development by more than 27 per cent from 2014 to 2017. The fall was dampened by very high investment activity in one of the fields that was still sanctioned and because some large development projects which had started in the years 2011-2014 still had significant investments in the years 2014-2017. Very high exploration activity in the years 2008-2014 had resulted in many new discoveries which had matured towards development. In light of the new oil price realities, it became necessary for the oil companies to reconsider the concept choices for many of these projects in order to cut costs. In addition, when oil prices first stabilized, and then began to rise moderately through 2016 and 2017, the development projects that had accumulated during the oil price decline became profitable. In just over two years from December 2016, PDOs were delivered on a total of 21 development projects. Overall, these developments had much higher investments in 2019 than in 2018. Together with the growth in the fields on stream, this has driven investment growth in 2019.