Melting Ice, Moving Frontiers: The Challenge for Energy Development in the Arctic/High North

The Minister’s speech was based on the following points
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Introduction

• Thank you for inviting me to speak at this club – which has for 65 years been a vibrant meeting place for professionals from the oil and gas community as well as leaders from a variety of industries.
• In fact, Houston is home to the largest population of Norwegian expatriates outside Scandinavia, close to 7 000 Norwegians are currently living here. Norway is today a significant player in the field of energy. We are eager to build on the long-term relationship we have with the US and Texas, in particular with a view to developing expertise.
• In a sense you could say that we have come full circle: the US was instrumental in developing the North Sea as an energy province in the late 1960s and today Norway is playing a key role in developing the Gulf of Mexico.
• In contrast to the overall financial downturn in the US, here in Texas there are clear signs of recovery in the energy sector, both offshore and onshore, and in particular with regard to the extraction of shale gas. There is a strong sense of optimism. The Norwegian energy sector is part and parcel of this.
• Norway is the second largest exporter of natural gas in the world – and the sixth largest exporter of oil; in 2011 we produced approximately 2 million barrels per day. In addition, the world’s largest offshore discovery last year was the Aldous-Avaldsnes field on our continental shelf – and we made important discoveries in the Barents Sea as well. We expect that a significant part of our oil and gas future will be in the High North.
• Norway’s focus on High North issues: Three main drivers:

1. Climate change
2. Developments in Russia
3. The potential for resources and economic activity

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• Today I will elaborate on three main areas:

1. The High North – characteristics and future perspectives
2. Global climate challenges and solutions
3. Energy and energy security

• These three areas are closely connected. The High North can play a role in enhancing our understanding of global climate change and improving energy security, and help us develop solutions in these areas.
• Another point I would like to highlight is that in Norway there is what I would call a kind of “social contract” between citizens, industry and the Government – or a common understanding – that in the High North we must use and further develop new, cutting-edge technology in order to protect the fragile environment and to meet the global climate challenges. The role of industry in this process is extremely important. It is a matter of responsibility.

I - The High North/Arctic perspective

• What characterises the High North/the Arctic today? Climate change, greater access to natural resources, the opening of sea routes and growing human/economic activity. Growing geopolitical interest, new players entering the stage.
• Legal framework: No legal vacuum. The Law of the Sea provides the legal framework for all activities in the Arctic Ocean, an ocean surrounded by land under national jurisdiction. By contrast, Antarctica is a land mass surrounded by ocean and governed by the Antarctic Treaty. 
• In the Ilulissat Declaration (28 May 2008) the five coastal states bordering the Arctic Ocean – among them Norway and the US – reaffirmed their commitment to the legal framework for the Arctic Ocean and to the orderly settlement of possible overlapping claims.
• There is “no race for resources in the Arctic”. Most of the resources in the Arctic are to be found in areas of national jurisdiction that are within the 200-mile zones and on the continental shelves of the coastal states.
• The establishment of the outer limits of the continental shelf beyond 200 nautical miles is dealt with by the Commission on the Limits of the Continental Shelf, in New York.
• Norway is the first coastal state in the Arctic Ocean to complete the requirements related to the Commission. Norway has cooperated closely with all neighbouring states in the High North on this issue. 
• Knowledge is at the heart of our High North policy. Close cooperation and interaction with the scientific community are essential if we are to achieve our four overarching goals for the High North:

1. To safeguard stability and predictability
2. To ensure sustainable management and use of resources
3. To strengthen international cooperation and the international legal order
4. To strengthen value creation and employment

