Plans for the world’s northernmost oilfield are in question as costs soar

  • Investment decision delayed for four years
  • Partners cite skyrocketing costs and supply chain bottlenecks
  • The project is in danger of being shelved for good – analyst
  • Environmental activists call it a victory for the climate

OSLO, Nov 10 (Reuters) – Soaring costs and supply chain bottlenecks have thrown into question plans for what would be the world’s northernmost producing oilfield, Norway’s Equinor (EQNR .OL) and its partners postponing a decision on the Arctic. project.

Environmental activists on Thursday celebrated the fact that state-controlled Equinor pushed back an investment decision on the Wisting offshore oilfield to the end of 2026 from December this year, with an analyst saying that it could be suspended indefinitely.

The delay is a blow to the Norwegian government’s hopes of creating more oil and gas jobs in its north, but a relief to activists who have warned of risks to the Arctic’s vulnerable nature.

Wisting would have been the fourth hydrocarbon field in production in the Norwegian Arctic. Norway already has two gas fields and one oil field in its Arctic region.

“We are seeing rising costs due to rising global inflation and growing costs in the domestic and international supply industry,” Equinor said in a statement.

“There is also uncertainty about the framework conditions of the project and the ability to execute in the supplier market.”

Equinor said the updated investment estimate for Wisting had jumped to 104 billion crowns ($10 billion) from the 60 to 75 billion crowns it had previously projected.

SIDED FOR GOOD?

“The decision means the project is put in the bottom drawer and is locked… This is a big success for industry and exploration in the Barents Sea,” ABG Sundal analyst John Olaisen told Reuters. Collier, an Oslo-based brokerage firm.

Uncertainty over capital expenditure and lack of supplier capacity were the main reasons, but there were also political pressures, he said.

“To get the project going again, you’ll need a new government…and very high oil and gas prices for the next two decades,” Olaisen said.

While a majority in parliament favors the plan, opposition has grown with, among others, the influential youth wing of the ruling Labor Party opposing it, as well as a left-wing party on which the ruling coalition relies to pass laws.

Equinor and its partners were due to submit development plans to the authorities in December, with the government expected to make a decision next year.

“I am happy that Equinor is saying that they are not canceling development plans, but postponing them,” Norway’s Oil Minister Terje Aasland told Reuters.

GREENS APPLAUSE

Greenpeace called the delay “incredible news for climate, nature and the green transition”.

“That means 200 million tonnes of CO2 will remain in the ground. That means vulnerable and valuable nature is left alone,” Frode Pleym, director of Greenpeace Norway, told Reuters.

The delay comes as diplomats are gathered in Sharm el-Sheikh, Egypt, to seek progress in tackling the worst consequences of climate change.

The Norwegian Environment Agency said this year that Equinor had failed to demonstrate that it was safe to produce oil from Wisting all year round in harsh arctic conditions.

Equinor and its partners, including Aker BP, say they can develop Wisting in an environmentally friendly way.

While Wisting was of marginal importance to Aker BP, the news of cost pressure is bad for the company given its other development plans.

“The announcement is significant given that Aker BP expects to approve a number of projects in December,” Citi said in a note.

Aker BP said its operated projects were progressing as planned, declining to give further details on the cost impact.

Equinor and Aker BP each own 35% of Wisting, while Norway’s Petoro owns 20% and INPEX Idemitsu (1605.T) 10%.

Reporting by Nerijus Adomaitis in Oslo and Anna Ringstrom in Stockholm, writing by Gwladys Fouche, editing by Terje Solsvik and Mark Potter

Our standards: The Thomson Reuters Trust Principles.

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