Power Point presentation (in pdf format)

It is a pleasure to be here in Houston. In my speech today, I would like to focus on three issues:

• Market perspectives for oil and gas
• The Norwegian Continental Shelf (NCS) as a source of stable petroleum supplies
• The role of a competitive oil and gas industry

All of these topics have global bearings. The challenges faced on the NCS are very much a result of global trends in the exploration and production business and they are relevant to most petroleum producing countries.

I would like to start with some comments on the market situation for oil and gas.

Oil Market Considerations

Norway is the third largest exporter of oil - behind Saudi Arabia and Russia, but ahead of Iran. The petroleum sector is the single most important industry in Norway and the activity level is sensitive to oil price developments. Therefore, we follow the oil market situation closely.

Today's crude and product prices are very high, and last year the Brent average was about 29 USD, its highest annual average for about 20 years. How can we explain these high prices?

The short answer is that oil demand is growing and that OPEC is in control of the supply side.

On the supply side OPEC has been very successful in managing the market. Since the introduction of the price band 4 years ago, prices have been high despite the fact that market fundamentals have not always been favourable.

Now, with the strong demand outlook, there should be room for additional oil supplies from Non-OPEC as well as OPEC countries, without oil prices declining markedly.

With a relatively high cost base, Norway needs an oil price at a reasonably high level to sustain the activity level on her Continental Shelf. Norway is not alone in this respect. Many traditional producing areas outside OPEC are experiencing stagnating production and increasing production costs. Consequently, they need oil prices at a reasonably high level to maintain and increase oil production.

However, it is not in the interest of oil exporters that oil prices are too high. The International Energy Agency (IEA) and several oil importing countries have expressed their concerns that high oil prices could derail global economic recovery. However, the world use less oil per dollar of real GDP than before, and in many countries high consumer taxes on oil products mitigate the impact of higher crude prices. The recent fall in the value of the dollar acts in the same way.

Still, few will deny that too high oil prices pose a risk to global economic growth. Recent economic history shows that recessions have often been accompanied by high oil prices. In particular many developing countries are vulnerable to high oil prices. Thus, there is a need to be a balance between the interest of oil producers and the interests of oil importing countries.

The Gas Market

Norway is the third largest exporter of natural gas - behind Russia and Canada, but ahead of Algeria.

Global growth in the use of natural gas is strong, and it is expected to continue. The projections on the picture behind me are taken from the IEA publication “World Energy outlook”. The blue area shows that demand for natural gas demand could double between 2000 and 2030. This implies an average annual growth in demand for gas of

2. 1 % in this period. The average annual growth in demand for total energy is expected to be 0. 9 % from 2000 to 2003.

And as the red line in this picture shows, the use of natural gas amounts to an increasingly large part of the energy mix.

Today most of the gas reserves are located in the Russian Federation, former Soviet states and the Middle East. In Europe and in the US we see depletion of indigenous gas reserves coupled with growing gas demand. This implies increasing import dependency and changing gas trade patterns. The distance from reserves to market is increasing. Combined with a reduction in costs in the LNG-chain, this is leading to a strong growth for the LNG industry. LNG is now expanding in regions all over the world. This development we expect to continue.

The ongoing liberalisation and structural change in Europe are resulting in a more integrated and regional European market for energy in general, and gas in particular. Gas markets in Europe, North America and Central Asia are still regional markets dominated by piped gas. At the same time, the increasing demand for LNG gives clear signals of a development towards a globalisation of the market. It remains to be seen how fast this trend will develop and how far it will go.

The first LNG based field development in Norway, Snøhvit, is under way. Production from this first major field development in Norway with no surface installations will start in 2006. The Snøhvit gas will be sold to Europe and to the US. Norway will therefore take part in the development of the LNG industry as a producing country, and we hope that Snøhvit can form a basis for additional production of LNG in Norway.

The Norwegian Continental Shelf (NCS) - a source of stable petroleum supplies

The NCS is divided into three different petroleum provinces; the North Sea, the Norwegian Sea and the Barents Sea. They vary greatly in degree of maturity.

Petroleum activities started in the North Sea in 1965. Today the North Sea is the most mature province, and so far production has reached 22 billion barrels of oil equivalents. It still holds a large potential of 12 billion barrels of oil equivalents yet to be discovered.

Further north, the NCS is less explored. In the northernmost province, the Barents Sea, there has not been any production so far, but the “Snøhvit”- gas field is currently under development.

All together we have produced 24 billion barrels of oil equivalents. Furthermore there are about 26 billion barrels in proven reserves. Perhaps more importantly, there are still 30 billion barrels left to be discovered according to our own estimates. There are considerable volumes of undiscovered oil and gas in both the mature and frontier areas of the shelf.

To put the resources and the results on the NCS into perspective, it is interesting to compare parts of the Shelf with the Gulf of Mexico. The size of the petroleum prone part of the Norwegian Sea is more or less the same size as the corresponding part of the US Gulf of Mexico - and remember that the Norwegian Sea is only one of three petroleum provinces in Norway.

To compare; in the GoM one thousand wells in water depths of more than 200 meters have been drilled, whilst in the Norwegian Sea, only 205 wells have been drilled. When it comes to total resources discovered, the Gulf of Mexico has turned out a bit more oil than the Norwegian Sea, but far more gas has been proven in the Norwegian Sea.

If we look at the deepwater areas only 13 wells have been drilled compared to 426 in Gulf of Mexico. The giant gas field “Ormen Lange” (about 2. 5 billion barrels oil equivalents) has been discovered so far. The development of this field has just started and will be on-stream in 2007.

The point with this illustration is that large parts of the NCS have yet to be explored.