• Let me now draw your attention to [seven] key visions and trends which we believe will determine the future of the High North/the Arctic and will shape the initiatives and priorities of the Norwegian High North policy over the next 20–30 years:
• First: Growing interest in the Arctic Ocean. The Northeast Passage may potentially reduce sailing time from Yokohama to Rotterdam by 40% compared to the Suez route, reducing fuel costs by 20%.
• Increased number of sailings: 34 ships through the Northeast Passage last year compared to 6 in 2010. Trend: Larger and faster ships.
• Of potential US interest. Keywords here include energy security, increased efficiency for commerce and shipping, and the creation of more favourable sailing options/routes than are available today.
• Second: Close and innovative cooperation in the High North. Arctic Council: agenda-setting body. Increased the knowledge about climate change in the Arctic.
• Milestones in 2011: Signing of a binding search and rescue agreement at the Arctic Council ministerial meeting in May, in Nuuk/Greenland, at which Secretary of State Hillary Clinton and Secretary Ken Salazar of the Ministry of Interior participated.
• Ongoing negotiations on a new Arctic instrument on oil spill prevention. Co-chaired by the US, Russia and Norway.
• Third: The High North as a new geopolitical centre of gravity. We have advanced from Cold War logic and inaccessibility to extensive international cooperation and access to resources and shipping routes. No military threat. Need to be prepared for increased economic activity.
• Still an area of military strategic interests. Russian nuclear forces and military exercises. NATO presence. Core areas. US–Norway partners.
• Our aim: “High North – Low tension”.
• Increased international attention to Arctic matters, also from non-Arctic states – China, India, Japan, South Korea.
• Fourth: a new industrial age in the North – also on land. Increased interest in strategically important minerals. The Scandinavian peninsula (“Baltic Shield”, or ”Fennoscandian Shield”), covering parts of Norway, Finland, Sweden and western Russia, is one of the most promising regions for minerals in Europe.
• The figures are uncertain, but minerals worth 250 billion US dollars (1 500 billion Norwegian kroner) could be found in the Norwegian High North alone.
• We will facilitate increased mineral activity in the Norwegian High North in accordance with environmental regulations and standards. A new mineral strategy will be presented later this year.
• Fifth: Pioneering work on integrated marine management. Integrated Ocean Management (IOM) is one of the areas in which Norway has a lot to contribute.
• The Northeast Arctic Cod stock is the best managed fish stock in the world due to joint Norwegian–Russian cooperation on ecosystem-based fishery management in the Barents Sea.
• We are aware that the US is currently establishing an ecosystem-based and transparent Coastal and Marine Spatial Planning process.
• This process sounds similar to the Norwegian IOM plans. We assume that it will include the Arctic areas in the years to come.
• We can learn from each other by sharing experience. It is a matter of striking the right balance between conservation/protection of the environment on the one hand and economic activities on the other.
• Sixth: The High North as a source of knowledge about the environment and climate change. The High North is a crucial source of knowledge about the Arctic environment and climate with implications far beyond the region itself.
• The annual mean temperature in the Arctic has been rising almost twice as quickly as in the rest of the world. We have witnessed the dramatic retreat of the polar ice cap and the collapse of ice shelves.
• Knowledge about the Arctic climate is important for developing global climate policy and for taking the decisions needed to prevent global warming.
• The environment of the High North is very vulnerable. Serious problems related to long-range pollutants and to hazardous waste, including nuclear waste, on the Russian side of the border. The situation has improved through international cooperation, but a clear focus on these problems must be maintained to ensure that economic and industrial activity is carried out within safe ecological limits.
• The US State Department has shown interest in having a research platform presence on Svalbard/Ny Ålesund. (The National Science Foundation (SNF) does not have the necessary funding). Hopefully something will be resolved here so that such a presence can be established.
• We should also remember the major contribution made by NASA in financing a large section of the fiber optic cable from North Norway to Svalbard, and the visit by five US Senators to Svalbard in the early 2000s.
• Seventh: A new energy province in Europe. The US Geographical Society estimates that as much as 22% of the world’s undiscovered petroleum resources could be found in the Arctic.
• LNG (liquefied natural gas) shipped from Melkøya, the world’s northernmost LNG production facility, just off the Norwegian coast near the city of Hammerfest in North Norway. This LNG was initially reserved for the growing US market. But that was before the shale gas revolution.
• Today LNG from the Snøhvit field goes to a growing European and Asian market – but there are also some shipments to the US market.
• The Barents Sea seems likely to become an important European energy province. How rapidly this happens will depend on market conditions, technological developments, the size of any commercially viable discoveries of oil and gas, and how fast renewable energy sources are developed.
• When the treaty on maritime delimitation between Norway and Russia entered into force on 7 July this year, seismic surveying started to the west of the previously disputed area. Potential for Norwegian–Russian cooperation.
• The Russian petroleum sector is increasingly moving offshore. Norwegian companies working on our continental shelf as well as the supply industry onshore have more than 40 years of experience with offshore activity, and see great opportunities for cooperation.
• Statoil, together with its partners Gazprom and Total, is preparing the development of the Shtokman field in the eastern part of the Barents Sea. Known reserves of natural gas in the Shtokman field are today among the largest in the world. As Russian authorities and companies have opened up for foreign participation, a number of projects have attracted international partners – indeed, the comprehensive cooperation agreement between ExxonMobil (the owner of this building) and Rosneft reached last August is another example.
• At the same time, while the smaller business contacts across the Norwegian–Russian border flourish, foreign companies continue to report a number of challenges to their operations in Russia: unpredictable framework conditions, a lack of transparency, corruption, and a weak legal system. In this context, I welcome Russia’s accession to the WTO and hope this will contribute to an improved environment for foreign investors and companies.
• As European countries diversify their supply sources and the transport routes for natural gas, the Russians are looking to growing markets in the east. And even though pipelines remain the prevailing mode of transport for gas, the increased interest for LNG in deregulated markets opens the way for a number of new perspectives. However, I believe both Russia and Norway will continue to be major suppliers of energy to Europe in the decades to come. We see ourselves more as complementary suppliers than competitors in the European market.
• The Norwegian oil and gas industry is moving northwards. New discoveries in the Barents Sea in 2011. The potential for finding substantial petroleum resources in the Barents Sea is still great. There are vast areas waiting to be explored.
• Increased oil and gas activities in the Arctic must also be weighed up against other industries and interests within the framework of integrated, ecosystem-based management.
• Potential for renewable energy developments, hydropower, wind power and wave power. Challenges are posed by long distances, market-related issues, the need for new infrastructure and environmental and safety concerns.
• The energy dimension will be the most important driver of increased interest in the High North in both political and business circles globally.

