Expanded gas pipeline system may be best option for Barents Sea gas

Rystad Energy has reviewed the cost analysis of Norwegian pipeline system operator Gassco’s proposed options to export Norway’s Arctic gas resources.

The verdict is that expanding the country’s pipeline infrastructure network would be more viable than boosting capacity at the Hammerfest LNG complex in Norway’s far north.

However, at least 40 bcm from new discoveries would be needed to justify this investment.

At present, Hammerfest LNG terminal has annual LNG export capacity of 7.4 bcm, a limit expected to be reached in 2026 when gas production in the region looks set to exceed export capacity.

The terminal was built to accommodate the gas discoveries of the 1980s. Rystad Energy estimates undiscovered gas resources in the Barents Sea at around 90 bcm.

To further develop these resources, the main options at present are to expand the terminal’s capacity or construct a new gas pipeline link to existing infrastructure in the Norwegian Sea.

If export capacity limits are not increased, projects will have to be phased to fill pipeline capacity as it becomes available, which as the analyst points out, risks destroying substantial value.

“When the economics are more marginal, the simpler pipeline solution is most likely the right one,” said Dane Inglis, analyst at Rystad.

Gassco is considering installing an additional 1,000 km (621 miles) to the existing Åsgard pipeline and another 830-km (516-miles) pipeline to the Polarled transmission system, both in the Norwegian Sea.

These extensions would raise total export capacity to at least 10 bcm/yr and potentially to 20 bcm per annum.

But to be economically viable, the pipelines would require a gas resource base of about 130 bcm, thereby implying 40 bcm in new resources would need to be discovered over the next five years.

Based on current spending plans of all operators in the Barents Sea (US$2 billion from 2020-2025 and ten exploration wells), the required discovery cost, Rystad found, would be around US$8/boe.

Equinor might be able to achieve that target, with discovery costs in that range around four times the Norwegian average and 60% higher than the historical Barents Sea average.

However, returns from wells drilled in the Barents Sea have been disappointing over the past five years, and future exploration in the region looks uncertain if lower oil prices prevail.

As for constructing a new LNG plant in the Arctic or expanding Hammerfest, previous experience indicates potential for complications.

The original project was eight months late and 50% over budget, mainly due to logistical limitations. Several alterations had to be made onsite at Hammerfest which further delayed the process, adding to the overall project costs.

In Rystad’s view a new pipeline export would be more practical in terms of offering the lowest cost, on a per unit basis, for additional gas export volumes.

Source: Offshore Magazine