Norway: Providing Energy Security for Europe

By Minister of Petroleum and Energy Terje Riis-Johansen

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Speech at Sanderstølen Conference at Holmenkollen Park Hotel

The Minister's speech was based on the following script:

Good afternoon, dear audience

It is stimulating to be here at this conference today. The topic I have been asked to address is "Providing energy security for Europe". The short answer is: Norway will contribute to providing energy security for Europe also in the future. However, we cannot escape the fact that currently there are challenges tied to this statement. This is not least due to the low oil price, high cost levels and the need for technical innovations in the context of a decline scenario.

2008 is the year when oil prices spiked then collapsed, and the world went into recession. What awaits us in 2009? Today, I will say it is a very unpredictable year. But this can to some extent be compensated through careful planning and actions from governments and industry – both separately and combined.

One point of departure is the IEA projection that the global need for energy will increase noticeably in the coming twenty years. From what we know now, the bulk of this need will have to be met by fossil fuels – mostly oil and gas. This underlines why security of energy supply has emerged as a major issue in international politics over the last few years. As the world's fifth largest oil exporter and second largest gas exporter, these are concerns that affect Norway directly.

Then there is the link to climate change. Norway's production of oil and natural gas is well schooled in sustainable development and is among the cleanest internationally. But it is still contributing to the global climate change.

This implies that we must be able to have two thoughts in our heads at the same time: The key is to reduce emissions AND to encourage sustainable, sufficient and timely investments in the oil and gas sector, in renewable energy and in energy efficiency. Production of oil and gas must be environmentally sustainable. Our ambition is to be a leader in the global efforts to combat climate change. We must continuously earn the necessary political and public acceptance, and thereby a continued licence to operate.

 

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Ladies and gentlemen,

The financial crisis and the recession in the world economy have had a deep impact in the oil market, and oil demand is shrinking. Most of the major oil consuming countries, perhaps even China, are experiencing a decline in oil demand.

Oil prices are now less than one third of the peak level last year and at their lowest in almost five years. This is despite OPECs efforts to stabilise the market.

As a response to low and volatile oil prices, high costs and tight credit markets, oil companies are cutting capital expenditure. Recent surveys point to 2009 becoming the first in six years with a drop in capital expenditures.

Increased caution is an understandable response to uncertain times, but some have expressed surprise at the impact of oil price fluctuations on the long term investmens of the industry.

The consequence will be slower growth or even a decline in global oil production capacity. When the recession ends, oil demand will most likely revert to a long term increasing trend. The risk is that oil prices then may fluctuate more than desired, because of under-investment today.

This is a cause for concern for oil exporting as well as oil importing countries.

Norwegian petroleum activities and resource management will be affected by the change in the global economic environment. The uncertainty today is greater and more demanding than just a few months ago. However, in the short term, industry reports that the investment level will remain at a fairly high level, as a result of decisions already made.

Thus, capital expenditures could be higher in 2009 as compared to the all time high in 2008. The number of exploration wells should stay close to last year's record high level.

It is of key importance that the petroleum industry makes the necessary adaption to the short and medium term economic realities. But it is even more important that these short and medium term actions do not prevent this industry from developing further when the economic downturn is behind us.

I follow the development in the sector closer than usual these days. And I think the two most important elements to watch are (1) how fast the financial system will normalise, and (2) when will global demand for capital and consumer goods start growing again.

There may be some silver lining to the cloud. Delays might serve to cool down an industry which during the recent boom years has been overheated. A slowdown might be needed to control the cost escalation we have seen over the last years. Getting strong talent to join and stay in the industry may get easier. I would like to see idealistic young people looking for change to seek the opportunities in the petroleum industry.

If we over time face low oil prices combined with unviable margins, this may impact the supply of oil and gas from Norway. Thereby, our ability to provide energy security for Europe may also be afftected. It is therefore in both the producers' and the consumers' interest to experience healthier oil prices and margins.

In the short term, falling oil prices and increased cost may prove counterproductive to the development of new oil and gas resources. But in the longer term, I cannot subscribe to economically and sustainably viable petroleum resources lying idle.

