Address at ONS Conference 1998

Good morning -, Your Majesty, Mr. Mayor, Ladies and Gentlemen;

1. Introduction

The Offshore Northern Seas Conference is an important meeting place for the oil and gas industry.

Looking back over the last quarter of a century, we can only conclude that the petroleum industry has lived through highly interesting and challenging times.

25 years ago the international oil industry had experienced nationalization of petroleum resources in OPEC countries. The Arab-Israeli war in 1973 was recent history and crude oil price hikes were under way. Later, the revolution in Iran and the war between Iran and Iraq were to have profound impacts on the oil and gas industry.

These events are only a few - but dramatic - examples of the fact that the oil and gas industry has to live with and adjust to the impact of political events and developments. This perhaps more so than any other industry.

The challenges - and opportunities - are different. Today, concern for sustainable development, the environment and human rights are vital political issues which politicians and the oil and gas industry have included in their agendas.

2. Sustainable development

There can be no doubt that in the late 1980s and early 1990s an era in world history ended and a new one began.

This has two main thrusts:

growing world-wide consensus among policy makers on the value of openness and cooperation, embracing deregulation of markets to promote international trade and foreign investment;

widespread concern about the capacity of the earth to sustain expanding population and present production and consumption patterns.

The shift in political and economic practice has promoted far-reaching institutional changes - both nationally and in the regulation of international finance and trade. It has been accompanied by a revolution in communications technology. This allows the rapid spread of capital, information and skills. Together, these forces drive the unprecedented integration of the world economy.

Such changes are rapidly transforming our world.

Companies can no longer hide from their competitors behind geographical, tariff or - for very long - technological barriers. They can only succeed by constantly learning from the best, increasing efficiency and pursuing innovation. Governments must respond to this when formulating economic policies.

Many people in the industrialized world fear the inevitable uncertainty of a world in rapid change. Society must appreciate and respond to their concerns, for instance through incentives promoting the development of environmentally-friendly technologies.

Thus, the benefits of creativity caused by competition should be highly appreciated.

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There has been a strong economic growth in the developed world over the last 4 - 5 decades. Most people here have benefited from this growth.

Income growth per capita in many developing countries has also been accelerating in real terms. For the first time in history, this progress involves most human beings. But we should never forget the many who do not yet share in it - even within expanding economies. And in what are classified as the least developed countries, millions of poor people have been getting poorer - not just recently but for two or more decades. This is something the world cannot allow to continue.

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The question then arises: How can we meet these serious challenges?

One answer could be more openness and cooperation between regimes and states, and more market orientation. This will stimulate competition . That in turn drives growth efficiency, innovation, and optimizes the use of resources and creates growth.

Improving the living standard of growing populations depends, among others, on ample supplies of energy.

Energy demand over the next quarter of a century will continue to depend on fossil fuels. Meeting this demand will challenge the skills and the resources of the petroleum industry and governments.

Further, energy consumption in the developed world is likely to grow slowly. In the restructuring economies of the former Soviet bloc it may, for the time being, hardly grow at all. Most additional demand will be in developing countries. These countries choose energy sources that best support their economic development. This is likely to include the utilization of their own indigenous natural resources, such as the substantial coal reserves in both China and India.

In the long, and hopefully in the medium term, however, I am convinced that renewable energy will play a growing role.

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Let me turn now to the second of those major shifts in thinking that I mentioned. The concern about the ability of our eco-system to sustain a growing population and material consumption. This is an issue that cannot be ignored.

On the one hand there are those who argue that the world has clearly sustained itself so far. Further, the quality of life for most people has steadily improved by most parameters, including their environment. There is, therefore, no need for any special action, provided the self-correcting forces of the market are functioning.

For my part, I agree to what is said about higher standards, and I believe that the market-forces can contribute to the progress. In a world of rapidly expanding population and consumption, however, I do not believe that we can adequately project past sustainability on to the future.

On the other hand, there are those who argue that the scale and nature of human activities are already unsustainable, and that we must abandon current lifestyles.

I believe this provides a timely warning about the possibility of irreversible damage to the natural systems on which we depend. But we must also take account of the human capacity to adapt and progress. This includes the development of new national and international policies, technologies, and methods which transform the way we interact with nature.

