The Emergence of the Barents Sea as a Petroleum Province: Implications for Norway and Europe

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Ladies and gentlemen,

Mr Martens, let me express my gratitude to you and to the European Policy Centre for giving me the opportunity to address this distinguished audience.

Fifteen years ago I was a frequent traveller on the Oslo-Brussels flight. I was part of the team that negotiated Norway’s participation in the internal market – through the creation of the European Economic Area – an original, adaptable and robust arrangement that still sets the framework for Norway’s structured relationship with the European Union.

This effort was followed by an intensive phase of negotiations on a possible Norwegian accession to the European Union. As you know, that bid failed – as did the one in 1972 – when it was left to the discretion of the electorate.

I recall one frustration from our negotiations in the early 1990s; we struggled, and often failed, to explain the particular challenges associated with realities in the high north of Norway – from the management of natural resources, with a particular emphasis on fish – to the structural dimensions of settlement, agriculture, transport, etc.

This was our message: the realities north of the Arctic Circle differ from the general European average. In some ways these realties had to be reflected in our accession agreement. We did not fully succeed. And I still believe this explains why a narrow majority tilted to a no rather than a yes.

Today, more than a decade later, the perspectives are changing. The realities in the High North still remain distinct from the EU average. But the emergence of the Barents Sea as a new European energy province adds a renewed interest to the whole region.

Fifteen years ago we sought to bring European officials to the north to introduce them to the Arctic realities. Today, they come all by themselves, driven not by altruism but by legitimate self-interest.

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This is not only the high north of Norway – and of Russia. It is the high north of Europe.

Norway’s policy in this region – which covers fisheries, the environment, transport, indigenous peoples – and, of course, energy – is at the same time a key component of Norwegian regional policy and of Norwegian European Policy.

When I sit in Oslo and look to the east, to the west and to the south I see contexts that are familiar, well known and well regulated. When I look to the north I see new developments, new opportunities and new challenges: to Norway and to Europe.

This is why Norway and the European Union need to share their perspectives. And this is why I highly appreciate the opportunity to be with you this morning.

I have been asked to talk about the emergence of the Barents Sea as a petroleum province and the possible implications for Norway and for Europe as a whole.

But before doing so, let me reflect for a few minutes on a more basic development: the re-emergence of energy as a foreign policy issue.

There is little doubt about it; energy keeps re-emerging as a central theme on the foreign policy scene – globally as well as regionally.

This should come as no surprise. It reflects the general concern about the availability and reliability of energy supplies.

And of course, the security of energy supplies is all about vital national interests, a key matter for foreign policy makers.

High oil and gas prices have brought about a renewed focus on energy security.

One key aspect of energy security is vulnerability to supply disruptions due to:

1) accidents, such as last year’s explosions at a major refinery in Texas and this summer’s pipeline rupture at Prudhoe Bay in Alaska;

2) natural disasters, such as the shut-down of production in the Gulf of Mexico in connection with last year’s hurricane season; and

3) political instability in the Middle East, with the spill over from the Israeli-Palestinian conflict, the war in Iraq and the nuclear standoff with Iran, and in key oil exporting countries such as Nigeria, with ethnic strife in the Niger Delta and periodic strikes among oil workers.

According to some estimates, in 2020 more than 50 per cent of global oil demand will be met from countries that pose a high risk of domestic instability.

This reflects the “paradox of plenty” – the fact that oil and gas revenues can in some cases be more of a curse than a blessing for petro-states.

Among their afflictions are declining terms of trade, revenue volatility, Dutch disease and crowding out effects, as well as a ballooning state, which can corrode public institutions, distort decision-making and foster rent-seeking, corruption and conflict.

This is a real challenge to global governance. Improvements in transparency, accountability and governance can help to break the curse and promote economic development, political stability and energy security.

This is why it makes sense from the perspective of energy and development to focus on responsible revenue management in resource-rich countries. One specific initiative in this regard is the Extractive Industries Transparency Initiative (EITI), which was launched by Tony Blair a few years ago. Norway will host the third plenary conference of the EITI in Oslo next week – with both heads of state and government and CEOs attending – and we look forward to engaging both the EU and individual member states in a discussion on these issues.

