Norway’s Perspective on Energy Security

Foreign Minister Jonas Gahr Støre

Breakfast with U.S. House of Representatives, Friends of Norway Caucus, Capitol Hill, Washington D.C., 28 February 2007

 

 

The Minister’s speaking points
Check against delivery

Dear friends of Norway,

• It is great to have a Friends of Norway Caucus in the U.S. House of Representatives. You provide a home away from home for Norwegian politicians and a forum for frank and friendly exchange of views between decision-makers committed to strengthening the many links between Norway and the United States. And the fact that the Caucus is the envy of our Scandinavian friends certainly does not diminish its value.

• I am grateful to the new Chairman, Rick Larsen, for reconvening the Caucus after the mid-term elections. I know that he and his co-chairs have worked hard to make this happen, and I truly appreciate your efforts.

• Energy has re-emerged as a major issue in international politics over the last few years. Given that Norway is the world’s third largest exporter of oil and third largest exporter of natural gas, I have been asked to present a Norwegian perspective on energy policy. I will do this by focusing on the twin challenges of energy security and climate security. But before I proceed, here are a few key facts about Norway as an energy producer and an energy partner of the United States.

• Norway has an annual oil production of 3 million barrels per day and an annual gas production of 85 billion cubic meters. Early in the next decade, our gas exports will have risen by 50 percent, to 130 billion cubic meters. This means that our gas exports will be equivalent to the volume that Russia supplies to Europe and will account for nearly a third of natural gas consumption in France, Germany and the United Kingdom.

• To put these figures into perspective, the U.S. demand for oil is 22 million barrels per day, of which 64 percent is imported, whereas the U.S. demand for natural gas is 626 billion cubic meters. In other words, you consume seven times as much oil and five times as much gas as we produce.

• Norway is one of the largest non-Opec suppliers of oil and gas to the U.S. Over the past few years, we have delivered some half a million barrels of crude per day from the Norwegian continental shelf to North America. Later this year, we will start  delivery of substantial quantities of gas from the Snøhvit field in the Barents Sea and the world’s northernmost liquefied natural gas facility.  The LNG from the High North of Norway will be shipped to the terminal at Cove Point, Maryland, where large investments have been made in order to double the capacity by 2009. The Snøhvit project will be a steady source of gas supply to the northeastern United States for years to come.

• Norwegian companies have recently made sizeable investments in exploration and production projects in the U.S. Gulf of Mexico. This will help unlock the resource potential of the region and underpin increased domestic oil and gas production in the United States. Today, our companies are using ground-breaking technologies developed over 30 years on the Norwegian continental shelf to tackle your ultra-deep reservoirs in the Gulf of Mexico.

• There is one cloud on the horizon, however, and I must express my concern about legislation currently under consideration here in Congress. Legislation that could result in a substantial increase in royalties paid to the U.S. Government under all Gulf of Mexico leases issued in 1998-99. Some of these leases have been purchased from the original lessees by Norwegian companies in the last couple of years.  We think this legislation would in effect rewrite the lease contracts. 

• We also believe that the Bush Administration is correct in opposing this legislation, as it would undermine the sanctity of contracts. Coming from the United States, a champion of free markets, at a time of increased resource nationalism world-wide, such legislation could actually have a negative impact on global investments in energy projects and thus affect energy security.

• Which brings me back to the twin challenges of energy security and climate security. They are increasingly interrelated – two sides of the same coin. This means that it doesn’t much matter whether energy policy is approached through energy security or climate change. The fact is that the world needs an internationally agreed framework within which the developing nations can grow, the wealthy countries maintain their standard of living and the environment be protected from disaster. 

• I trust that both the legislative and the executive branches of the U.S. government will assume leadership when it comes to building that international framework. For the world to deal effectively with energy security and climate change, the United States simply has to be part of the solution, politically, economically and technologically.

• Norwegian energy policy is based on a few key assumptions about the future of fossil fuels, the nature of energy relationships, the role of technology in “decarbonising” the energy mix, and the benefits of strong and early action against climate change.

• Let me briefly address each of these assumptions in turn.

• Assumption no. 1: The world will have to produce more fossil fuels before it can make do with less.

• According to the International Energy Agency’s World Energy Outlook 2006, fossil fuels will remain the dominant source of energy until 2030. According to the Reference Scenario, oil, natural gas and coal will account for 81 percent of overall energy demand in 2030, as compared with 80 percent in 2004. During this period, global energy demand is projected to increase by just over one half.

• We can, of course, modify or alter this 2030 scenario through collective political action. It is, after all, just one possible scenario. While the IEA reference case always serves to inject a dose of realism into the debate about our energy future, it should by no means inspire defeatism in the fight for both energy security and climate security.

• Still, however, against the background of the latest World Energy Outlook, it is rather illusory to talk about quick fixes to kick the fossil fuel habit or shake the petroleum addiction. The world neither can nor should go “cold turkey” on fossil fuels.

• Turning off the fossil fuel tap or leaving recoverable resources in the ground is not an option for an energy hungry world, at least not in the short to medium term. If anything, the search for additional petroleum reserves appears to be intensifying.

• High energy prices, coupled with high and increasing import dependence on the part of the world’s leading consumer nations, are causing concern about the availability and reliability of energy supplies in international politics, and the worldwide search for greater diversity of supply includes the petroleum resources of the Norwegian continental shelf and the European Arctic.

