The 2nd International Oil Summit

Mr. Chairman, ladies and gentlemen!

It is a pleasure and privilege to be here at the Oil Summit to address some of the key oil issues seen from a Norwegian perspective.

Let me start with some words about oil demand. Oil is the most important energy source in the world economy. Its importance is not likely to diminish in the next 10 – 20 years, as its share of total energy consumption is expected to stay at around 40 %, according to most analyses.

I am also very concerned by the fact that far too many people do not share the benefit energy can bring – heat, light and mobility. Today, 2 billion people in developing countries are without access to commercial energy. And the 20 % of the world's population that live in industrialised countries consume 80 % of world's energy. If per capita oil consumption in developing countries had been equal to the OECD average, global oil demand would have been 3 times higher than it is today.

The potential for growth in oil demand also stems from the fact that there is no serious alternatives to oil as transportation fuels for at least the next 10 – 15 years. Currently transportation represents 50 % of oil consumption, and in the future, this share is expected to increase.

Just to give you one figure on future oil demand, I would draw your attention to that over the next 10 years the IEA and others predict that oil demand will increase by nearly 20 million barrels per day.

Now, let us turn to the supply side, to see how this increased demand could be met.

But on the supply side, we also have to take into account declining production rates from existing fields. So we are speaking of adding perhaps as much as 40 million barrels per day in new production capacity in the next 10 years, or annually 4 million barrels per day, to cope with demand.

These are huge increases and represent major challenges to governments of both oil producing and oil consuming countries, as well as the oil industry. New oil resources will have to be discovered and developed, and substantial financial resources must be made available for oil investment.

As to whether oil resources will be a constraint on supply, I think most will agree that will not be a problem for many years. We have a reserve/production ratio for oil of more than 40 years, and this ratio is much higher now than 25 years ago.

Also, the importance of technology has been systematically underestimated. In recent years, new technologies have contributed to reduce costs and enabled recovery rates to improve substantially.

Let me give you one example from Norway. When we decided to develop the giant Troll gas field in 1986, its oil resources were deemed inaccessible and non-commercial, because they are localised in a very thin oil zone. But new technologies, particular horizontal drilling, have since made these resources recoverable, and Troll is now one of major oil producing field in the North Sea, with production exceeding 300 000 barrels per day.

In a longer-term perspective it is also worthwhile to notice that technological progress is steadily reducing the depletion cost for the vast resources of non-conventional oil.

Given that the resources will be available, the next challenge for the oil industry and oil producing countries will be to mobilise sufficient, sustained and timely investment to convert oil resources into oil supply.

A precondition for investment is to have an efficient, predictable and stable crude oil market, with prices at sustainable levels.

Two years ago the oil prices dropped to 10 Dollar per barrel. In Norway this led to a full stop in new field developments. Upstream investments also dried up elsewhere, and the economic and political stability in countries dependant on oil export, was threatened. With the prospect of even lower prices, I think few will disagree that the action taken by producers to cut supply was justified in that situation.

Oil prices at a reasonable high level can in this respect be seen as an insurance premium consumer nations must pay in order to have diversified and secure supplies of oil.

I recognise that our views may differ on what a reasonable price level is. But having said that, I also feel that over the last couple of years opinions have narrowed among producers and consumers on what a realistic price level is.

I would like to elaborate some on future Norwegian production. Three years ago we though that our crude production would peak this year at 3,9 million barrels per day!

Today, we are nowhere close to that figure. This is mainly due to the dry-up in investments that happen when the oil price collapsed in 1998 and 1999.

In fact, the government last month published a new production prognosis where this year's crude production is estimated at 3.1 million barrels per day. This is 250 000 barrels per day less than the estimates we published half a year ago.

In our latest prognosis we expect the crude production to peak next year at 3,3 million barrels per day. This is 150 000 barrels per day less than our previous estimate.

It is also worthwhile to notice that after next year's production peak, the subsequent decline will be a little bit more gentle than we previously anticipated. We now expect our crude production to stay above 3 million barrels per day throughout the whole first part of this decade. One of the reasons for this is that current oil prices have led to a significant increase in new field developments which will come on stream in a few years.

Let me end with some words about one of the most important petroleum policy issues in Norway at the moment.

In Norway the oil and gas resources belong to the whole Norwegian society and we try to manage them to the best advantage of present and future generations. Hence, the largest possible value creation to society from oil and gas operations represents an overriding objective for the government’s oil and gas policy.

Changes in market and competitive conditions in the oil and gas industry necessitate adjustments to achieve this goal and to continue safeguarding employment, high value creation and a strong Norwegian oil and gas industry. For the government it is important that the oil industry both fulfils its responsibilities on the NCS, while at the same time stays competitive internationally.

It is in this context that the government now wants to bring private capital into Statoil, the national state oil company.

Ever since oil production started in Norway in the early Seventies, Statoil has been a cornerstone in our petroleum policy. But, over the past 10-15 years Statoil’s role has changed fundamentally. Today the company operates under the same commercial terms as all the other participants on the Norwegian Continental Shelf.

In addition, the company has long since - and with broad support from its owner - expanded out of the Norwegian Shelf. It has secured a number of profitable positions in other petroleum provinces.

Our aim and policy has been over time to turn Statoil into an efficient company that can compete with other oil companies on equal terms. The privatisation of the company can be seen as a continuation of this policy. Activities on NCS have probably peaked and if Statoil is to grow as a company, it has to invest abroad. But fund raising for an international expansion, is to a lesser extend a responsibility for the state, we think.

These are our main reasons for bringing in private investors and listing the company on the stock market, hopefully this summer. However, the Government does not intend to fully privatise Statoil. Our intention is that the State shall retain two-thirds of the shares in the company.

We think that expanding ownership will supply new expertise, partners and capital. We expect this to strengthen Statoil as a company, and hope to create a basis for continued use of Norwegian expertise beyond the petroleum life span of the Norwegian Continental Shelf.

Thank you for your attention!