Project overruns and hydrogen investment highlight Norwegian budget for 2022

The Norwegian government’s national budget for 2022 has revealed that Equinor’s ambitious Johan Castberg project in the Barents Sea will now cost more and go into service later than expected. The Norwegian oil company confirmed that the project’s cost estimate increased by $ 222 million (NOK 1.9 billion). In addition, there is an estimated cost increase of almost $ 701 million (NOK 6 billion) due to the weaker Norwegian krone relative to currency expectations at the time of the sanction. The total cost of the project is now $ 6.91 billion (NOK 59.1 billion), up 15% since the operator submitted its development and operations plan (PDO) in December 2017. Equinor continues to believe the project has an equilibrium price below $ 35 / bbl. .

The project, which was last scheduled to start towards the end of 2023, is now scheduled for the fourth quarter of 2024. Equinor cited the main cause of the change being the COVID-19 pandemic, which has had an impact on the construction of the float. production, storage and offloading (FPSO) vessel both in Singapore and in Norwegian shipyards.

The Singapore yard has been closed for long periods of time and still has reduced access to labor due to entry restrictions associated with the virus. The hull will be transported to Stord in the first quarter of 2022 for the installation and commissioning of the treatment module.

Equinor also revealed that the project faced challenges related to the quality of welding in Singapore. The company added that these issues would be rectified before the hull left the yard.

Equinor operates Johan Castberg and owns a 50% stake in the project. Partner Vaar Energi, a subsidiary of Eni, owns 30% and Norwegian state-owned company Petoro holds 20%.

The budget documents revealed that two more developments are also facing overruns. Equinor’s Njord Future field will cost $ 3.45 billion (NOK 29.5 billion), up 19% from the estimate a year ago.

“Despite the estimated costs having increased by NOK 13.1 billion (80%) since the PDO, the project is profitable at oil prices significantly lower than today,” Equinor said in a statement. communicated.

The field start is now scheduled for the end of 2022, about a year later than initially planned.

Vaar Energi’s Balder Future project will cost $ 3.13 billion (NOK 26.8 billion), about 34% more than expected a year ago. Costs are increasing due to more work than expected on the field FPSO.

Oil outlook
Norway’s net cash flow from petroleum activities is estimated to be $ 24.5 billion (NOK 184 billion) in 2021 and $ 32.4 billion (NOK 277 billion) in 2022. Investments in the Norwegian continental shelf is expected to be around $ 21 billion (NOK 180 billion) in 2021. The budget projects that this number will drop to $ 18.3 billion (NOK 157 billion) in 2022.

“The petroleum industry is Norway’s largest industry measured in terms of value creation, government revenue, investment and export value, and it contributes significantly to the financing of the welfare state,” said Tina Bru, Minister of Petroleum and Energy. “The company contributes to employment and activity across the country. The industry is skilled, innovative and high-tech. This gives a positive boost to other sectors of the Norwegian economy.

In government revenue calculations, an oil price of $ 70 / bbl is assumed this year and $ 67 / bbl in 2022, and a gas price of $ 2.35 and NOK 1.90 per standard cubic meter, measured in fixed prices 2022, respectively. Gas prices were much higher than expected in the third quarter. The turnover of oil and gas produced daily on the Norwegian Plateau at today’s high prices is estimated at $ 467.5 million (NOK 4 billion).

Total oil production in 2021 is estimated to be around 228 million standard cubic meters of oil equivalent, or about 3.9 million barrels per day. For 2022, total production is expected to increase to around 239 million standard cubic meters of oil equivalent.

Hydrogen boost
The Norwegian national budget for 2022 also included increased funding for research and development in hydrogen and ammonia by establishing its own research center. The center, which will start up in early 2022, will receive an annual allocation from the Ministry of Petroleum and Energy of $ 3.5 million (NOK 30 million) for a period of up to 8 years, for a total of $ 28 million (NOK 240 million).

It was created within the framework of the FME (Research Center for Environmentally Friendly Energy) program of the Research Council of Norway.

“The development and use of hydrogen-based solutions can help both create green value and reduce emissions in Norway,” said Bru. “Globally, there is a lot going on in this area, and a solid investment can create great value for Norwegian business and industry. Until now, we lacked a large and unifying hydrogen research center. We will now have that.

The aim is to bring together strong research communities and numerous user partners from the business sector in a targeted joint initiative, according to the government. The center will work with hydrogen from both natural gas and renewable energy, and the application of hydrogen and ammonia for energy, mobility and industrial purposes.

The government will also continue the allocation to infrastructure and hydrogen market development of $ 11.7 million (NOK 100 million) from the budget of the Ministry of Petroleum and Energy in 2022. Funding will be allocated to the Norwegian Research Council, which will cooperate with Enova. to support several pilot and demonstration projects that will contribute to the initial phase of hydrogen market development.

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