Challenges and Objectives for the New Millenium
Hanover Expo 2000 – 4 ^th October 2000.

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Your Excellencies, Distinguished guests, Ladies and Gentlemen,
It is a great pleasure for me to be here in Hanover to mark the celebration of the long-lasting co-operation on natural gas supply between Germany and Norway. At the same time I look forward to taking part in this conference on the important issue of future challenges related to Energy and the Environment.

Germany is a very important trading partner for us, and Germany is the most important market for Norwegian gas exports. In 1999, 35 per cent of Norwegian gas exports went to Germany. This represents over 20 per cent of German gas imports, and make Norway one of the most important suppliers of gas to German customers. The large gas sales agreements between German and Norwegian companies have brought our two countries close together in a long-term energy relationship.

Gas sales to Germany started already in the 1970-ies. At that time the development of the Norwegian gas sector was in its very beginning and there was considerable uncertainty regarding how to manage the large gas production. It was crucial that European companies could commit themselves to buy sufficient quantities to make the development of the first offshore fields and pipelines on the Norwegian continental shelf economically viable. In this respect companies like Ruhrgas, that committed to buy Norwegian gas, contributed critically to the development of the Norwegian natural gas sector.

A German company is also represented in production licences on the Norwegian Continental Shelf. RWE-DEA (earlier named DEMINEX) has been present on the Norwegian continental shelf since early in the 1980-ies and has today a strong position in several oil and gas fields.

The energy industries and responsible governing bodies are today facing important global trends, such as

• Liberalised energy markets and capital markets
• Consolidation trends with mergers and acquisitions
• Growing influence of international structures, such as the World Trade Organisation (WTO) and the European Union
• Increased concern for stability in the oil and energy market, as well as environmental concerns, and
• Intensified international competition

These trends illustrate that any government has to take on board the consequences of a more integrated world economy.

Norwegian petroleum policy has a long-term perspective. The petroleum resources shall give the highest possible value creation and ensure welfare and employment, and we shall reconcile the role of being a major energy producer with being in the environmental forefront.

The Norwegian oil and gas resource base is still quite comfortable after 30 years of production. At present we expect the gas reserves to last for about 80 – 100 years and the oil reserves for about 20 – 30 years.

Ever since exploration and production started on the Norwegian continental shelf, we have had strong ambitions to develop a competitive oil and gas industry. Taking into account the development in technology, competitive climate and industrial restructuring the Government will continue to adjust the means in order to ensure the competitiveness of the shelf. The fact that the Government will open up the shelf for new kinds of companies will also add to the overall value creation in the Norwegian petroleum sector.

Currently, we also have a political debate on the future of the direct state involvement in the oil and gas industry, including the issue of partly privatisation of Statoil. With the great changes taking place within the energy industry, it is appropriate to ask whether the current organisation of state involvement is the right one. I believe we can strengthen Statoil's opportunities by allowing private owners into the company. However, this has not yet been decided.

Norwegian natural gas will become an even more important source of energy for Europe. Norway has about 45 per cent of the remaining gas reserves in the European Economic Area. The export will increase from less than 50 to more than 70 billion cubic meters in a few years due to our long-term sales commitments.

At present, the European gas market is in a major process of being opened for more competition. This is both due to structural changes in the business environment of the gas sector, and the adoption of the EU Gas Market Directive.

Norway has always stated its main aim of remaining an efficient, stable and long-term supplier of natural gas to the European market. Our present position in this respect is the result of the active management of the gas resources by the authorities. On this basis, it is the objective of the Government to include the Gas Market Directive in the EEA Agreement.

However, we need a transitional period to implement it in our national legislation. This is; in particular, due to the need to fulfil sales commitments entered into which have not yet been attributed to specific fields. This amounts to about 20 per cent of all gas that we have sold. Furthermore, necessary adjustments to our resource management system will also be considered during the transitional period.

Let me also take this opportunity to point out that increased competition in the European gas market also will imply new opportunities for Norwegian companies in the European gas sector. This will give Norway a good position to be an important and long-term stable supplier and player on the European natural gas arena also in the future.

In the oil market, we are also faced with the impact of external events and global economy trends. However, this is a situation that is not new to us. The oil market has always been subject to volatility due to abrupt changes in supply and demand. And OPEC has over the years played an important role to balance the market.

The sudden fall in the oil price two years ago reminded us how vulnerable we are to the fluctuating oil price. Investments were dramatically curbed and the overall activity level suffered. Such volatility has a serious impact on the world economy and the management of the petroleum resources. This in turn affects the security of supply.

This is why Norway implemented unilateral production restraints in 1998. Since then the market situation has improved considerably and we are now producing at full capacity.

Today's high prices are probably not sustainable in the medium and long term. A number of factors have contributed to taking the prices to today's levels. These include production and inventory levels, refinery utilisation and product specifications. Lately, also fear of supply disruptions has added to the volatility and strength in prices. However, it is important to remember that a predominant factor of end consumer prices is taxes on oil products, such as gasoline and
diesel. In OECD Europe the consumer tax on average represent about 60 per cent of the retail price of a barrel of oil.

A key element in Norwegian oil market policy is to contribute to stability in the oil market. Too high and too low oil prices will lead to more instability which should be in nobody's interest. Stable prices at a reasonable level should be in the interest of both producing and consuming countries.

Norway emphasises good relations to both consuming and producing countries. In our opinion, exchange of views and information through the so-called producer-consumer dialogue contributes to more stability in the energy markets.

Government policies are influenced by the work of international organisations and commitments to international agreements and conventions. This is particularly true for the environment.

The implications of the Kyoto Protocol, for instance, entail ambitious targets for a reduction of the Norwegian emissions of greenhouse gases. The petroleum sector is responsible for around 20 per cent of our national emissions and this sector will have to make substantial contributions.

Later this year, the Sixth Conference of the Parties (COP 6) under the Kyoto Protocol will take place. The aim is to get in place a framework for the so-called Kyoto mechanisms as well as a strong compliance regime. This is important in order to ratify the Kyoto Protocol and to secure a cost-efficient implementation of it. I can assure you that Norway will do her very best to secure a positive outcome of the COP 6.

In the petroleum sector we have for many years seen a close and fruitful co-operation between the authorities and the industry based on the firm belief that the best environmental results can be obtained through co-operation between the various stakeholders.

In concluding I would like to emphasis that there is no doubt that the world economy is growing more inter-related. This is a major challenge for developing national energy, environmental and industrial policies and for international co-operation. This is a challenge faced by all countries, and we hardly have all the answers yet.

Today's event marks the continuation of the long-term natural gas links between Germany and Norway. This is an excellent illustration of international co-operation at company as well as at governmental level. Again, it is a pleasure to be here to celebrate this co-operation.

Thank you for your attention.