Also the more mature parts of the NCS can bee regarded as modestly explored, compared to the UK Continental Shelf for instance. The blue dots on the slide behind me represent exploration wells in the Norwegian and UK part of the North Sea. As you can see, there is a substantial difference in the number of exploration wells between the two countries.

Bearing in mind the estimates of unproven resources of another 12 billion barrels of oil equivalents yet to be found on the Norwegian side of the North Sea, there are interesting exploration opportunities on the NCS – even in mature parts - for many years to come.

Today, total petroleum production on the NCS is about 4 million barrels oil equivalents a day. We expect production to stay at a high level the coming years before a decline sets in. Estimates for future production are illustrated on this graph. They are based on a long-term scenario for petroleum activity on the NCS. In this scenario we will have oil production for another 50 years and gas production even longer.

However, the long-term scenario will not come about by itself. Thus, my Government has over the last two years provided access to large areas in both mature and frontier parts of the NCS. For the petroleum industry there has never been more exploration acreage available since the first licensing round in 1965.

With the combination of Norway's resource base and the Government’s dedication to achieve the long term scenario, it is our ambition that Norway will continue to be one of the leading petroleum provinces in the world for many years to come. It is our aim to remain a stable source of supplies to a growing energy marked globally, in which both oil and natural gas will continue to play a dominant part of the energy mix.

The role of a competitive oil and gas industry on a global scale

I would now like to discuss the role of a competitive oil and gas industry. Technology development is one area, in which the contribution from the industry is fundamental.

This is indeed an area where Norway has benefited from international competence, especially in the early years. Since then we have gradually developed our own skills based on field developments, mainly in the North Sea. Today the situation is, I guess, that both the NCS and the GoM both serve as laboratories for technology development.

Technology – OG21
Recognizing the potential on the NCS, the Norwegian Government aims to reinforce technology development in the petroleum sector.

Two years ago the task force OG21, established by the Norwegian Ministry of Petroleum and Energy, formulated a national technology strategy to meet the challenges which will be encountered by the oil and gas industry in the next decades.

Nine Technology Target Areas were selected for further implementation. Seven of the major oil companies operating on the NCS, including ExxonMobil, Shell and BP, were appointed Lead Parties, with the responsibility to perform a detailed review of the technology status for each Technology Target, to carry out gap analyses and provide recommendations for further project planning. During 2003 the Lead Parties, also involving the supply industry, have prepared their respective task reports with recommendations for future activities. As of now, this has resulted in 20 project proposals that are being evaluated for implementation in co-operation between the different industrial players and the research institutes.

Establishing OG21 has received widespread support from the industry as it is expected to boost the creation of new technologies, leading to more concerted efforts in research and technology development. I am very pleased with the efforts of the OG21 task force and the Lead Parties.

The Ministry of Petroleum and Energy has initiated a new R&D program within the Research Council of Norway to contribute to the realisation of the OG21 strategy. The new program, Petromaks, is foreseen to be an important instrument for the Research Council in enhancing research in the petroleum sector.

Technology development has been a crucial part of solving the environmental challenges we are facing. Many of the technical solutions that have been developed are improving the economic performance as well as bringing substantial environmental gains. It is important to promote and encourage further technology development that has this dual effect. Such technology should also have a great potential in the global marketplace.

Internationalisation
At the end of the day, we all depend on the industry to come up with new innovative business models and technology so that we can exploit the petroleum resources in the best possible way.

Globally, access to new reserves will be exceedingly demanding. Growing concern for the environment, need for additional infrastructure and transport capacity, increased complexity in operations are challenges to be met. Thus, maintaining and expanding production levels of oil and gas is a difficult task. To meet future energy demands, we need a viable Exploration and Production industry capable of providing the necessary skills, knowledge and capital.

An important objective of the Norwegian petroleum policy has been to develop an internationally competitive oil and gas industry based in Norway. Today this cluster comprises major international oil and gas companies, contractors and service suppliers as well as research institutions. The Government will continue its efforts to maintain this cluster and attract new players to the NCS, both oil companies and suppliers.

The skills, experience and technology developed on the NCS are utilised by the international oil and gas industry all over the world. An example is the Norwegian base subsea industry that has a leading position internationally with a 70-80% share of the global market.

The global market for petroleum related goods and services is significant. According to the IEA it is expected to grow substantially in the period 2001-2010.

It is an ambition for the Norwegian oil and gas industry to be part of the international market. In this way, the industry can create new and diversified business opportunities. Moreover, it can bring back new know-how to benefit operations on the Norwegian Continental Shelf.

In co-operation with the domestic petroleum industry, the government established INTSOK – Norwegian Oil and Gas Partners - in 1997 to promote deliveries from Norway to the international market. Currently embracing more than 100 companies, Intsok aims to boost revenues from abroad to about 11 billion USD 1Exchange rate: NOK/USD: 7 by 2010, compared with the current level of about 5 billion USD. These figures apply to the international sales of the supply industry. Such a growth will require a substantial commitment, and INTSOK has developed a strategy to this effect. In this strategy the Gulf of Mexico is one of eight markets that will be given priority.

Concluding remarks

Allow me to sum up briefly. The Norwegian Continental Shelf still, after more than 30 years of production, offers great opportunities for the oil and gas industry. Nevertheless, to develop all our resources economically, considerable efforts from all stakeholders are needed.

Next week, I will present a White Paper to the Parliament underlining the Government's ambitions to

• Offer increased access to new prospective acreage in the North Sea, the Norwegian Sea and in the Barents Sea

• attract new entrants to the NCS, oil companies and suppliers alike
  
• Reinforce efforts to develop new technologies by means of joint industry and Government initiatives.

• In co-operation with the industry, the Government will also address ways of achieving further cost efficiencies in all parts of the value chain

By doing this, Norway should resume her position as a leading petroleum province and remain a stable source of supplies to the world market for a long time.

Thank you for your attention!