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How do we approach the issue of enhancing energy security?

As I see it, energy risk mitigation has three dimensions:

First, it is about increasing supply through diversification of international sources and, if possible, by producing more energy domestically.

Diversification promotes reliability of supply by reducing dependence on any single exporter. While the world today has more than 80 oil-producing countries, a dozen of them alone account for nearly two-thirds of global oil production.

Sixty per cent of new demand over the next two decades may be met by an increase in production by OPEC countries. This means that diversification is largely about oil-importing countries encouraging the expansion of production in the Western Hemisphere, the Atlantic Basin, Russia and the Caspian region.

Second, it is about slowing the growth in demand for fossil fuels by promoting conservation, fuel substitution and energy efficiency.

The role of R&D is particularly important when it comes to accelerating technological innovation and producing cost savings. While R&D spending on renewable energy will do little for short-term energy security, it will help to create a more sustainable energy system in the long run.

Third, it is about relying on strategic oil inventory holdings to provide a cushion against unexpected surges in demand or possible disruptions in imports.

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Despite growing mutual dependencies in energy markets, the general perception is that the power has shifted from importing to exporting countries.

A new notion is gaining ground in many petro-states – resource nationalism – a systematic effort to seize control of all sources and means of distribution of energy resources.

Some states with large petroleum reserves openly define energy policy as an integral part of their foreign policy. Some states make this link explicitly, linking questions of energy supply to concessions in other areas.

This represents a real challenge to traditional foreign policy making. Oil and gas may still be sold at world prices. But what are the strategic implications of the control of the electricity grid and the control of the pipeline system for oil and gas – and the selection mix of a pipeline option versus a LNG option?

In addition, the nexus of energy and environmental issues is getting stronger. The impact of energy production and consumption on regional and global environments is a major preoccupation for all of us.

The key challenge, of course, is climate change: how to meet the continuing rise in energy demand while at the same time limiting or reducing emissions of greenhouse gases. Here, business as usual is no longer an option. This is the inconvenient truth Al Gore is talking about.

These are among the developments that have prompted the European Commission to produce its Green Paper on sustainable, competitive and secure energy, and the Commission and Secretary General Solana to jointly propose an external energy policy for Europe.

In both documents, my EU colleagues have stressed the need to engage with Norway. Norway welcomes this. We have been ready to engage with Europe ever since Norway became an oil and gas producer, starting in the North Sea, moving north to the Norwegian Sea, and now taking the first steps into the Barents Sea.

There are both natural complementarities and strong convergence between Norway and the countries of the European Union in the field of energy. This sets Norway apart from other suppliers of energy to Europe.

By virtue of being fully integrated into the Internal Energy Market through the European Economic Area (EEA) Agreement, Norway is an “indigenous” producer that is directly linked to the European gas and electricity grids. Norway has –unlike many EU members, if I may add - implemented all the EU acquis regulating this market and intends to participate actively in the development of new policies and legislation.

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Norway’s contribution to European energy security is already significant and set to increase over the next few years.

Let us review some of the facts:

Norwegian gas exports will increase from 85 billion cubic metres in 2005 to about 130 billion cubic metres in 2010.

This means that exports from Norway will soon account for nearly a third of natural gas consumption in France, Germany and the United Kingdom, and even more in Belgium. Norway is second only to Russia when it comes to providing EU member states with both oil and gas.

The Norwegian continental shelf is connected to the European Union through an elaborate gas pipeline system. There are two receiving terminals in Germany, one in France, and one in Belgium – in Zeebrugge, some 100 kilometres northwest of Brussels. When the new Langeled pipeline opens next week on the east coast of England, there will be two terminals in the United Kingdom.

When petroleum exploration started in the North Sea in the late 1960s, no one believed that it would be possible to transport gas by pipeline to the continent. Nor did anyone believe in petroleum production farther north along the Norwegian coast.

