Pursuant to section 4-4, third paragraph, of the Petroleum Act, the Ministry of Petroleum and Energy issues production permits to the individual field on an annual basis where the quantities permitted to be produced are given. When so required due to important interests of society, the King in Council may, according to Section 4-4 fourth paragraph of the Act, stipulate other production schedules than those stipulated or approved in accordance with section 4-4 first and third paragraphs of the Act. A decision by the King in the Council is planned to be made shortly.
The International Energy Agency's (IEA) latest estimate from mid-April suggests a fall in demand for oil of approx. 23 percent (23 million barrels/day) in the second quarter This large, sudden and temporary fall in oil consumption represents an unprecedented event in the oil market. Efforts to contain the pandemic have so far only had a limited negative effect on world oil production. The combination of these factors has resulted in a large surplus of oil in the market and large quantities of oil in stock. Oil prices have fallen about 70 percent since the beginning of 2020.
The unstable situation in the oil market with low and falling oil prices has led to a reduction in the State's revenues. The situation also means that the oil companies are forced to reduce their planned investment activities in exploration, development and operation. This will have consequences for the supply industry and the activity in the Norwegian economy, as well as the possibility to retain and develop competence in the industry. Seeking a faster normalisation of the oil market, and thereby avoiding major fluctuations in activity and investment levels and taking into account the Norwegian economy and the state's revenues, is clearly considered an important societal consideration that justifies the regulation of production.
The basis for regulating production of oil on the Norwegian continental shelf is a reference production. The Ministry of Petroleum and Energy has established such a reference production based on information from the licensees in their applications for production permits for 2020 and in their reporting to the national budget process in autumn 2019. In cooperation with the Norwegian Petroleum Directorate, the Ministry has adjusted the information with new important information received from the companies during the first quarter of 2020. The Ministry has not been in in contact with the licensees on the Norwegian continental shelf in the process of establishing the reference production. Affected licensees will be consulted before the regulation is implemented through revised production permits for each field.
In the reference production, adjustments have been made for maintenance shut-downs planned for spring 2020 that have been postponed due to infection control measures related to the Covid-19 pandemic. In addition, adjustments have been made following production experience from the start-up phase of the Johan Sverdrup field. These adjustments indicate increased production from the fields in question compared with figures reported autumn 2019.
The reference production does not include fields where the operating company in the national budget process reported expected production start-up in 2020, but where start-up now is postponed until 2021, inter alia as a consequence of infection control measures. This applies to the fields Yme, Martin Linge, Njord, Hyme, Bauge and Tor.
The regulation covers Norwegian oil production. The following fields will therefore be exempt from the regulation:
- Gas and condensate fields
- Fields bordering on other countries
- Some fields, where paricular problems related to resource management apply in a production regulation; including fields in a late tail end production phase
The production regulation will be implemented by the Ministry of Petroleum and Energy granting the fields a revised production permit for the month of June and the period from 1 July 2020 until 31 December 2020.