Scandinavian Oil-Gas Magazine
http://www.scandoil.com/moxie-bm2/news/spot_news/suppliers-costs-rise-and-fall-off-norway.shtmlSupplier costs rise and fall off Norway
Climbing supplier costs on Norwegian oil and gas projects is adding weight to general credit worries, and now two dozen Norwegian ...
Climbing supplier costs on Norwegian oil and gas projects is adding weight to general finance worries, and now two dozen Norwegian oil and gas projects have become pricier than expected, a new look at government numbers shows.
More investments in products and services are cited for an expected 61.4-billion-kroner ($9.1 billion) price hike expected to hit 22 offshore developments next year, according to numbers gleaned from state documents. The expected surge in investment dollars does not include StatoilHydro’s pioneering but cost-hit arctic gas project Snoehvit.
Extra heating, compression and drilling costs at Shell’s Ormen Lange gas field and StatoilHydro’s reported cost spikes at the arctic gas project Snoehvit have long been reported by Scandoil.com. Now, price hikes of up to 99 percent are reported at some fields, although continued changes in oil company planning are affecting estimates.
The Norwegian Ministry of Oil and Energy used trends summised by Cambridge Energy Research Associates in drawing up cost overruns expected at offshore projects under development. CERA’s numbers show supplier costs have doubled in four years.
Yet the Ministry cautioned some higher costs were not what they seemed.
“Increased investment levels at fields under development is not the same as cost overruns,” the document read, adding, “To the extent higher invesment levels result in increased production, this will contribute to higher added value.”
But the higher numbers are above cost estimates field partners submitted to authorities in recent plans for development and operation.
Meanwhile, the Ministry cites International Energy Agency numbers that show the cost of garnering new production from existing fields, especially oil production, has, in some cases, risen to $70 per barrel offshore Norway. But sky-high steel costs — a known deal killer — are seen falling should a global slowdown follow on today’s credit crunch.
Suppliers, according to a Ministry report, have also succeeded in building their capacity for work, in Norway and abroad, and the growth is seen contributing to a perceived ability to charge less.
In its prognosis, the Norwegian government expects the price of oil to hover near $60 through 2010, suggesing some increased-oil-recovery work might come under heavier scrutiny.