When implemented in June 2020, Norway’s temporary tax relief system sparked an all-time high in project sanctioning on the NCS – with a whopping 29 projects having their development plans (PDOs) delivered between June 2020 and the end of 2022. The portfolio comprises key schemes like Aker BP’s Yggdrasil hub and Valhall PWP-Fenris development, alongside a vast portfolio of smaller-scale subsea tiebacks. These projects are set to provide a considerable boost to Norway’s oil and gas industry in the coming years. 

As the wave of new projects is being built out, the NCS is undergoing a very powerful investment cycle. Offshore investments are projected to climb 17% from last year’s NOK 217 billion ($20.5 billion) to a whopping NOK 254 billion this year - the highest annual outlay ever recorded. This surge also places the NCS ahead of other established offshore regions like Brazil and the Gulf of Mexico (GoM). Notably, 38% of this year’s expenditure (NOK 98 billion) is projected to stem from the temporary tax relief system, illustrating the regime’s powerful impact.

Offshore spending on the NCS is projected to peak at NOK 262 billion next year, driven by NOK 97 billion to be invested in projects from the temporary tax regime, as well as a foreseen upswing in exploration capital expenditure (expex) from NOK 29 billion this year to NOK 37 billion in 2025. Spending will remain elevated as the sanctioned projects are built out, with only a slight decline expected to NOK 253 billion in 2026 and NOK 246 billion in 2027.  

After 2027, a steeper spending decline is anticipated once all ongoing development schemes are operational. NCS offshore investments are forecast to drop from NOK 224 billion in 2028 to NOK 175 billion in 2029 and NOK 160 billion in 2030, representing a 39% decrease from next year’s peak. However, the decline will largely depend on currency movements, short-term sanctioning levels, industry policies set by Norway’s government and how the European demand outlook develops.    

The portfolio of producing assets on the NCS includes a considerable number of late-life fields. Many of its largest hubs, such as Aasgard, Troll’s oil province and Snorre, have already entered their natural decline phases. Consequently, output from already producing fields is projected to fall from 4.11 million barrels of oil equivalent per day (boepd) this year to 3.92 million boepd next year. This decline will accelerate as the NCS’s largest oil field, Johan Sverdrup, is expected to move off its plateau level next year.

However, the projects currently under development will help offset this decline and provide a much-needed boost to the region, particularly given Norway’s strengthened role as a supplier of oil and gas to Europe. When including the anticipated output from these projects, overall output from the NCS is expected to reach 4.21 million boepd next year – a 2% rise from this year’s level. This is largely driven by Equinor’s Johan Castberg production, storage and offloading (FPSO) vessel and several subsea tie-backs sanctioned under Norway’s temporary tax regime, which are set to come online later this year. In our base case, the current development portfolio is set to offset natural decline until 2027.

A steady level of near-term sanctioning will be required if output is to be maintained at around 4 million boepd through to 2030. In our base case, some key candidates include Equinor’s Ringvei West project and Peon, both scheduled for sanctioning in 2026, as well as the third phase of Johan Sverdrup, which is slated for sanctioning in 2027. There is also a considerable upside in the Wisting discovery in the Barents Sea, which is currently not deemed commercial in our base case but is being appraised and matured towards a final investment decision (FID) in 2026. The Equinor-operated prospect is one of only a few remaining discoveries that have the potential for standalone development on the NCS.

Beyond 2030, new discoveries from upcoming exploration campaigns are unlikely to completely offset the natural decline from the NCS’s largest fields, in our base case. This comes as companies increasingly shift their focus toward infrastructure-led exploration (ILX), meaning that they drill near producing hubs for discoveries that can be developed as tie-backs to existing facilities, at a lower unit cost. In addition, a recent strong consolidation trend – where the number of active players on the NCS has been steadily declining since 2015 – may harm overall innovation, reservoir knowledge and the frequency of new frontier wells, as most companies typically prefer to explore areas they already know well. From an output of 4.03 million boepd in 2030, production on the NCS is forecast to decline by around 165,000 boepd annually, reaching 2.37 million boepd by 2040. However, this forecast is subject to considerable uncertainty and could be significantly altered by new discoveries capable of standalone development.

Author: 

Mathias Schioldborg
Analyst Upstream Research
mathias.schioldborg@rystadenergy.com

(The data and/or forecasts in this column are Rystad Energy's, and the opinions are of the authors.)