European Gas Conference, Oslo

Ladies and Gentlemen,
Let me first thank the Norwegian Petroleum Society (NPF) for the invitation to be the first speaker at this 11 ^th> European Gas Conference. Since the start in 1981, this conference has become one of the most interesting conferences and meeting places for people in the European gas industry.

Introduction
The Norwegian gas industry is going through a very exciting period. In the European gas market significant changes are taking place. Also in Norway, there are major changes going on in the oil and gas industry. I am especially referring to the ongoing privatisation of Statoil and the restructuring of the State's Direct Financial Investments. These issues will be of great importance for the further development of the Norwegian gas industry, and they are therefore important issues on my agenda today.

The European Gas Market
At present, the European gas market is in a 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 Directive. The resulting changes from this in the market will create opportunities for companies to participate in the different parts of the value chain for gas.

For Norway as an important producer and supplier of natural gas to Europe, the changes in the European gas market represent both challenges and opportunities. On the one hand, the opening of the market and the increased competition will presumably lead to a more rapid growth in demand for gas. For the companies in Norway, these changes will also create new opportunities to develop themselves as energy companies and to create values.

On the other hand, the changes in the gas market is creating uncertainty as to how the framework conditions and market situation will be in the future.

Since the 1970-ies, when our natural gas sector was in its infancy, European companies have committed themselves to buy natural gas on long-term take-or-pay contracts. This has made the development of offshore fields and gas transportation systems on our shelf economically viable. The development of gas fields, which traditionally have been done on the basis of long-term contracts with secured off-take, could become more challenging. Norway wants to play an important part in supplying Europe's increasing demand for gas.

It will be of great importance that the framework conditions in the European Gas Market are sufficiently attractive for making new long-term decisions about new developments of gas fields and pipelines. (Designing and implementing framework conditions for a well functioning gas market with increased competition may be a considerable challenge as recent experiences from California show).

I also note that the process of market opening and competition varies between EU member countries in relation to implementation of the existing directive. Further, there are different views on the new proposal. It this context I would like to underline the necessity of a reasonably balanced development when both consumers' and producers' interests are taken into account.

Norway's implementation of the Gas Directive
Norway has always had as its main aim to remain an efficient, stable and long term supplier of natural gas to the European market. The supply structure of gas to Europe makes Norway an important indigenous source for ensuring security of supply to Europe. Our present position in this respect is the result of active management of the gas resources. On this basis, it is the aim of the
Norwegian Government to include the Gas Directive in the EEA Agreement, and to implement it in Norwegian legislation as soon as practicable.

The natural gas sector in Norway is dominated by the upstream activities. There is only a small emerging downstream gas sector in this country. The main consequence of the Directive for Norway will thus be the implications of the requirements of Article 23 regarding access for third parties to the upstream pipelines.

The upstream pipelines are integrated parts of the production of gas (depletion, treatment and transport). The gas producers on the Norwegian Continental Shelf (NCS) are already secured unimpeded access to pipeline transportation for all gas from the NCS, which is decided to be developed and produced.

Other new significant policy changes in the natural gas sector are being considered. These issues are presently being discussed in an active dialogue between the Government of Norway and the European Commission.

I would now like to turn to the changes taking place in the Norwegian oil and gas industry.

Privatisation of Statoil
The single most important adjustment in Norwegian oil and gas policy is the ongoing process of restructuring the State's ownership interests in the oil and gas activities. This is the issue concerning ownership of Statoil and restructuring and future management of the SDFI.

A proposal regarding the restructuring of the State's ownership interests were put forward to the Norwegian Parliament – the Storting - just before Christmas last year, and was debated by the Storting on the 26 ^th> of April this year.

There are four main elements about the restructuring of the State's ownership interests, which the Ministry is now working with.

The first is to open up for private owners in Statoil by listing the company. The state will after the privatisation process retain at least two-thirds of the shares in the company. Initially, new owners corresponding to 15-25 per cent of Statoil`s value will be brought in through the listing.

The second element is that holdings corresponding to 21,5 per cent of the asset value of the SDFI are to be sold as a part of a restructuring of state participation, providing that the state achieves satisfactory terms.

About 15 percent will be sold to Statoil, and about 6,5 percent will be sold to Norsk Hydro and others.

The sales process for the SDFI assets has been divided in two. The sale to Statoil is a dedicated sales process, which was finalised in early May, before the IPO (Initial Public Offering). The sales to Norsk Hydro and others will commence as soon as possible before the summer.

The main aim of selling the SDFI assets is to contribute to maximising the overall value creation on the Norwegian Continental Shelf, through; securing efficiency gains by ownership restructuring in areas like Tampen and in the Norwegian Sea, and selling SDFI assets in fields and licences in smaller fields with limited profitability.

Also, the aim of maximising value creation will be achieved by Securing optimal management of the gas resources. The state will in the future keep significant shares in large gas fields. On the other hand it is important to strengthen Statoil as a gas company. Thus, Statoil has bought certain strategic gas assets, such as in the Troll license.

