Foils from the Speech (pdf format)

Thank you for the opportunity to speak at this conference. I am pleased to be in London, where I also have the opportunity to meet my colleague Mr. Mike O’Brien later this afternoon.

In my speech, I will focus on Norway as a supplier of natural gas. This is a growing industry in Norway and of great importance to us and the rest of Europe. I will also share some thoughts with you on the Norway-UK cross-border cooperation.

Growing use of fossil fuels
Let me first start by taking a look at the global energy picture.

The International Energy Agency has recently given their views on how the global energy system is likely to evolve from now until 2030. The world’s energy needs could be almost 60% higher in 2030 than today. Fossil fuels will continue to dominate the global energy mix, meeting most of the increase in overall energy use, especially natural gas. Today natural gas represents about 21 % of the worlds energy demand. Within the end of this period it will constitute 25% of the energy demand.

Natural gas is expected to continue to grow at a high rate and is expected to become the second most important energy source within a decade. Natural gas is the cleanest fossil fuel. Replacement of oil and coal with gas gives environmental benefits.

European Gas Market OutlookIn Europe, gas has been through a tremendous growth period during the last decades.

The blue line shows that demand for natural gas is expected to increase considerably. Average annual growth in demand for gas is expected to increase by 1,8 % from 2000 to 2030, while that for total energy is expected to be 0,7 % in the same period. The red line shows that natural gas makes up an increasingly large part of the energy mix.

Coinciding with this rising demand, many countries also face decreasing domestic gas production. The UK situation is often used as an example of this. This implies that the need for additional or new gas is going to increase much faster than gas demand. This is a serious energy challenge for Europe.

The question therefore arises: From where will the supplies come? The common answer to that question is Russia, Norway, Algeria and LNG shipments from a number of sources.

Norwegian petroleum productionNorway ranks as the world's third largest exporter of crude oil and gas, and the petroleum industry accounts for a substantial share of the Norwegian economy.

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 less than 30 per cent of the recoverable resources have been produced. The Petroleum Directorate further estimates that more than 25 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.

For provinces like the North Sea, with relatively high costs, oil prices at a reasonably high level is welcome. However, despite high oil prices, it is difficult to see Norwegian oil production increasing. Production capacity is around 3,3 mbd, and we now produce at full capacity. In the longer run we are doing whatever is possible to maintain production capacity at current levels. However, we expect oil production to decline slowly from 2006.

The graph illustrates that the importance of natural gas is increasing. While our oil production will start to decline, natural gas production will increase and contribute to maintaining a high production from the NCS.

Increasing Norwegian gas production
When we look towards the future, we see rising exports of gas from Norway covering a substantial part of the increasing need for new gas in Europe.

Last year our exports of natural gas amounted to 71 BCM. Production is expected to rise in the short to medium term as new fields come on stream. We expect sales this year amounting to about 75 BCM, and 99 % of this will be exported. A sales level of 120 BCM a year is a possible scenario within this decade. This makes Norway a very important supplier for the European gas market. Currently, Norwegian gas covers approximately 14 % of European consumption.

Norway has a favourable geographical position close to the gas markets in Europe and our infrastructure for transportation of gas is well developed. We have the largest offshore gas transportation system in the world consisting of nearly 7000 km of high-pressure pipelines transporting Norwegian gas. Today, there are five gas exporting pipelines from Norway to the European Continent and one to the UK. Also another 1200 km is under construction from Norway to the UK.

For natural gas, security of supply has been and is a very important issue in Europe. It is my view that Norwegian gas has been an important contribution to attaining a high security of supply in Europe. Norway is committed to remain a stable, secure supplier of gas.

United Kingdom – Demand Scenario
The United Kingdom, which is the largest gas consuming country in Europe, has traditionally been self sufficient in gas. However, the UK Continental Shelf is mature and production is expected to decline significantly in the coming years and there will be an increasing need for new gas.

Due to its geographical location Norwegian gas will be among the most cost-efficient alternatives. In 2003 Norwegian gas exports to the UK were about 9 bcm, representing roughly 9 % of the British gas consumption. We expect these figures to increase. Norway will represent a main source for covering the increasing gap between indigenous production and demand.

A new pipeline Langeled to the UK will be completed in 2006. The following year, the gas field Ormen Lange, will be ready for production. The field will be a long-term source of gas to the UK and Europe for about 20- 30 years. Gas deliveries from the field are estimated to 20 billion cubic metres per year.

Previously, major gas developments were fully based on long term contracts. This is not the case for Ormen Lange. This reflects in my opinion the structural changes in the market, the optimism among producers regarding the future of gas, and the producers' willingness to find and bring new gas to the markets.

