Foils (pdf format)

It is a great pleasure for me to address the distinguished ONS audience for the first time. A lot of competence and experience is gathered in this room, and I look forward to share my thoughts with you.

Total Norwegian petroleum production
It is important for me to emphasize the huge potential that lies within the petroleum industry in Norway. Our large resource base and the competence and technology level in the sector are our most important assets. A continuous focus on increased exploration and increased recovery from existing fields is necessary to ensure long-term activity on the Norwegian Continental Shelf. A key challenge is to reduce our high cost level. One of my main priorities is to ensure that the huge oil and gas industry is a well-functioning sector. As minister for the petroleum sector I will therefore do my utmost to ensure fair and predictable government framework conditions to stimulate increased activity and value creation.

It is an understatement to say that the energy industry plays an important role in Norway's economy. In developing our economy we have always been exporting energy. In the beginning of the last century when infrastructure for transportation of energy was underdeveloped, we transformed our hydro energy into fertilizers which could more easily be transported. Later we did the same with aluminium. These products are still a significant part of our exports. Today, oil and gas is our most important industry, and we rank as the world's third largest exporter of petroleum. Last year the petroleum sector accounted for 19 percent of our gross national product.

Petroleum resources on the NCS
The Norwegian Continental Shelf has a large resource base that is still not developed and produced. The latest estimates from the Norwegian Petroleum Directorate show that only 29 per cent of the recoverable resources have been produced. Splitting our recoverable reserves into fluids and gas, we have produced almost half of our oil resources and only 15 per cent of the gas resources. The Petroleum Directorate further estimates that 26 per cent of the total recoverable resources are not yet discovered. In immature areas there are still good opportunities to make new discoveries that could be classified as large by international standards. In addition, there are considerable resources more easily available in the more mature areas.

New discoveries are necessary in order to secure long-term value creation. In recent years we have experienced a reduction in exploration activity. Since 1997 the reserve replacement ratio has been around 25 per cent. This is too low. The average size of new discoveries is declining as petroleum provinces mature. It is therefore very important that we see increased exploration activities. Access to acreage and reinforced work commitments are effective measures. In the 18 ^th> licensing round a large number of blocks was announced and the awards were extensive. In 2003 a decision was taken to allow for further all-year petroleum activity in the Barents Sea, except for certain areas like Nordland VI. It is very important that the industry obtain access to prospective areas both in less developed areas as well as in more mature areas. I will seek to continue the trend in making prospective areas available for exploration and development.

The Norwegian Continental Shelf is becoming more mature, and mature fields are characterized by falling production. The fields that today represent the lion's share of the production on the Norwegian Continental Shelf were discovered in the 1970s and 1980s. For me, increased recovery from existing fields is a key concern. We have already set an ambitious target of an recovery rate of 50% for oil and 75% for gas. However, I would like to challenge the industry and the government to strive towards even more ambitious goals.

I am happy that we on the Norwegian Continental Shelf see the presence of both international and national companies, both large and small. The largest and most experienced oil companies have played a key role in the successful development of our petroleum resources. The skills and experience of these companies are strongly appreciated and absolutely necessary in order to solve new challenges like deep-water drilling and extraction of oil and gas from high-pressure reservoirs. They also have the financial strength necessary to undertake larger development projects. At the same time, we face new challenges that require new solutions. Tail-end production is an example where smaller companies can play an important role. Smaller companies may have different organisation and cost structures. A broader range of companies can stimulate creative solutions. Therefore we are actively seeking to attract smaller and new companies. We are promoting our Continental Shelf to companies that possess relevant competence. This coming Thursday we will organise a special session addressing newcomers to the Norwegian Continental Shelf.

Ormen Lange / Snøhvit
At the moment, we see few large discoveries being planned for development. The exceptions being the Ormen Lange project in the Norwegian Sea and the Snøhvit project in the Barents Sea. As many of you know the Ormen Lange project will export its gas through a new pipeline to UK, Langeled, and the Snøhvit project will export its gas as LNG. Both these projects are made possible by using cutting edge technology. This pinpoints our clear view that continuous technological development is an important driver for developing new fields. Technological development is important in order to develop our petroleum resources more efficiently but also to seek new and improved solutions with regards to environmental challenges.

Large, long term technological programmes with state participation have been vital for technology development. Public contribution is necessary in order to focus on more long term challenges and to be able to achieve large scale technology efforts. Earlier this year the government responded to this by increasing the capital in the Fund for Research and Innovation by one billion NOK. The return on this capital will be allocated to research and development in the petroleum field. In addition the government will continue the support to the PETROMAKS and the Demo2000 programs.

The cost level is high …
The cost level represents a challenge to the long-term activity. With a high cost level fewer prospects are profitable to drill, fewer projects for increased recovery will be carried out and some discoveries may not be developed. High production costs will also be decisive for the timing of shut-down and hence reduce recovery and the possibility of tie-in of smaller fields. It is my firm conviction that we would not be wise and responsible resource owners if the cost structure on the Norwegian Continental Shelf hampers the development of resources that in many other parts of the world would be profitable. Part of the cost challenge is a result of the companies' own decisions over time, like contractual wage rates and working conditions. Much can be achieved in the field of increased productivity through technology and changed working schemes. However, I am sure that the industry is fully aware of their responsibility in reducing the cost level and I look forward to a dialogue with the industry on these issues in the future. On the side of the government, I will give high priority to ensure cost effective framework conditions. As a first step I will make sure that a review of the government regulations is carried through. This will include other ministries and governmental bodies.