 

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Ladies and gentlemen,

US President Barack Obama, UN Secretary General Ban Ki-moon, British Prime Minister Brown, French President Sarkozy, and many others have advocated a "green new deal". Expanding environmental industries and jobs are the best way out of the economic recession, while at the same time combatting climate change. Indeed, our own recent counter-cyclical measures have a strong environmental bent.

Focus will increasingly be on improving energy efficiency and on a path towards a future dominated by cleaner energy technologies like renewables. The challenge is to fit this into the framework of sustainable energy production, with margins that meet public acceptance.

Let me say again that Norway is stepping up the challenge: Last year's parliamentary agreement on climate policy confirms Norway's willingness to reduce our emissions by 30 per cent by 2020 and become carbon-neutral in 2030. We aim to develop environmentally friendly energy technologies. Considerable funds are, and will be allocated to promote energy efficiency, renewable energy sources and carbon capture and storage. While doing this, we will continue to be a reliable energy supplier to Europe.

Norway bases the main part of its electricity on renewable energy: 99 per cent of our electricity production stems from hydro-power. This constitutes about half of our total energy consumption. However, we see the development of environmentally friendly technologies, production and use as essential in our transition to an (even) more sustainable energy system and reduction of global CO2 emissions. Hence, the Norwegian Government has set concrete targets for new and environmentally benign energy production and energy efficiency. We are convinced of the necessity to welcome and promote all technologies that will help mitigate the discharge of greenhouse gases.

Actions to prevent climate change need to be global to succeed. Therefore, a key element in our climate change policy is to be a facilitator both in the ongoing negotiations under the UN Framework Convention on Climate Change, and in the global effort to make the energy technologies of the future a realistic option as soon as possible. Our main focus areas are carbon capture and storage technologies and offshore wind power. We also focus on saving forests in developing countries, thereby also preventing carbon emissions.

Offshore windmills are a very clear example of an area where technology transfer from the petroleum and marine industries could benefit renewable energy production. An exciting scenario is a future European super-grid, where European electricity infrastructure is linked together on a large scale. Offshore wind could supply large parts of the electricity demand, with Norwegian hydro power serving as back-up batteries. There is no doubt that a large scale development of floating offshore wind turbines off the coast of Norway would be a quantum leap for renewable energy production. In addition, offshore wind could also become a source of electricity supply to petroleum installations on the continental shelf.

The Ministry of Petroleum and Energy is currently working on a national strategy as well as new framework conditions for power production from renewable energy sources offshore. Let me underline, however, that the technologies for offshore wind power are at this stage not available on a commercial basis.

In this respect, another important challenge is our task of securing a sustainable future energy supply, by reducing emissions from production and use of fossil fuels. We must move from the CO2-intensive fossil fuels towards the less carbon intensive options. One such option could be to use gas instead of coal.

Carbon capture and storage is one of the most promising technologies to decarbonise the production and use of fossil fuels. This technology will complement other climate change mitigation actions by providing an option for using fossil fuels, including coal, during the transition to a low-carbon or "greener" economy. Therefore, Norway is strongly committed to further developing and contributing to a widespread dissemination of technologies for carbon capture and storage.

Norway already has a long and unique CO2 storage experience. For 12 years a total amount of 10 million tons of CO2 have been separated from the wellstream at the gas producing facility at the Sleipner West field, for storage in a geological formation a thousand meters below the seabed. This is the only facility in the world where large quantities of CO2 have been stored in a geological formation under the seabed. Multinational research projects have monitored the behaviour of the stored CO2, and the data show that the CO2 stays securely within the storage reservoir.

But we need to go further. Through economic measures and technology development, our aim is to make carbon capture and storage a viable option for power generation on a global scale as soon as possible.

Therefore, we will invest a huge sum of money in a carbon capture technolgy center at Mongstad. By this, and through investments in research and development, we aim to significantly reduce costs and risks of future large-scale CO2 capture plants. This is not an easy task, but this type of technology is key if we are going to succeed in our struggle to fight global warming.

