Foils (in pdf format)

Your Excellencies, Ladies and Gentlemen,
It is a pleasure for me to round off this energy seminar, which I certainly have enjoyed. I'll do so by presenting you with the prospects and challenges of the Norwegian Continental Shelf and of the Norwegian Oil and Gas cluster.

We are in an extremely important period of time. The looming threat of war in an important oil producing area and unrest in several areas present us all with serious challenges. Without diminishing the seriousness of the international situation I want to leave the following messages with you today. The importance of the Norwegian Continental Shelf is more apparent than ever. The production of oil and gas is significant and the Norwegian Continental Shelf still represents promising prospects and interesting opportunities. It offers predictability and stability in framework conditions, and an internationally competitive petroleum cluster with world class technology.

I am convinced that the opportunities of Norway as a petroleum province shall continue to make us competitive in a global context.

Before turning to the outlook of the Norwegian Continental Shelf and the competitiveness of the Norwegian oil and gas cluster, I will briefly visit the energy markets and the oil price.

Energy market outlook
In the short term the uncertainty in the oil market is significant.

The crude oil price has increased by 10 USD/barrel in recent months, due to the strike in the oil industry in Venezuela, low oil stocks and the war threat in Iraq. Production in Venezuela is now increasing, however, full restoration of production could take time. The possibility of war in Iraq is at present the single most important factor bringing uncertainty to the markets.

If significant oil production is cut off from the market, OPEC would have to use most of its producing capacity to cover demand. With little spare production capacity left, the market would be vulnerable to unexpected production losses elsewhere.

However, a situation with significant shortage of crude oil seems unlikely to arise. Demand will start to decline as winter is ending. And, the IEA members have at their disposal large inventories of oil, which can be released if the market situation so warrants. On this background we may experience short term, but substantial fluctuations in the oil price. Market fundamentals point to lower prices after the crises in Venezuela and Iraq have been resolved. Growth in oil demand is weak, having been lower than normal trend growth for several years.

At the same time growth in oil producing capacity has been high, particularly in non-OPEC countries, but also in several OPEC countries. And if sanctions are removed, Iraq has a potential for much higher production.

Moderate growth in demand and high growth in production capacity indicate that the very high oil prices experienced recently are not likely to be sustained for very long.

Exploration and production costs relating to offshore activities are relatively high. Consequently, oil and gas prices at reasonable levels are important conditions for a viable petroleum industry. Looking back at the last 10 to 20 years, oil and gas prices have fluctuated considerably, but on average they have been at a level that oil producers have been comfortable with.

Looking further into the future, our assumption is that prices on average will continue to be sustained at a reasonable level. There are several reasons for this:

Energy Demand (IEA)
As the global economy continues to expand, so will energy use and use of fossil fuels in particular. This is true, especially, for the developing and newly industrialised countries. Demand for gas is likely to increase rapidly, being environmentally more benign than other fossil fuels. And, oil demand will continue to grow as long as there are no realistic alternatives to oil based fuels in transportation. Forecasts indicate that oil consumption could increase by about 50 % and that gas use could double in the next 25 years.

As regards supply, we believe that OPEC and other oil producers will continue having a policy of managing production to sustain a reasonable oil price level.

The Norwegian Continental Shelf
Let me now turn to Norway. Broadly speaking, we have two main challenges. We must access and exploit resources that are increasingly difficult to reach. And, the industry must work to increase the recovery rate in producing fields.

The Norwegian Continental Shelf and the Norwegian Sea in particular, is still among the most promising and interesting petroleum provinces in the world.

During the last two or three years we have, however, seen some high profile frontier exploration wells render disappointing results, especially in the Norwegian Sea. The discoveries made in mature areas have been smaller than what we have been used to in the past. The overall number of exploration wells has been declining. According to the Norwegian Petroleum Directorate 15 exploration wells are planned spudded in 2003.

