Cutting Oil Production

Source: 4/30/2020, Location: Europe

The Norwegian authorities’ decision to cut oil production starting in June is being made in an effort to contribute toward more rapid stabilization of the oil market than the market mechanism alone could ensure.

A more rapid stabilization of the oil market will be important out of consideration for sound resource management and the Norwegian economy at large.

In a statement, the Minister of Petroleum and Energy Tina Bru said that, “We will cut Norwegian oil production by 250,000 barrels per day in June, and by 134,000 barrels per day in the second half of the year. The start of production on multiple fields will also be postponed to 2021. Overall Norwegian production in December 2020 will amount to 300,000 barrels a day lower than the companies had planned. This regulation will cease at the end of the year.”

The Norwegian Petroleum Directorate has assisted the Ministry of Petroleum and Energy in its work on the production regulation.

The oil companies will be consulted before revised production permits are issued.

This cut is based on a reference production of 1,859,000 barrels of oil per day. A cut of 250,000 barrels a day in June 2020 thus yields an upper limit for oil production on the Norwegian shelf of 1,609,000 barrels a day in June.

A cut of 134,000 barrels a day in the second half of 2020 will yield an upper limit for average oil production from the Norwegian shelf during the second half-year of 1,725,000 barrels a day.

The cut will be distributed across individual fields and will be carried out by issuing revised production permits.

The most recent projections from the International Energy Agency (IEA) from mid-April indicate a drop in the demand for oil totalling approx. 23 per cent (23 million bbls/day) in the second quarter. This major, sudden and temporary drop in oil consumption in the 2nd quarter constitutes an extraordinary event in the oil market.

As a consequence of the market situation, the oil price has dropped by about 70 per cent since the start of 2020.

The production restriction will be implemented by the Ministry of Petroleum and Energy issuing a revised production permit for the month of June and the period from 1 July 2020 through 31 December 2020.

These cuts apply for Norwegian oil production. Some fields are therefore exempt from the regulation. This includes gas and condensate fields, transboundary fields and mature fields that are in a late tail phase.

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