Royal Dutch Shell Group .com Rotating Header Image

Royal Dutch Shell Plc .com: Norway oil service worker strike

Pure Energy: Norway Out?
From StockHouse Editorials
By Luke Burgess

How we might lose 4% of global oil production

When the drilling for Norwegian oil began back in 1965 there was a great deal of doubt surrounding the belief that much crude lay resting beneath the icy waters of the North Sea.

British Petroleum’s chief geologist at the time was one of the biggest skeptics around. In fact, he actually declared that if any oil was ever found, he’d drink it.

And for the next few years he managed to avoid that awful-sounding task. Oil companies drilled dry hole after dry hole. A total of 30 ‘unproduceable’ wells were drilled.

By 1969, Phillips Petroleum, along with everyone else, was on the verge of throwing in the towel. But the company’s executives in Oklahoma gave the green light for one last well.

It was a good move.

On their last stab at striking oil, Phillips’s Ocean Viking rig discovered the Ekofisk field — a simply massive find that put the North Sea on the global oil map forever.

Since first striking oil in 1969, Norway has transformed itself from one of Europe’s poorest nations to one of the richest countries in the world.

Through the decades the Nordic country has successfully managed to ramp oil production and has now become the world’s third largest crude exporter, behind Saudi Arabia and Russia.

Norway exports nearly all of its crude oil today. The country only consumes 257 thousand barrels a day, a mere 1.28% of the consumption in the U.S. and 0.32% of the world’s total consumption.

Recently, Norway has struggled to sustain production levels. Just about this time last year the country’s production fell to 2.65 million barrels per day, an 11-year low, due to production halts and to technical problems on a number of fields.

Today Norway faces further production problems with fields that are experiencing declining output. But get this — because of one threatening menace, there’s a chance that crude production could be halted all together.

How much are we talking?

Over 3 million barrels a day!

That’s over 4% of the world’s daily production!

Just image what that would do to oil prices. I haven’t devised any involved formulas or complex equations to prove what a 4% loss in daily production would do to crude prices, but I’m sure it would easily push oil prices over the $85 per barrel mark.

So how exactly might Norway’s production be halted? I tell ya…

Last Wednesday the Norwegian Oil and Petrochemical Workers Union (NOPEF) initiated an oil service worker strike.

The strike began after wage talks with the Norwegian Oil Industry Association collapsed. NOPEF rejected an offer that would have increased workers` salary, giving them a raise of about $6,110 over a two-year period.

So far the strike has taken out 87 workers on 22 installations across the Norwegian Continental Shelf, including on the seven trillion cubic foot Snoehvit project operated by Statoil ASA, a project already hit by several cost overruns and delays. The strike among members of the oil services branch has already closed operation on two oil rigs and there’s word that more worker may be pulled this week.

It might seem that losing 87 of the 2,600 total oil service employees isn’t going to be enough pull the entire Norwegian oil industry to a grinding halt. But get this — NOPEF hasn’t completely tossed out the idea to lock out all oil service employees.

A full on strike would quickly affect development well work and well maintenance, both of which are necessary to either maintain or increase production on reservoirs. And for the future of the Norwegian oil industry…that’s bad.

Now, this is unlikely and I expect the industry to give in to the union’s demands. The industry certainly does not want to lose out on any piece of the revenue — over three million barrels per day of production with a street value of over 200 million bucks. $200 million a day? That’s brining in the bacon!

But if, on an outside chance, the union does decide to go ahead with a total strike and production halts, crude futures will skyrocket.

This is not the first time the Norwegian oil industry’s has scuffled with the labor union. In 2004, the two were butting head again resulting in a four-month mobile drilling rig strike.

This loss of production forced the International Energy Agency to revise down Norway’s total output for both 2004 and 2005 by 45,000 barrels a day. In fact, the production loss added to a decline in production from a peak year between 2000 and 2001.

Depending on which platforms are affected, a complete lockout could start to hit production in only days.

Among the installations that could be affected include several of ConocoPhillip’s Ekofisk platforms, Norsk Hydro’s Hiedrun and Oseberg platforms, and Statoil’s Snorre and Statfjord platforms. The strike would hit other major oil operators such as ExxonMobil (NYSE: XOM, BullBoards), Chevron (NYSE: CXV, BullBoards), and Royal Dutch Shell (all of which have drilling programs scheduled for 2006 and 2007) as well as affect units of Baker Hughes, Schlumberger, Oceaneering International, Halliburton, Weatherford International.

Like I mentioned before, a complete lockout is unlikely…but you never know how things will turn out, until they do. In general, however, oil-union strikes, a tight rig market, and a dwindling number of major-field discoveries will certainly accelerate the inevitable decline in global crude production.

Luke Burgess is an author and editor of Energy and Capital (www.energyandcapital.com) and Gold World (www.goldworld.com). Both letters offer technical analysis on resource markets.

This website and sisters royaldutchshellplc.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, and shellnews.net, are owned by John Donovan. There is also a Wikipedia segment.

Comments are closed.