It is a clear goal for the Government to increase the exploration activity on the Norwegian Continental Shelf. We believe that there are significant undiscovered resources, in the Norwegian Sea in particular. So far only eight wells have been drilled in deep water, and two discoveries have been made. One of those is the gigantic Ormen Lange gas field.

As only a small number of wells have been drilled in this large province, large parts of the Norwegian Sea are still to be explored. None of the licenses awarded in the 17 ^th> Licensing Round have been drilled yet. The Western frontier areas, the Northern part of the shelf and the deep water areas of the Norwegian Sea are of special interest.

In addition to the challenges relating to water depths, high temperature, high pressure and lack of infrastructure, most of these prospects in this area are of a size that cannot support stand-alone developments. The industry will often have to look for a combination of fields which together can form the basis for new developments. It is also a challenge to us all using the experiences from the disappointing wells in a creative way. We need to understand why those promising wells turned out to be dry holes, and we need to use this knowledge to further develop our understanding of the Norwegian Sea. This requires pluralism to ensure that the joining of forces by competent companies establish new ideas and that they are put to work.

In the immature parts of the Norwegian Continental Shelf we will continue the policy of licensing rounds every second year. Our first opportunity to give access to new exploration acreage is the 18 ^th> Licensing Round, which will be announced later this year and awarded during the 2 ^nd> quarter next year. The Government will see to it that this licensing round responds to the need of the industry for new frontier acreage. Previous years' exploration results will be taken into consideration in deciding the size and scope of the round.

In order to achieve our target of including high quality acreage in the 18 ^th> round, we need input from the industry. Consequently we see the system of nominations from the companies as a very important tool in the process of choosing which areas to include in the 18th round.

Areas outside Lofoten, in particular the so-called Nordland VI area, have for some time been very high on the priority list for many companies. However, before deciding on including acreage in the Nordland VI area in the 18 ^th> round, we will have to await the outcome of the ongoing impact assessment study of year round petroleum activity in the area Lofoten-Barents Sea.

Throughout our history of offshore oil and gas production we have followed a principal of co-existence between the petroleum sector and other users of the sea, such as the fisheries, and of accommodating environmental concerns. This policy will be continued and is a major pre-condition for sustained petroleum activities on the Norwegian Contintnal Shelf.

Our assessment is that the resources yet to be found represent opportunities that shall maintain a high level of activity for many years to come. However, exploiting our resources efficiently requires continuous focus on technology and cost reductions, securing acceptable margins for the stakeholders, albeit not compromising safety and environmental considerations.

Gas infrastructure
The increasing role of gas on the Norwegian Continental Shelf emphasizes the importance of infrastructure issues including continued efficiency in the transportation systems.

I am therefore very pleased that owners of the Norwegian gas transportation system before Christmas signed an agreement concerning the establishment of a uniform ownership structure, Gassled. At the same time, new provisions for use of Norwegian gas pipelines were laid down. These provisions and Gassled complete the new comprehensive gas management system.

We have established an efficient transportation machine that gives sellers of Norwegian gas a better opportunity to meet the challenges of the liberalisation of the European gas market. The recent reforms are forward-looking and will contribute to more efficient production and transportation of gas from the Norwegian Continental Shelf. The new gas resource management system is a major contribution to the realisation of the Government's long-term scenario for value-creation from the Norwegian petroleum sector.

In his speech at this conference, Mr. Brian Wilson referred to the ongoing collaboration between Norway and the UK with the aim to facilitate cross border projects. This collaboration should also be mentioned here as an important element in securing a more efficient production and transportation system, i.a. for bringing Norwegian gas to the UK market.

This exercise was initiated by Mr. Wilson and myself two years ago and involves the oil companies, the supply industry and authorities on both sides.

After having identified a number of barriers to cross border projects, the working group in charge presented several recommendations to Mr. Wilson and myself at the ONS Conference in Stavanger last year. An Implementation Group has been given the task to follow up these recommendations.

The establishment of a new Framework Agreement between our two Governments forms part of the exercise. The intention is to create a workable and predictable regulation for cross border projects such as development, production, processing and transportation. Mr. Brian Wilson and I aim at establishing main principles of the Framework Agreement when we meet again at the end of next month.

