Norway Set For $6.5bn Inflation Hit In Upcoming Awards

Norway, the world’s top market for subsea tiebacks in coming years, is facing an inflation-driven cost increase of $6.5 billion on upcoming contract awards for goods and services in the offshore oil and gas industry through 2026, according to Rystad Energy.

About 275 subsea trees are expected to be ordered in Norway during the five-year period and – given that such projects are sensitive to materials and labor cost increases – they will be the main driver for the added bill that operators will have to swallow in the country.

Based on 2021 pricing, Norway’s oil and gas industry would have to pay some $91 billion for all upcoming contract awards through 2026, according to the analyst. Instead, inflation will drive the total five-year cost to $97.5 billion, implying that some of the biggest oil and gas firms active in Norwegian waters – including Equinor, ConocoPhillips, Aker BP and Shell – will need to reassess their budgets, as old break-even calculations will no longer be accurate.

Norway will be the global leader for awards related to subsea tiebacks during the next five years, as their collective value are projected to reach a lucrative $55 billion for suppliers – based on 2021 pricing. The US subsea market is the second largest with $44 billion of new contracts anticipated, followed by the UK with $29 billion, Russia with $25 billion, and Brazil with $24 billion.

While added subsea costs will account for more than $2.2 billion of the total extra $6.5 billion that Norway faces, other supply segments have also been hit by inflation. According to the analyst, the maintenance sector is facing $1.6 billion in added costs, with drilling following at $1.4 billion and with EPCI completing the top-four segments with $0.8 billion.

Matthew Fitzsimmons, senior vice president at Rystad Energy and head of cost and price research. said: “Norway’s oil and gas industry will really feel the inflation hit in coming years, due to the nature of its upcoming contract awards. Subsea equipment prices for Norwegian projects have already climbed by more than 10% since mid-2020 and are set to be challenged further as demand keeps rising and the global subsea supply chain remains saturated.”

While subsea and maintenance contracts give operators the largest risk, other segments are not without their fair share of inflationary challenges. For well services and commodities, sub-segments like OCTG are expected to see some long-term relief after steel prices surged in 2021, while other sub-segments like drilling services have not yet plateaued.

Looking back, Norway’s drilling services segment has not been immune to inflation during the pandemic, with a 5% increase registered in 2021.

Source: Offshore


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