Declining oil production, but promising prospects

15 June 2009
By Steen Hartvig Jacobsen, journalist

In 2008, Danish oil production fell for the fourth year in a row, dropping from the record level of 22.6 million m3 in 2004 to 16.7 million m3. Although the DEA had to write down its oil reserve assessment in its annual report on oil and gas production in 2008, the outlook for activity in the North Sea has some bright spots. Thus, the DEA considers the Svane gas discovery made by DONG Energy E&P to hold great potential, although production will pose extraordinary challenges. Moreover, at the end of May the DEA received a development plan from Hess Denmark for the South Arne Field that gives rise to optimism. In the somewhat longer term, DONG Energy E&P is expected to bring the Hejre accumulation on stream.

The total activity level in field developments and exploration in 2008 was about the same as in 2007, ending at almost DKK 7 billion. Mærsk Olie og Gas invested the largest amounts in the Halfdan, Tyra and Valdemar Fields, while DONG Energy E&P invested more than DKK 1 billion in Siri and Nini in 2008. In view of the planned development of both South Arne and Hejre, substantial investments in the billion-kroner range are also expected in the years to come.

Self-sufficiency in oil and gas for up to 20 years

The scope and duration of Danish oil and gas production activities depend on how the overall average recovery factor develops, i.e. what volume of hydrocarbons-in-place can operators recover from known reservoirs. In addition, exploration may lead to new discoveries, as has been the case in recent years with Noreco’s Rau discovery and Mærsk Olie og Gas’ Gita-1X well.

Historically, the recovery factor for Danish oil fields has risen significantly because operators have been able to use more efficient technology. When the first fields began producing, a recovery factor of 5-10 per cent was expected, but since then the use of so-called secondary recovery methods, i.e. horizontal wells, water injection, etc., has driven the average recovery factor up to almost 30 per cent. Today, about 20 per cent of known reserves have been recovered, and at least 6 per cent more can be recovered with the use of known technology. This means that Denmark can maintain its self-sufficiency in oil and gas for another ten years or so.

It will be possible to increase the average recovery factor even further if the so-called tertiary recovery methods, also known as EOR (Enhanced Oil Recovery), are successfully introduced. These include, for example, changing the properties of the oil to make it more easily recoverable. Together with the Danish North Sea Fund and Mærsk Olie og Gas, the DEA has assessed the EOR potential of Danish chalk fields, and this investigation has shown that CO2 injection is the only proven EOR method with a realistic potential in Danish territory.

Subject to the uncertainty associated with improved recovery based on exploration and technological developments, the DEA expects Denmark to be self-sufficient in oil for another 20 years or so.
Self-sufficiency in natural gas is more important to the physical reliability of supply in Denmark than self-sufficiency in oil. Oil is traded on international markets, while natural gas must be transported by pipeline to the Danish market. With known reserves, the DEA estimates that Denmark can maintain its self-sufficiency in natural gas for about ten years, but when contributions from exploration and technological developments are included, the period of self-sufficiency may be prolonged by another ten years, i.e. to around 2030.

Danish natural gas production came to 9.9 billion Nm3 in 2008, of which 8.9 billion Nm3 was sold to the Danish domestic market and exported. Gas reserves increased because additional gas reserves that exceeded the production figure were revealed. The additional gas reserves are located in known accumulations.

Svane – possibly Denmark’s largest gas field

The evaluations of DONG E&P’s Svane gas discovery could give cause for great optimism. The Svane discovery was made under licence 4/98 in 2001/2002 after Conoco Phillips had drilled the deepest well to date in the Danish area. Since then, DONG E&P has taken over Conoco Phillips’ Danish activities, including the Svane and Hejre discoveries. The Hejre discovery is expected to be brought into commercial production around 2014. During the drilling of the Svane-1A well, gas and condensate were encountered in several Upper Jurassic sandstone layers at a depth of 5,400-5,900 metres, and the well penetrated more than 630 metres of a gas-filled reservoir without reaching the bottom of the reservoir sandstone.

The Svane discovery has been under appraisal since 2002, and the confidentiality period for well data expired in 2008. With the data available, the DEA estimates that the Svane reservoir may contain even more gas than Tyra, whose total production and reserves exceed 100 billion Nm3, equivalent to Danish consumption for 25-30 years. The Svane discovery poses significant challenges because the reservoir is located at a great depth, with extreme temperature and pressure conditions that require specialized and very costly production equipment. Moreover, the Svane-1A well showed that the reservoir has low porosity, which means that relatively little space is available for accumulating gas. Furthermore, the permeability is moderate.

Director Søren Enevoldsen from the DEA therefore acknowledges that Svane will constitute a great commercial risk for DONG Energy:

• It has only proved successful in a few onshore locations to recover gas from similar reservoirs, including by means of hydraulic fracturing, and 20 to 30 high-cost wells will presumably have to be drilled to get production started. On the other hand, DONG stands to make great gains if attempts succeed.

• A parallel could be drawn between the Svane discovery, and its potential development as a gas field, and DUC’s Valdemar Field. The Valdemar reservoir contains the largest volume of oil of all known Danish fields, but production conditions are extremely difficult. After several attempts and long-term research, production was successfully started from the challenging Lower Cretaceous layers. Today, Valdemar is a commercial success for Mærsk Olie og Gas, and we can only hope the Svane discovery holds a similar success story. If the Svane discovery proves commercial, this will impact Danish society greatly, both in terms of economy and reliability of gas supplies. Even limited production from Svane could extend the period of Danish self-sufficiency in gas by several years, says Søren Enevoldsen.