Shell drops innovative Norwegian subsea gas project due to costs

Royal Dutch Shell has dropped an innovative project to provide compression for a major Norwegian gas field without the need for a platform, dealing a blow to a technology that some hope could revolutionise offshore production.

Shell said it would postpone the project to provide subsea compression at Ormen Lange, Norway’s second-biggest gas field, because costs have soared and the technology is uncertain.

The field, which produces an equivalent of a fifth of Britain’s gas needs, will eventually lose its natural pressure and subsea compression was seen as a cheaper alternative to building a platform.

However costs have soared across the oil sector. The Norwegian Petroleum Directorate estimates that the per unit cost in Norway has risen tenfold in 10 years.

"The oil and gas industry has a cost challenge," Odin Estensen, the chairman of the Ormen Lange Management Committee said in a statement.

“This, in combination with the maturity and complexity of the concepts and the production volume uncertainty, makes the project no longer economically feasible.”

A Shell spokeswoman said: “We are not giving up on offshore compression at Ormen Lange, but we can’t give any timeline (of how long the postponement could last).”

Norwegian oil services firm Aker Solution designed and built the compression pilot project for the field, hoping that Shell and its partners would use the technology.

Aker Solution could not immediately comment on Shell’s announcement.

Subsea pumps could have squeezed more from the field and also eliminate the need to keep workers offshore but it is a new and still untested technology.

Statoil, however, is moving ahead with its own subsea compression project at the Aasgard field in the Norwegian Sea and expects to be the first in the world to have such a project running when it starts up in 2015.

Shell is the operator of the Ormen Lange field with a 17.8 per cent stake, while Norway’s state-owned Petoro has 36.5 per cent, Statoil 25.4 per cent, Dong Energy 14 percent and ExxonMobil 6.3 per cent.

Shell said Petoro was the only partner against postponing the offshore compression project. (Reuters)