In addition to securing access to new prospects and efficiency in the gas value chain, another challenge I indicated was the issue of increasing the recovery rate in fields already in production or ready for development. Companies operating on the Norwegian Continental Shelf must work jointly to continuously increase the recovery rates. This is an issue I will follow closely, and I want to discuss with industry partners how this can be achieved.

The international oil and gas industry is a dynamic industry affected by global changes in the political and economic environment, as well as by new business strategies. As a resource owner we must understand these changes to keep our oil and gas policy updated.

Through our framework conditions, we are committed to maintaining an attractive investment climate on the Norwegian Continental Shelf. Over the last years, a number of adjustments have been made in order to increase predictability as regards new licences, to attract new companies, and to improve and simplify procedures.

On framework issues we will continue our close dialogue with the industry and we are of course open for suggestions on how we can further improve our system. At the same time, I would challenge the industry players to identify cost drivers where industry itself has a potential of improving.

Creating a Competitive Norwegian Oil and Gas Cluster
"Creating a Competitive Norwegian Oil and Gas Cluster", is about our 30 years history of offshore oil and gas production.

The Norwegian Continental Shelf offers tremendous challenges due to a harsh offshore environment in Atlantic and Polar regions, deep water and remoteness from coastal infrastructure. In spite of large discoveries and very prolific reservoirs, the cost of development has been a challenge. Application of new technology has been a key factor in enabling economic development and competitive production.

This has made it possible to build up the petroleum production from the Norwegian Continental Shelf to the current 3,4 million bbl/d (including NGL's and condensate), making us the sixth largest producer and the third largest exporter of oil in the world. This has also made the petroleum sector the most important industry in Norway, accounting for some 23% of our gross national product. The income from the sector is of course of great value to the nation and the Norwegian economy.

However, building our offshore capabilities has also entailed the development of national oil companies and a large contracting and supply industry. Some 200 000 people are directly or indirectly involved in the Norwegian petroleum sector today.

In my view the Norwegian subsea cluster is worth highlighting in this connection. Investment in research and development and frame contracts between Norwegian operators and subsea suppliers have been important drivers for the emerging of our subsea industry. The result can be seen today, where three out of the four leading subsea systems suppliers, together with a large supplier chain of companies, come from Norway. These companies are today world leaders in subsea technology.

Light Well Intervention
The newly developed "Light Well Intervention" system, to have its first field operation at the NCS in these days, has the potential of increasing the oil recovery from the subsea wells substantially. By making intervention easier the recovery rates can be brought up to the same as that for dry wells, implying a huge income potential for the field owners.

Thin Oil Zones
The drive to reduce exploration costs has given other important achievements. In the field of seismics Norwegian companies were pioneers in innovative streamer vessels, software and data management, reducing cost of new seismics by a factor of 5 and making 3D seismics economically feasible. The advanced, high-resolution seismics resulted in another exciting technology: high precision geo-steering of horizontal wells, reaching very challenging targets such as thin oil zones, turning for instance the sub-marginal Troll oil zone prospect into one of the largest oil fields on the Norwegian Continental Shelf.

Deeper waters – Floaters
Large scale application of floating production combined with subsea wells has represented another technology leap, and break-even costs for new developments have been getting down towards the 10 $/bbl mark.

A competitive petroleum cluster in Norway is a prerequisite for cost efficient exploitation of the NCS resources. The important question at this stage is how to stay competitive, how to develop and find new solutions in an ever more demanding and globalised setting. I am a strong believer in the necessity of a continuous development of the Norwegian based petroleum cluster, and I intend to contribute to such development.

There is one point, however, I think we have to bear in mind. One of the major implications of globalisation is the increasing level of specialisation and division of labour. This trend is taking place within most industries, including the petroleum sector. This means that neither nations nor individual companies can excel in all kinds of industrial activity. We must accept the fact that comparative advantages changes as an industry evolves and matures. Hence, we cannot expect the Norwegian petroleum industry to sustain its competitive edge in all parts of the value chain. The Norwegian petroleum industry must be prepared to adapt to structural changes and a shifting business climate. In my opinion, the ability to respond to these trends in a pro-active is the key to maintain a strong petroleum cluster in Norway.