Today, our engineers are looking into the possibilities of further developing this system by adding new pipelines in the North Sea and the Norwegian Sea. I would not be surprised, therefore, to see an extension of pipelines all the way into the Barents Sea at some point in the future.

While the North Sea is today considered a mature petroleum province, the resource potential of the Norwegian continental shelf is still significant. The remaining hydrocarbon resources may equal what has been produced in Norway over the last 35 years. According to the Norwegian Petroleum Directorate, these resources are split fairly evenly between the North Sea, the Norwegian Sea and the Barents Sea.

Let us keep this in mind when discussing the Barents Sea as an emerging petroleum province. Yes, there are some exciting new developments there. But Continental Europe will still be able to rely on supplies from the North Sea and the Norwegian Sea for decades to come.

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Ladies and gentlemen,

The Norwegian petroleum industry has been schooled in sustainable development for more than three decades already.

It was born at the time of the first UN conference on the environment in Stockholm in 1972 and grew up with the Green movement and the Brundtland Commission’s report on environment and development. All companies operating on the Norwegian continental shelf have had to adhere to the highest environmental and social standards. Their licence to operate has always been predicated on coexistence with Norway’s rich coastal fisheries.

Norway’s regulatory framework is aimed at protecting the environment and producing and transporting oil and gas in a safe and reliable manner. It has spurred technological innovation and helped make the Norwegian continental shelf the most energy-efficient producing region in the world. Carbon dioxide emissions amount to less than one third of the global average per unit produced.

The carbon or CO ₂ tax that has been in place since 1991 is a case in point. It has led to technological improvements that have enabled us to reduce emission levels substantially over the years.

In the Sleipner area of the North Sea, for example, carbon dioxide is stripped from production and injected for underground storage. This is a unique project that has attracted considerable international attention and forms the basis for collaboration with the EU and other partners.

The question now is whether the Sleipner solution of underground storage can be transferred to power stations and other major industrial users of fossil fuels.

Norway, meanwhile, has ambitious goals for achieving additional capture and storage of CO ₂. Our aim is to establish a value chain for transport and injection of carbon dioxide, reduce greenhouse gas emissions and increase oil recovery, all at the same time.

As petroleum activities move north and into the Barents Sea, it is imperative that we keep abreast of new knowledge being generated in the fields of marine ecology and sustainable resource management, as well as technological developments. We need to keep up with the challenges of operating in Arctic waters.

This could, for example, entail placing drilling and production facilities on the seabed, much like Norsk Hydro is doing on the Ormen Lange field in the Norwegian Sea and Statoil is doing on the Snøhvit field in the Barents Sea.

In Arctic waters, this means avoiding the ice that can threaten oil and gas platforms and allowing fishing vessels to go about their business without interruption.

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Let us then move all the way north to the Barents Sea, i.e. into the High North.

The organisers of this policy briefing warned me that this notion would not attract sufficient attention here in Brussels. People simply wouldn’t know what I was talking about.

I can appreciate that, given that most weather maps on European television cut Europe off at around the 60 ^th> parallel and show little above the three Nordic capitals of Oslo, Stockholm and Helsinki. When I spoke about the High North in Berlin a few months ago, a German professor said that to him the High North was limited to Schleswig Holstein.

The area that I will focus on lies much farther north and extends beyond the 70 ^th> parallel. The High North thus covers the areas of the Arctic that are adjacent to Norway, the northernmost parts of Sweden, Finland and Russia, and the ocean areas to the north of these countries, including the Barents Sea.

Today, the High North is no longer just a cold and desolate wilderness.

It is here that modern Norway is addressing the sustainable management of living resources, including some of the world’s most precious fish stocks, and the impact of climate change – as the polar ice is melting. And it is here that we are seeking to develop Europe’s youngest energy region side by side and in cooperation with our Russian neighbour.