II - Meeting the climate challenge

• It is difficult to deliver global responses to global challenges. How can we act as climate-conscious energy producers at a time when there is an urgent need for more and greener energy?
• The IEA’s World Energy Outlook 2011 states that CO2 emissions reached a record high in 2010, the energy efficiency of the global economy worsened for the second year running and spending on oil imports came close to record high levels. Coal “won” the energy race in the first decade of this century, accounting for almost half the increase in global energy use. A new coal power plant is opened in China and India every other day. Can our actions make a difference?
• According to the IEA, global energy demand will increase by one third from 2010–2035, with China and India accounting for 50% of this growth.
• If we don’t change direction soon, it looks less and less likely that we will be able to keep the average global temperature rise to below the target of two degrees Celsius.
• We need to address the dilemma: How can we as producers of fossil fuel also contribute to the fight against climate change?
• We must produce oil and gas in a less carbon-intensive way than others. Put the highest standards in place.
• Norway is a reliable and long-term supplier of natural gas. Supplying natural gas is a way of meeting increased energy demand in Europe – and at the same time replacing coal. The same goes for supplying LNG to the world market.
• We must also expand the use of CCS and renewable energy.        
• COP 17 gave grounds for more optimism than expected. But there are fears that the financial crisis in Europe and the US could hamper the ambitious efforts to mitigate CO2 emissions due to a lack of capital available for investment in renewable energy, energy efficiency and CCS.