We are committed to work to establish a carbon capture, transport and storage solution from our domestic fossil fuel power plants.

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Good friends,

Norwegian oil production has declined in recent years, and unfortunately our forecast is for a further nearly 10 % reduction in 2009. We expect a gradual decline to continue in the years ahead.

However, thanks to growing gas production, the total output of oil and gas from Norway is expected to remain fairly constant over the next five years. Norway is already a significant exporter and supplier of gas. We have the resources to expand gas exports.

Norway has a very favourable geographical position close to the large gas markets in Europe. Our extensive offshore gas transportation system paves the way for Norwegian gas to Europe and forms a link in the gas market of North Western Europe. As 99 per cent of our production is exported, the gas transportation system is the core of our gas business. An important task for the Government is to organise this part of the business in a way that ensures an efficient gas market.

The European Commission underlines the importance of creating a truly competitive European-wide energy market, providing a more open market for gas producers. Consumer countries can to a large extent themselves ensure that Norway – and other suppliers – will remain long-term suppliers of gas to the European market. Full and efficient market opening in Europe will contribute to security of demand.

The gas conflict we have witnessed between Russia and the Ukraine is unfortunate and gives rise to concern. Most importantly, the way it affects innocent third parties – the consumers – is most regrettable.

Supply disruptions create uncertainties in the gas market and could be detrimental to the perception of gas as a secure source of energy. Producers are competitors, but we do have a common interest in making sure that gas is perceived as a good choice as the fuel for Europe.

It is worthwhile noting that gas exports from Norway would not have had substantial effects on the areas that were most affected by the conflict. The interconnectivity of the European gas transmission system is not developed to handle such a shift in supply sources. This is a challenge for the European gas market. In addition, our open, transparent prognosis for future exports and the fact that our pipelines run at full capacity, imply that Norway has few aces up her sleeve in emergency situations in the European market.

Norway is the second largest exporter of gas to the EU after Russia, and strongly contributes to EU security of supply. Norwegian gas production has tripled since 1995, from a relatively modest level of around 30 billion cubic meters in the 80's and 90's up to today's level of almost 100 billion cubic meters. We could see a further increase during the next decade to a level between 125 and 140 billion cubic meters. Increased supply from Norway contributes to the diversification of gas sources which, in turn, adds to the security of supply.

 

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On the topic of security of gas supply, I would briefly like to point to the Skanled project in Norway. The projected subsea pipeline will bring gas from the West Coast of Norway to the East Coast and further on to Sweden and Denmark. The potential investors come from several European countries. The pipeline will increase the interconnectivity of the European gas market and further add to the energy security of Europe. The project has not yet been sanctioned by the investors, but I am very pleased with the work being performed and look forward to seeing the final results.

Let me now turn to some reflections on the future of oil and gas. Perhaps the single most important contribution to be made by the Norwegian Government in this respect, is to provide a stable and predictable framework for the petroleum industry. The industry, in turn, continues to reach higher to achieve top marks on the sustainability tests. Norway shall continue to be a predictable, reliable and transparent country for national and international oil companies.

Norway has, and will continue to provide prospective acreage to interested companies on a regular basis. This is to realise long term production and value creation on the Norwegian Continental Shelf and in Norway.

We have a long-term, stable and predictable petroleum regime. In recent years, we have made targeted adjustments, for example to our tax system, which implies refunding of the tax value of exploration costs. More than fifty new companies have become new licensees on the Norwegian Continental Shelf over the last decade – planning for making profitable investments here.

As for access to acreage, the Norwegian Government decided in December 2008 to offer 34 new production licences in the Awards in Predefined Areas 2008, thereby focusing on additional resources in mature parts on the Norwegian Continental Shelf.

By the deadline for applications in the 20th Licensing Round in November 2008, the Ministry of Petroleum and Energy received applications from 46 qualified companies. We aim at awarding new production licences during spring 2009, thereby providing access to new resources also in frontier areas.