The Barents Sea is Europe’s largest fishing ground. Sixty per cent of the catch from these waters, primarily cod, ends up on tables in the European Union. Fisheries have sustained the coastal communities of Northern Norway for centuries, and will continue to play an important role in the future development of this region.

For this reason, sustainable harvesting of the marine resources of the High North is a key priority for the Norwegian government.

It is imperative that the ecological balance of these waters is preserved. We give high priority to preventing the overexploitation of fish stocks by filling knowledge gaps through improved scientific methods and cooperation, and by combating the illegal, unregistered and unreported fishing that takes place in the Barents Sea.

The Norwegian government recently adopted the Integrated Management Plan for the Barents Sea. It provides for ecosystem-based management aimed at safeguarding the marine environment and the rich marine resources of these waters.

The plan is also based on the premise that different economic activities – fisheries, petroleum and maritime transport – should be able to coexist in the Barents Sea within a sustainable framework. The plan takes a measured, step-by-step approach to the development of petroleum resources in the High North.

The Integrated Management Plan both presupposes and requires extensive knowledge about the Barents Sea and its ecosystems. The plan is therefore being followed up by large-scale research programmes. Knowledge-building and knowledge-sharing are key components of Norway’s overall approach to the High North.

The reasons are obvious: Investment in basic and applied research, as well as in technological development, is what will ultimately enable us to meet the challenges and capture the opportunities of the High North. Our ambition is to be at the forefront when it comes to producing state-of-the-art knowledge about and solutions for this region.

This is why we are launching the Barents 2020 R&D programme, stepping up research in the Arctic and the Antarctic in connection with the International Polar Year and hoping to make new strides in research on climate change during Norway’s chairmanship of the Arctic Council.

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The petroleum adventure in the Barents Sea started in the Norwegian part, which was first opened for exploration in 1980.

That same year the Snøhvit field, just north of Hammerfest, was discovered. The green light for production was given in 2001. When the first shipment of Liquefied Natural Gas (LNG) from Snøhvit reaches the east coast of the United States in about a year’s time, it will have taken more than a quarter of a century for resources from the Barents Sea to reach the market.

This illustrates the long-term nature of this business and the technological and commercial challenges, both industry-wide and project-specific, that have had to be overcome in order to realise the Snøhvit project.

Technology has paved the way. It is the combined effect of lower costs of development due to technological advances and higher natural gas prices that has led to the expansion of LNG facilities world-wide and the emergence of a global gas market. Snøhvit is part of this trend.

Until yesterday, we believed that the same was true for the gigantic Shtokman field in the Russian part of the Barents Sea. The potential of the Shtokman field is estimated at 3.2 trillion cubic metres – enough to cover Germany’s gas consumption for 25 to 30 years.

It is up to Russia to decide on how to develop the Shtokman field. For some time international companies, including Norwegian companies, have been presenting their concepts for developing Shtokman according to Gazprom’s requirements. The key words have been LNG and, in a first phase, shipments of this LNG to US markets.

Yesterday the perspectives changed as Gazprom stated that it would manage the production itself, that LNG was no longer the key component and that the Shtokman gas would be transported to Europe by pipeline rather than to the US market by ship.

The Shtokman development is a new, daunting chapter in the development of petroleum activities in Arctic waters. It involves considerable technological complexities related to geographical distance, harsh climatic conditions and sheer size.

According to most experts, however, Shtokman, which was discovered in 1988, is not likely to come on stream until 2012-2015. That was before yesterday’s statement.

The first chapter in the story of the Barents Sea as a petroleum province is being written by the development of the Snøhvit field.

Subsequent chapters will be devoted to Shtokman and discoveries yet to be made both on the Norwegian and on the Russian continental shelf.

It is the combined resource potential of Norway and Russia, and the associated prospects for cooperation between Norwegian, Russian and other partners in developing these resources, that are creating most of the perspectives of the Barents Sea as an emerging petroleum province.

Again, Russia will decide Russia’s strategy in its part of the Barents Sea. From a Norwegian perspective, the development of petroleum resources in the Barents Sea has the potential to transform our relations with Russia. President Putin has called for a strategic energy partnership with Norway. Successive Norwegian governments have accepted that invitation.