KonKraft
The Konkraft, or Competitiveness, initiative was launched to address the new challenges of the Norwegian oil and gas industry following the fall in oil prices in 1998/99 and the global restructuring in the E&P business. A forum for top executives, the so called Top Leader Forum, was established in 2000. This forum includes about 30 leaders from oil companies, suppliers, trade unions, research institutions and government bodies, including the Ministry of Finance and the Ministry of Environment. I am chairing the Forum.

The mandate of the Forum is to identify and initiate projects to strengthen the competitiveness of both the Norwegian Continental Shelf and the oil and gas industry. Various projects have been launched and actions taken, for instance related to the rig market, access to capital and marginal fields. The Forum is also monitoring established initiatives within research, internationalisation, safety and environment. Two new areas where industry has initiated projects are concerning the NCS activity level and the tax system. I am looking forward to a dialogue with industry based on the results from these projects.

A whole range of factors need to be addressed, shall we sustain our competitiveness. A factor that stands out with particular importance, however, is research and development. Technology is identified by industry itself as the single most important factor for cost reductions and increased value added.

OG21 Vision and Main Areas
Last year, the Ministry of Petroleum and Energy, based on recommendations from and in cooperation with the industry, established a new technology forum. The OG21 initiative, "Oil and Gas in the 21 ^st> century", aims at setting the priorities for research within the petroleum sector, covering the whole value chain from basic research, to applied research and development, and into testing and commercialisation of technology.

OG21, with representation from the oil companies, the supply industry and the research institutions, has identified five broad areas of priority; deep water, environment, increased recovery, small fields and the gas value chain.

Lead Parties
Nine specific technology targets have been defined. Each target area has a so-called Lead Party, that is, an oil company responsible for defining technology gaps and needs, and for defining and carrying out projects in cooperation with other industry parties and research institutions. All the major operators on the Norwegian Continental Shelf are Lead Parties for one or two defined areas.

The development and introduction of new technology takes time, vision and brave ambitions and, not least, the willingness to do real field testing. I would take the opportunity to encourage the licensees to actively pursue the OG21 processes, to have an open mind towards new technology cases and applications and, where required, contribute to testing and qualification of new pilots.

I would also like to mention that we will continue to support the program Demo 2000 as part of the technology strategy.

Technology development is not only a means to exploit the resources on the Norwegian Continental Shelf, it is also a condition for the industry to sustain international competitiveness.

An International Industry, One market
This brings me to my last item today; the internationalisation of the Norwegian Oil and Gas Cluster. Staying competitive means marketing our products, services and systems in a global context. The acceptance of our technology, products and services internationally can be viewed as the acid test, proving our competitiveness. It is also the answer as to whether the Norwegian Oil and Gas Cluster has a future outside the Norwegian Continental Shelf. At the same time; being competitive in the global market also gives the best basis for providing cost effective solutions at our own continental shelf.

The international oil companies have played a major role in developing the Norwegian resources and the Norwegian industry. Based on their experience from the Norwegian Shelf many international companies are now utilising Norwegian competence and products in their international projects. Also companies with no experience from the Norwegian operations acknowledge the competence vested in the Norwegian Oil and Gas Cluster.

In concluding I would like to emphasis my political ambition to maintain and develop the attractiveness of the Norwegian Continental Shelf in a global context. I will contribute to this through stable, but also flexible, framework conditions, including important elements like the licensing policy, emphasis on improved technologies and increased recovery and through an effective and innovative petroleum cluster based in Norway.

I think this brings me to the answer of my title, "Creating a Competitive Norwegian Oil and Gas Cluster". More than ever this implies focussing on cooperating with our international partners, both on the Norwegian Continental Shelf and internationally.

Thank you for your attention.