The third element is to establish a new State-owned incorporated company to manage the SDFI portfolio. The company, which is named Petoro, will not apply for licenses on its own account. It will not be given operatorships. The company will manage SDFI assets at the State’s cost and risk. Statoil will continue to market and sell the State's oil and gas together with it own oil and gas.

The fourth proposal is to establish an independent company to transport gas on the NCS.

The motivation for establishing this new company is that:

Transport and treatment facilities must serve all gas producers, and contribute to efficient overall utilisation of resources on the NCS.

The company responsible for managing the gas transportation - the operator - must be neutral in relation to all users of the transport system.

An operator, who has interests as an owner and user of the pipelines, will not necessarily take overall considerations when presenting alternatives for development of the infrastructure.

The operator role should be handled by an independent company, which has no direct interests in the production or the marketing of gas.

The independent company, which has been named Gassco, will take over the operatorship for the pipelines and the transport-related treatment facilities, which Statoil operates today. The intention is that operatorships for other pipelines and transport-related facilities also will be transferred to the new company.

The Parliamentary Committee on Energy has asked the government to work towards also merging the ownership of these same assets. Such a merger must be agreed with the owners of the assets and will involve negotiations between these. We will follow up this issue.

Existing system for gas resource management
As probably all of you know, natural gas from the Norwegian Continental Shelf is sold jointly by the Gas Negotiating Committee, and later assigned to a delivery fields after a process of gas allocation.

The experiences with the existing system for gas sales with the GFU have been good. The system has been important for the gas industry in a build-up phase with large investments in fields and pipelines. Coordination of sales and development activities have been vital especially for the development of smaller fields jointly, and to create an integrated transportation system for gas.

However, I don't expect that new fields and new pipelines will be developed at the same rate of pace as previously, because parts of the Norwegian Continental Shelf have been matured. I believe that over time this will lead to increased focus on the utilisation of fields and pipelines. This will of course also have implications for the attractiveness for the companies of entering into new long-term contracts.

The structural changes of the European gas market that are now taking place, as well as the changes that are taking place in the Norwegian gas industry, have prompted us to consider whether policy adjustments in Norway could enable Norwegian producers to take a more active part in the market. Such policy changes would be significant and well in line with the objectives of a more competitive gas market.

Norwegian gas sales activities
According to the long-term gas sales contracts, Norwegian gas exports will during the next decade increase considerably and make up a growing share of the European gas demand.

One of the most interesting ongoing gas sales negotiations for Norway are the negotiations about gas sales to Poland with the Polish Oil and Gas Company (POGC). The negotiations have now, as I understand, reached an advanced stage. The parties are negotiating the supply of 5 bcm annually, which may form the basis for a new major pipeline from Norway to Poland via Sweden or Denmark. A gas sales agreement will represent an important milestone for Norwegian exports of natural gas, and it will contribute to a diversification of gas supplies in Poland. The establishment of a natural gas pipeline between Poland and Norway could also facilitate supply of Norwegian gas to other countries like Sweden and Denmark, and perhaps other markets in the Baltic Sea region and Central Europe. The basis for a new pipeline is however conditional upon the conclusion of a gas sales agreement.

In my view natural gas sales to Poland through a new pipeline, is an ambitious project. Such a pipeline would be the longest of our export pipelines. At the same time deliveries of 5 bcm of natural gas will represent the smallest initial volume of gas to form the basis for such a pipeline. I support the negotiations and I hope that the parties will be able to agree on a gas sales agreement.

Another interesting market for new Norwegian gas sales is the UK market .With its proximity to the Norwegian continental shelf and the several pipelines in place, it is a natural outlet for Norwegian gas suppliers.

Today Norwegian gas is delivered to the UK from gas fields in the Frigg area in the North Sea through the Frigg Norwegian pipeline (FNP) to St. Fergus in Scotland. In addition some smaller volumes of gas are being sold to the UK through the Interconnector via Zeebrügge.

An important pipeline project is presently under development and which will have major consequences for future Norwegian gas sales to the UK. This new project, called Vesterled, will connect the Norwegian gas transport system from the Heimdal field to the Norwegian Frigg Pipeline and thus the British gas market. The pipeline is planned to come on stream 1 ^st> of October this year.

Of other interesting gas projects in Norway, I would like to mention the Snøhvit project, which eventually could enable Norway to become an exporter of LNG.

The Snøhvit project, which consists of three fields, has considerable resources present. Earlier attempts to make a profitable development have stranded due to high costs. The Snøhvit partners are this time working on a solution based on considerably lower costs than previously. Statoil has estimated the investments to be in the order of about 4 bill. Euro, still a considerable amount. Because of the distance from the Snøhvit fields to the market, the gas will have to be transported as LNG presumably to markets in the United States and Southern Europe. The development plans for this project are expected to be handed over to the Ministry in July this year.

In a Norwegian context, this is in my opinion a pioneer work, which will represent new possibilities in our northernmost petroleum province if the partners on a commercial basis decide to go ahead with it.

Final remarks
I will conclude that the natural gas industry both in Norway and in Europe as a whole is in a period of major changes, which will involve both threats and opportunities for its participants. I believe we are ready to face the changes. The natural gas industry has all in all a bright future. As the cleanest fossil fuel, it will play an even more important role in the future European and the global energy picture.