It is important to underline that cost reducing efforts must not compromise our high levels and standards of environmental protection and safe working conditions. High standards have characterized our policies since we began producing oil and gas. Enforcing these high standards can lead to increasing production costs. However, it is my belief that countries and regions that focus on sustainability and strict environmental requirements will gain in the long run. The future for the petroleum industry is dependent upon a good reputation. The petroleum activities must be supported by the public opinion. We will therefore maintain and reinforce our standards on both environmental protection and safe working conditions. However, it is crucial that we undertake policies and regulations based on diligent cost-benefit analysis.

Interdependence withEurope
An international competitive petroleum cluster is important in order to secure a long-term profitable development of our resources. Further, the industry must be internationally competitive. Therefore the government will support the internationalisation of the Norwegian oil and gas industry, including further development of Intsok. The government will also strive for equal international market conditions for our industry.

Looking beyond the Norwegian Continental Shelf we must acknowledge the importance of good cooperation with the outside world. This involve partners in production and transportation as well as our global customers.

From a market perspective, almost all of our oil is currently sold in the global markets whereas all our gas is sold in Europe. We are following the markets closely as it is crucial for us that our petroleum products have access to markets with fair prices.

Norway is a large supplier of gas to the European markets. Today, approximately 15% of the demand in Europe is covered by Norwegian gas. This number illustrates the strong interdependence between Europe as a large gas consumer and Norway as a large exporter. As oil production from the Norwegian Continental Shelf declines, our gas production will increase. We are therefore in a good position to remain a reliable and long-term gas supplier. Europe's demand for gas is increasing and domestic production in the large consuming countries is declining. Norway has a favourable geographical position close to the markets and our infrastructure for transportation of gas is well developed. There is now 6600 km of high-pressure pipelines transporting Norwegian gas, and at least another 1200 km is under construction.

In 2002 a fair and predictable access regime for gas transportation was established on the Norwegian Continental Shelf. Gassled was established as the unified infrastructure owner and Gassco as the independent operator of the transportation system. Cost efficient operations and fair tariffs are important to obtain an efficient exploration activity as well as a good utilization of proven resources. The new Norwegian system for transporting and marketing of gas secures competition and non-discriminatory access to transportation, and the gas directive has been fully implemented upstream. It is important for Norwegian producers that they have market access. The Norwegian government recognize the need for a more open gas market and support the implementation of the revised gas directive also downstream.

As an additional point I put strong emphasis on further developing international energy dialogue with the producing and consuming countries, the European Union and others. From a production perspective, we are looking at a continental shelf that borders with UK, Denmark and Russia. Cross-border fields, tie-ins across the border and long-distance transportation pipelines are common challenges that require common solutions.

On the upstream side of the business our cooperation with the UK is of particular interest and value. Even though we are partly in different phases of our petroleum era, we are linked together by a common North Sea basin. There is a growing recognition that we should not work in isolation. Our continental shelves are complementary in many respects and we see huge potential for mutual gains. A closer relationship should increase value creation through more infrastructure alternatives, more efficient transportation opportunities, operational synergies, reduced abandonment costs and through exchange of knowledge and competence. It is important that we, the authorities on both sides of the basin, work together in order to make the cake as big as possible, instead of using all energy on arguing how to share the cake between us. However, as you all know, even though UK and Norway are dependent on each other as reliable partners, we are also competing for the companies' interest and willingness to invest in our own petroleum areas. Most important is that we share a common goal; long-term profitable activity in the North Sea basin.

In October last year UK and Norway agreed on key principles regulating a wide range of potential cross border oil and gas projects, including pipelines. These principles are being incorporated into a treaty which hopefully will be finalized by the end of this year.

Companies both in UK and Norway are actively working to develop cross border discoveries which were made years ago. I find this very encouraging. We have to find joint solutions to facilitate these developments. The discoveries are small implying that the two governments have to find simplified procedures for these projects to move forward. I know that our departments are close to finalizing such simplified procedures. The aim is to put in place procedures that will make it easier and quicker for the companies to get their projects approved by the government. I look forward to future cooperation with my colleague Stephen Timms and as he is today's next speaker I am eager to hear about his experiences, challenges and solutions for our common energy future.

In this speech I have stressed the importance of international relations and underlined the interdependence between Norway as large petroleum exporter and our international markets. On our home ground, we have a large resource base we believe national and international companies will find attractive for a long time to come. I will put great efforts in making sure that the challenges we experience are handled and that we will see increased exploration activity, increased recovery from existing fields and a reduction of the cost level. I am confident of a long term profitable activity on the Norwegian Continental Shelf.

Thank you for your attention.