Cross-border cooperation
Previously there has been a focus in Norway and UK to solve the challenges of developing the petroleum resources separately and independently of one another. There is a considerable resource potential in North Sea in the cross-border area between Norway and the UK, consisting of many smaller fields. Cooperation is needed to fully realise the potential in this area.

Spare capacity on installations on one side of the border can be utilized by discoveries on the other side. In this way we avoid unnecessary investments, save costs, and at the same time prolong the lifetime of existing installations.

In order to discover more resources, I think it is important that the we more efficiently utilize knowledge about the geology on either side to discover more resources. Geology knows no borderline. As we can see on this slide, a number of fields are situated on and near the median line – and many of these are discovered in the same play.

Two New Cross Border Projects
In October, the UK and Norwegian Governments finalised arrangements that paved the way for two new North Sea projects. Namely Boa and Playfair.

Playfair lies almost entirely on the UK Continental Shelf but with a small extension on to the Norwegian side. Boa on the other hand lies almost entirely on the Norwegian Continental Shelf with a small extension into the UK. Past trans-boundary projects of this nature, have been subject to individual treaties between the two Governments. However, both Governments have recognised that the circumstances in the case of the small Playfair and Boa fields are very different compared to larger fields such as Statfjord, Frigg and Murchison. Playfair and Boa are small. Moreover, the extensions onto the neighboring continental shelf are not anticipated to have a significant impact on overall recovery. Therefore the Government have decided to treat these projects differently compared to past projects. Boa and Playfair will be regulated by one Government – the one with the majority interest. This government will issue all approvals, thereby removing the need for joint agreement across a range of issues.

-I hope other fields will benefit from similar innovative approaches, as the one taken to progress Boa and Playfair. The current agreement arises from initiatives to reduce barriers and to progress trans-boundary projects, and is a clear demonstration of the benefits that can be obtained through close co-operation.

-In my opinion, Boa and Playfair are success stories. However, I am not quite sure we have knocked down all barriers to progress cross-border projects. The solution for Boa and Playfair was tailor made. That implies that other projects probably call for other solutions. My message today however, is that the UK and Norwegian Governments are willing to find pragmatic ways to ensure that new projects are realised, rather than delayed.

New projects are in the pipeline. Several of them were discovered in the seventies! But they are small. Size, combined with the fact that they stretch across the border are probably the main reasons why these discoveries are still to come on stream.

Representing a resource owner – I find it imperative to get out every drop of economic oil. To maximise the opportunities for North Sea activity and use of infrastructure, both UK and Norway must recognise the need to find ways to move projects forward more easily. That goes for both companies and governments. From the government side we will do our best, and I am confident that companies will do the same. The alternative - undeveloped economic oil - makes no contribution to vale creation, neither to companies nor to governments.

Cross-Border Cooperation - Further efforts
Since ONS 2002, industry work groups have pursued 14 recommendations made by a cross-border work group. These recommendations have to a large extent been completed.

We are now working closely with the DTI on how to organize the future cooperation. We have, in cooperation with the industry, identified 4 main areas of cooperation across the border.

Firstly, median corridor developments. The projects on the previous slide are good examples of what we are aiming to achieve.

Second, rig movement. The first task in this area is to examine whether or not obstacles to rig movement across the border exist today. We should strive for an open market for rigs in the North Sea, and therefore we must ensure the possibility of moving rigs across the median line without incurring any unnecessary costs.

The area of trade and supply chain issues has been one of much activity already. The aim of the work is to increase the mutual market access for both Norwegian and UK supply industry. The work includes arranging Share Fairs as a meeting place for oil companies and the supply industry, a mentoring programme has been set up and the industry is working to establish a common database of suppliers.

When it comes to safety, this is an initiative among the companies with an aim to learn from experiences across the border.

Both sides are committed to bringing this important work forward.

New Treaty
Let me in closing turn to the new treaty between Norway and the United Kingdom.

As you know, the Energy Ministers of Norway and the UK agreed on some main principles for new cross-boundary projects in October last year. The principles were necessary in order for projects to move forward even though the Treaty was not in place. In particular, the Ormen Lange project. The October statement gave the investors in Ormen Lange and Langeled the necessary comfort to go ahead with their investments while still awaiting the necessary Treaty.

The Ormen Lange project is important to both our nations. The field will constitute about one fifth of the future Norwegian gas sales and will deliver about one fifth of the UK gas consumption.

Since October last year, we have continued the negotiations and worked on the detailed drafting of the full Treaty text. This is a time-consuming task, but we are moving forward as planned and we uphold the aim to finish the negotiations within the year.

Although one project covered by this new Framework Agreement is already well underway, it is important to note that the agreement will be much more successful with new cross-border projects. As I showed you earlier, there are a number of other cross-border projects to be progressed and the Ministry is committed to contribute to their success. In that sense, the finalization of the Treaty is merely the beginning of the Norway-UK cooperation.

Thank you.