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The pursuit of a sustainable development is a long-term process. I appreciate the complexities of achieving this ambition. It requires a step-wise change towards a better world. To this end, governments and industry need to make difficult and often unpopular decisions in their balancing of conflicting interests.

I have noted that the petroleum industry over many years has made substantial efforts to improve its environmental performance. Due to the strong focus on environmental concerns the petroleum sector is undoubtedly in the forefront in integrating these motives in its operational procedures. This focus has been developed in close cooperation with the relevant authorities.

3. The environment

Energy is at the crux of the relationship between development and sustainability. The fossil fuels play an essential role in meeting the increasing energy needs of the industrialized as well as the developing world. However, this presents three particular challenges to sustainability:

the local environmental impact of the production, distribution and use of fossil fuels,

the finite nature of the fossil fuels and

the impact of emissions of green house gases – largely carbon dioxide from fossil fuels - on the global climate. And the risk that this could have damaging, irreversible consequences.

Let me consider each of these challenges in turn.

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The environmental performance of the oil and gas industry has improved greatly over the years. At first the emphasis was on preventing accidents which can both harm people and pollute the environment.

More recently, attention has focused on reducing the emissions and discharges which may have a longer-term impact on human health and the environment.

As well as improving their operational performance, the commercial industry now also contributes to reducing the environmental effects of the use of their products. These efforts have achieved significant progress.

However, new measures will continue to be required. I expect the industry to continue to be proactive and participate in the formulation of policies and in development of new technology in line with consistent host state policies.

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The second major concern is that fossil resources are finite.

This is certainly true in a geological sense. On the other hand, it is important to recognize that reserve levels are continually being replenished through new discoveries and better recovery techniques. Over the past 20 years proven reserves of oil have grown by half, despite cumulative consumption of over 200 billion barrels. Gas reserves have grown even more quickly.

However, as I explained, meeting rapidly increasing energy demand over the next few decades will be a major challenge for energy industries and host nations. The cost of developing new fossil fuel reserves is likely to rise.

Our ability to improve energy efficiency will also affect energy markets. This has long been an integral aspect of industrial development and government policies. Energy intensity - the energy required for economic growth - has fallen in most countries. More dedicated national policies, technological advances, market reforms, and changing lifestyles may provide even greater progress as regards energy efficiency in the future.

Alternative energy supplies - from wind, biomass and other sources - will become increasingly competitive. The shift from fossil fuels to renewable energy sources could in the next century be as fundamental as that from coal to oil and then to gas in this century.

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Changes in the demand and supply of energy are closely linked to the third - and most intractable - challenge to sustainability. That is the possibility of global climate change as a result of increasing emissions of man-made carbondioxide, largely from fossil fuels.

Global warming is one of the most challenging environmental problems the world is facing today. It is also a serious economic issue, as most of the greenhouse gas emissions are closely linked to key economic activities.

Further, it is a global issue where global co-ordination and global solutions are called for. It is a long term issue - where we have to take into account the well-being of future generations. And finally, it has serious income distribution implications, where present generations' right to economic development must be taken into account.

Considering these challenges I am pleased that 160 countries have agreed to the Kyoto Protocol on Climate Change last December.

Although I am pleased that an agreement was reached, the reduction level is not as ambitious as one could have hoped for. It is important to recognize that this agreement is not the solution to global warming, but a first step.

The Norwegian Government presented its national strategy to implement the Kyoto Protocol in a White Paper to the Parliament this spring in parallel to presenting a bill of “Green Taxes”. The Parliament reviewed the two documents in June, and asked the Government to come up with a proposal for a national emissions trade system for green house gases. This system should at a minimum include the process industries which at present are exempted from this tax, but other sectors should also be considered. A committee of experts will be established to develop such a system. The committee and later on the Government will cooperate actively with the social partners in this process. The Parliament also asked for increased efforts to strengthen the climate change related research.

The measures decided by the Parliament will contribute to limit emissions at the national level, but they are probably not sufficient to ensure the fulfilment of our Kyoto commitment. These first steps must be sees as part of a process.