However, the relationship between the Norwegian State as the owner of the petroleum resources on the Continental Shelf and the industry as agents, is one of interdependence. I will provide a stable framework and access to prospective acreage. The oil companies have to explore, produce and bring petroleum to the market. Both are vital for actually realising the supply of energy.
In the last years we have seen an increase in exploration activities on the Norwegian Continental Shelf. This has led to many new discoveries, especially in mature areas. In 2008, we witnessed a resource addition equal to 70-80 per cent of production. Compared to the previous years, this represents a positive trend. The challenge, however, is that the individual discoveries are relatively small.

In the North Sea and the Norwegian Sea, exploration continues at a good pace and discoveries are made. In the frontier areas we are facing a greater challenge: The results from exploration activities have been rather disappointing, and there is concern related to the fact that ten years have passed since the previous, large discovery of the Ormen Lange field.

Nevertheless, we need to take on a long term perspective. In frontier areas it can typically take 15 – 20 years from the award of licences to first production. In the near term, interesting acreage is still available.

The great interest shown by the industry in recent licensing rounds is beneficial to Norwegian interests. I do encourage the industry to follow up with investments to bring resources to the market, and to be part of new technology breakthoughs on a wide range of issues: Energy efficiency, cost reduction, environmental technologies and enhanced oil recovery.

In the longer term, however, there will be a demand for access to acreage further north that still remains to be opened.

The High North is an emerging petroleum province. Some areas here are particularly vulnerable habitats and/or important to other activities – but far from all. Projections foresee that large volumes of oil and gas remain to be found here – especially offshore. Norway encompasses vast ocean areas in the Arctic. The energy resources in this area may be vital for future security of energy supply to Europe.

My Government's strategy for the High North is based on the principles of activity, presence and knowledge. Our aim is to secure a sustainable development in the High North. To achieve this, increased activity and sustainable resource managment are prerequisites. These perspectives create great possibilities for Norway – especially in the form of positive economic and social effects in the Arctic – but also real challenges.

We have seen in practice the positive economic effects generated by the development of the Snøhvit gas field in the Hammerfest area. As the Minister responsible for petroleum activities in Norway, my wish is naturally that such economic and social benefits shall materialise in other regions of the North as well. Only then can we ensure that petroleum activities in the North contribute to develop this region's own resources.

However, this requires a clear insight and long term political decisions. And such decisions must be made in due consideration of the potential future effects of petroleum activities on the climate, the environment and other users of the sea.

Thus, the availability of petroleum resources in the Arctic also gives rise to caution. The Barents Sea is one of the cleanest, richest and most productive marine areas in the world. As petroleum exploration and production expand into the Arctic, one of the challenges we face is how to maintain the qualities of the Barents Sea.

Norway subscribes to the highest possible standards of health, safety, and the environment. Further, our regime has been based on coexistence with other interests at sea, such as fisheries and sea transport. We have adopted an integrated management plan for our northernmost waters. The plan takes a comprehensive, step-by-step approach to the development of petroleum resources in the High North.

Protecting ecosystems and ensuring sustainable use of resources are core principles of all Norwegian legislation and policy. Even though increased activity is encouraged, steps must be taken to ensure that the sea areas remain clean, rich and a productive marine environment.

The aggregate effects of multiple uses of the oceans – fishing, maritime transport and petroleum exploitation – call for an eco-system based approach to oceans management. In Norway, this has been done through the integrated ocean management plans. The aim is to establish a holistic and ecosystem-based management of activities. This means that all activities in the area should be managed within a single context.

Such management plans provide a framework for the sustainable use of natural resources derived from the different sea areas, while at the same time maintaining the structure, functioning and productivity of the ecosystems of the area. The plans are aimed at addressing both challenges and opportunities in the sea areas, and will lay the ground for sustainable use of resources.

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In summary, ladies and gentlemen:

  • I assume that we will recover from the financial crisis
  • I foresee the future development of many oil and gas fields on the Norwegian Continental Shelf
  • I take it for granted that we will be able to make production and consumption of oil and gas more environmentally friendly. A main goal is to reconcile Norway's role as a large energy producer with a pioneering position on environmental and climate issues
  • Norway is – and will remain – a long-term, reliable and predictable energy supplier and energy partner.

 

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