• The optimism regarding the resource potential of northern waters is based on 1) estimates by the U.S. Geological Survey (USGS) that the Arctic holds a quarter of the world’s undiscovered hydrocarbons, and 2) the fact that considerable reserves of oil and gas have already been found in the Barents, Pechora and Kara Seas, such as the Snøhvit and Shtokman gas fields and the Prirazlomnoye oil field. 

• Assumption no. 2: Managing energy dependence means facing the reality of energy interdependence.

• I do not dispute that a power shift has occurred in international politics as a result of high energy prices and increasing concern about the availability and reliability of oil and gas supplies. Over the last few years, energy exporting countries have clearly strengthened their bargaining position in relation to energy importing countries.

• Given that much of the world’s energy resources are controlled by a small number of exporters, many of them in volatile and insecure political environments, I also understand the uncertainty and discomfort that this causes in many world capitals, from Washington to Brussels, Beijing, and New Delhi.

• Still, however, the relationship between producer and consumer is often one of interdependence. Energy security is a two-way street. Where the consumer is looking for security of supplies, the producer is seeking security of deliveries. The interests of both parties must be taken into account for a stable energy relationship to emerge. Such a relationship exists between Norway and the European Union. It is based on commercial contracts in interlocking producer and consumer markets.

• Norway has always resisted the temptation to turn energy into more of a political or strategic commodity than it already is. We believe that this has served our interests well, solidifying our reputation in global energy markets as a predictable and reliable supplier of oil and gas. Besides, the reality of interdependence tends to work against producer countries “playing the energy card.”

• While it is both possible and desirable for major consumer countries to lessen their dependence on petroleum through various supply and demand-side measures, energy imports will remain an inescapable part of their existence over the next few decades. It is time to debunk the myth of energy independence, which often features prominently in U.S. debates over energy security.

• “The central task for the next two decades must be to manage the consequences of dependence on oil, not to pretend the United States can eliminate it.” This is wise counsel from the U.S. Council on Foreign Relations, which recently sponsored an Independent Task Force – made up of prominent experts, both Democrats and Republicans – on the national security consequences of U.S. oil dependency.

• Assumption no. 3: Rapid technological progress is vital to achieving sustainable development.

• I admit to being a “techno-optimist” who feels confident that human ingenuity will enable us to develop the technologies necessary to meet the twin challenges of energy security and climate security. I believe we do this by using a wise and ambitious mix of political incentives/persuasion and market mechanisms.

• Al Gore’s inconvenient truth has been reaffirmed by the latest report of the UN International Panel on Climate Change, as well as the UK Stern Report on the Economics of Climate Change. Both reports make sobering reading. As a result, public awareness of climate change is rising even faster than the global average temperature. That is encouraging because we will need the force of democratic pressure to muster the political will to take decisive action.

• Technology will ultimately be vital to reducing the dependence on oil and gas and the carbon content of hydrocarbons, as well as making a transition away from fossil fuels. These benefits of improved technology will come in the future only if investments are made today in research, development, and demonstration (RD&D).

• If it is substantial enough, this RD&D effort could trigger a revolution in how we produce and use energy, creating a virtuous circle of energy, environment and development that is truly sustainable. For such a revolution to take place, however, it is not sufficient to unleash the amazing forces of innovation in the private sector. Government must support innovation, especially for technologies that require significant development efforts to demonstrate commercial potential.

• For Norway as a major energy producer, one of the key technology and sustainability challenges is how we can help to meet the continued demand for hydrocarbons and at the same time reduce emissions of carbon dioxide? The answer, in part, has to do with achieving additional capture and storage of CO2.

• Last fall, Norway embarked on a major new research, development and demonstration project with a view to building the world’s largest full-scale CO2 capture and storage facility in connection with a combined gas-fired heat and power plant at Mongstad on the west coast of the country. The plant will be fully operational by 2014. This is a cooperative venture between the Norwegian Government and the oil and gas company Statoil.

• The Mongstad project is in many ways Norway’s Apollo project. Much like the vision of sending a man to the moon spurred major technological progress in the United States, we hope that the vision of building a full-scale CO2 capture and storage facility will accelerate Norway’s switch to a low-carbon development path.

• We also expect the Mongstad project to stimulate international technological cooperation, which is critical for coherent, urgent and broad-based action on climate change. Such cooperation enables the sharing of the risks, rewards and progress of technology development and enables the coordination of priorities between nations, both rich and poor.

• Assumption no. 4: The costs of inaction on climate change will fall primarily and most heavily on the weakest shoulders.

• Climate change will affect the basic elements of life for people around the world – access to water, food production, health and the environment. Hundreds of millions of people could suffer water shortages, hunger and coastal flooding, and become  climate refugees as the world warms.

• The fact that the costs of global warming will fall most heavily on those who bear the least responsibility for the current state of affairs makes climate change a central issue of justice and morality in world politics today.

• The UK Stern Report on the Economics of Climate Change concludes that the benefits of strong and early action far outweigh the economic costs of not acting. The costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1 percent of global GDP each year. The costs of inaction, on the other hand, would be equivalent to losing at least 5 percent of global GDP each year, now and forever.

• I agree with the Stern Report that tackling climate change is the pro-growth strategy for the longer term, and that it can be done in ways that do not cap the growth aspirations of rich or poor countries. However, it will require the best of markets and, above all, the very best of politics.

• Having shared with you these introductory remarks, I now look forward to our discussion.