Further, Norway will make use of flexible mechanisms under the Protocol, joint implementation among industrialized countries, the Clean Development Mechanism allowing for project based reductions in developing countries, and emissions trading. The Government hopes to see active involvement on Norwegian industry in the use of these mechanisms, and we are at present working on proper domestic incentive systems to make that happen, as well as working internationally to make the mechanisms operational.

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The cost necessary to reach our emission target here in Norway could be significant. Nearly all our electricity is hydro-based, so no options for low cost fuel switching in the electricity sector are given. In the petroleum sector, Norway is already a technological leader when it comes to environmental protection issues.

The main cost for Norway, however, is not primarily related to the cost of reducing emissions, but to the expected reduction in our petroleum wealth. Thus, a result of countries' implementing their obligations, could be a cut-back on their demand for fossil fuels. Consequently, demand for petroleum could again diminish and petroleum prices could drop. The severity of such a drop also depends on the behaviour of the supplying countries.

Thus, the total cost for Norway could be greater than for most of the other developed countries. This is, however, a cost we are prepared to pay so as to improve the environment for future generations.

4. Human rights

I will now turn to the issue of human rights in sustainable development. This is an issue of fundamental importance to my Government. We want to increase our focus on the ethical and moral values that must form the basis for our policies, both at home and abroad. Our starting point is clear: respect for the dignity and worth of each human being and the natural and social environment in which we all live.

The collapse of communism and the end of the cold war has meant dramatic changes – in the view of man in society, in world politics and economics. Remarkable progress for democracy and human rights has been achieved, not only in Europe. Opportunities for social and economic development have been created in new markets around the globe.

At the same time, serious challenges remain. Poverty and pollution is still a fact of daily life for too many people in too many countries. Human rights and fundamental freedoms are still violated by too many governments, fifty years after the Universal Declaration on Human Rights was adopted.

How then, combine necessary economic growth, especially in the less developed parts of the world, with sustainable development and the respect for human rights on a global scale? This is moral challenge to all of us. Long-term political and economic stability depends on its resolution.

Many would argue that the aims of a company are commercial, not political. That as long as business is conducted within existing national laws, in a socially responsible manner, the most important contribution a company can make to social progress is to be as efficient as possible, providing jobs, incomes and taxes to the host nation.

But in the era of globalisation, multinational companies – not least in the oil business - are playing major economic roles in many countries of the world, including where human rights are violated. Consumers, stockholders and the general public are more alert, not only to environmental concerns, but also to human rights issues, than ever before.

Companies, therefore, not only have a moral obligation, but also an economic interest, in not turning a blind eye to human rights violations. The days are gone when company executives could say “we don’t do politics, we only do business”. Increasingly, good ethics is good business.I am pleased to note that more and more international enterprises are drawing up ethical guidelines, where human rights are discussed.

Companies, human rights organisations and governments have different but complementary roles. We must co-operate. I will say more about this at a Roundtable on human rights and the oil industry later this afternoon. I am convinced that it does make a difference which choices we make. And that, in the long run, there is no trade-off between taking a morally responsible stance and making economically profitable business.

5. Closing remarks

I see the pursuit of sustainable development as a long-term process - a journey of continuous, but steady change towards a better quality of life for all, today and in the future. I appreciate the complexities and challenges of achieving such an ambition - and the inevitable need for society to make the trade-offs between conflicting objectives.

Thus, sustainable development can clearly never be just a matter for politicians, governments and representative institutions. It also involves fundamental choices for commercial organizations. It requires a wide, and well informed, debate so that we can understand what we all need to do, to make progress towards our common goal.

But we should recognise that this understanding will develop over time. As we learn more about sustainable development, the environment, human rights issues and the effects of nationally and internationally formulated policies on these crucial issues.

The idea of sustainable development must surely always include an emotional or spiritual dimension based on human values - and appreciation of our place as human beings in a wider picture. But we will achieve little without careful, rational thought.

The short 20th century demonstrated the human capacity for progress in so many ways - as well as our propensity to destroy each other in the name of conflicting ideologies.

We can only go forward by working together. In this vein, my Government looks forward to a continued and constructive cooperation with the petroleum industry. This is a prerequisite for a high value creation from this sector also in the years to come.

Thank you for your attention!