It remains to be seen, however, what shape such a partnership will take. It will take efforts of good will, innovative approaches and predictable policies to develop such a partnership. It will – of course – be linked to the energy potential. But it will also be linked to our joint political ability to create cooperation, trust and accountability across a border that used to divide east from west.

I continue to believe that the Norwegian experience – technologically, industrially and managerially - could benefit Russia in its quest to develop its resources of the Barents Sea.

Then there is the fact of geography and ecology. The Barents Sea is one ecosystem, and no ecosystems do not respect borders drawn on maps.

Norway shares the riches of the Barents Sea with Russia. For decades we have cooperated on the management of the Northeast Arctic cod. We have succeeded in achieving sustainable management of this important fish stock.

The question now is whether Norway and Russia can transfer some of this experience to the field of energy. It should be in our mutual interest to do so.

Through cooperation with Russia, Norway is seeking a comprehensive and a coherent development of the Barents Sea as a petroleum province.

We want the highest safety and environmental standards to apply in the entire Barents Sea. We want to safeguard marine ecosystems and encourage the steady, gradual and responsible development of hydrocarbon resources on both the Norwegian and the Russian continental shelf in the High North. And we believe that attaining these objectives would constitute a win for all parties concerned.

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Ladies and gentlemen,

In the European Commission’s Green Paper on sustainable, competitive and secure energy, reference is made to Norway’s efforts to develop the petroleum resources in the High North in a sustainable manner. The Commission states that our efforts should be “facilitated”.

I am pleased to note this. My challenge to you – and to the Commission and the European Council – is this: How do you intend to contribute?

Let me share with you some of my own thoughts on this subject.

First, the development of large, complex energy projects requires security of demand. For this reason, long-term contracts will continue to play an important role in facilitating major upstream investments and contributing to transparent and predictable markets.

Second, safeguarding the environment of our common fishing grounds in the Barents Sea is of vital importance. As customers, you should demand the highest environmental standards in all the petroleum activities in the Barents Sea, including transport activities.

There is a lot we can do together to develop the resources of the Barents Sea. The most important thing is that we are aware that the development of these resources entails critical technical and commercial questions. But there is also a political context.

This underscores the importance of assessing geopolitical trends and their potential impact on global energy markets and energy security. We share an interest in analysing such developments, making long-term forecasts and seeking to stabilise energy markets through an enhanced dialogue.

Norway has called for an enhanced producer-consumer dialogue in order to stabilise global energy markets. In our view some of the key stabilising elements are:

• Increased transparency and predictability in energy markets;
• Predictable and non-discriminatory investment regimes;
• Facilitation of secure and affordable access to energy transport networks.

I am pleased to note that Norway and the European Union recently agreed to strengthen and broaden the dialogue between energy experts and high-level officials. The focus of this dialogue will be security of supply and demand, particularly with respect to natural gas, as well as more overriding issues of energy cooperation.

The Commission’s Green Paper states that the increased demand for energy must also be met by developing renewable resources and increasing energy efficiency.

I could not agree more. This is a field where we all need to devote more effort. The Norwegian authorities are actively supporting the development of renewables – and we would like to work closely with our European partners on this, as well as on combined efforts to enhance energy efficiency.

However, we have to face the fact that oil and gas will continue to be the main energy source for many decades. Therefore, we still need to increase hydrocarbon production, while at the same time reducing carbon dioxide emissions and developing even safer and cleaner ways of utilising fossil fuels. The promising fact is that all of this is possible.

In fighting global warming, Norway will do its share in accordance with our international obligations.

But if there is one area where our contribution may have a broader impact, it is in the development of sustainable energy, where we are helping to pave the way for technological breakthroughs that will help us to limit, and perhaps one day do away with, emissions of climate gases.

All in all, a new agenda of common interest is emerging – in the Barents Sea region – in the High North.

I look forward to working closely with you on this exciting chapter of European history.

Thank you for your attention.