III - Energy in the High North and energy security

• The Fukushima accident in Japan, the German decision to close down all nuclear power plants by 2022, the shale gas revolution in the US, and Libya’s sudden cessation of oil production last year all demonstrate that the world’s energy picture can shift rapidly – and that this can have immediate consequences globally.
• Oil and gas deliveries from the High North can improve energy security (in Europe, Asia or even the US?) and contribute to global energy supplies. Important economic and foreign policy implications.
• Oil and gas from the Norwegian continental shelf has for decades been crucial in meeting Europe’s energy needs. The trend has been clear: exploration, production and new finds have continuously moved northward. We expect this trend to continue. We are witnessing the same development on the Russian side of the Arctic.
• Energy resources from peripheral areas of Europe have to be extracted under harsh climate conditions. This is demanding geologically, environmentally, technically and in climate terms. Handling these challenges in a profitable and sustainable manner requires knowledge, creativity and innovative skills.
• Work is under way to open up new areas for exploration and production both around Jan Mayen and in the South Barents Sea (Norwegian sector of the formerly disputed area). It will take some time before these processes are finalised. We are currently collecting necessary information and conducting assessments on the environment, resource potential and social and economic effects.
• The significance of strengthened energy diplomacy, infrastructure and transport routes – within Europe, between other energy regions and Europe, and globally – are topical foreign policy issues. The picture is complex.
• To strike the right balance we must take into account the importance of the diversification of energy supply, get the right energy mix and understand how energy interdependency between countries and regions works.
• The importance of these factors and their relative weighting in the energy mix are changing all the time.
• This requires that industries, politicians, governments and consumers are up to speed and have the flexibility, attitudes, skills and creativity needed to adapt to these challenges.
• Let me also say a few words on our bilateral relations: we should remind ourselves that the US is Norway’s closest ally, and what this entails.
• We remember the role played by the US in developing the North Sea as an energy province. With Norway’s involvement in the Mexican Gulf, we have now come full circle.
• US companies want equal and open access and fair competition in the Arctic. The longstanding, close relationship between the US and Norway in governmental and industrial terms is significant here – Statoil’s cooperation with ConocoPhillips in US parts of the Arctic (Chukchi Sea, btw Alaska and Russia) is worth mentioning in this regard.
• We appreciate the presence of US companies on the Norwegian continental shelf. We welcome US participation in the forthcoming licensing rounds in Norway.
• According to the IEA, fossil fuel will continue to dominate the energy picture in the decades ahead, despite the fact that we will see the development of more renewable energy in the years to come, from solar, wind, bio and hydropower sources.
• Norway will continue to be a major exporter of oil and gas, and petroleum activity on the Norwegian continental shelf will move northwards into the Arctic/High North. This activity will of course be based on the highest standards for health, safety and environment.
• The Macondo accident (here in the Gulf of Mexico) has shown the importance of oil spill preparedness and response. In Norway we have tried to learn from this accident by reviewing our own system on the Norwegian continental shelf.
• Even though the Norwegian Government is responsible for safety standards and enforcement on the Norwegian continental shelf, we also participate in ongoing bilateral and regional efforts to raise the standards for oil and gas activity in the Arctic as a whole.
• As an example of bilateral cooperation, we initiated a project with Russia in 2007 with the aim of harmonising health, safety and environmental standards for petroleum activity in the Barents Sea. The project, led by Det Norske Veritas on the Norwegian side and Gazprom on the Russian side, has proposed a risk-based approach and 130 international standards.
• As part of the project, results and lessons learned will now be shared with the other Arctic coastal states through a series of workshops – also here in the US.
• If governments and industry at national and international levels manage the Arctic in a responsible way and consistently apply the highest standards and the best oil spill response, this will in turn provide the necessary legitimacy for increased petroleum activity.    

Summary and conclusions:

I: The High North/Arctic perspective

Legal and political/institutional framework in place. “No race”. Foundation laid for increased economic activity in a sustainable manner.

Norway as a leading and responsible actor in the High North. At the forefront of knowledge and resource management. We will ensure the highest standards and preparedness for increased oil and gas activity in the Arctic.

The High North/Arctic as a resource-rich area and one of the most stable regions in the world. The High North can play a role in enhancing energy security (in Europe) as well as knowledge about global climate change.     

II: Meeting the climate change challenge

The world needs more and cleaner energy. Resource potential in the High North/the Arctic.

Norway can contribute by selling natural gas (the cleanest of the fossil fuels), exporting and using Carbon Capture and Storage (CCS) technology and by further developing renewable energy sources such as hydropower and offshore wind.

The US is an important partner for Norway in the area of CCS  and in relation to Arctic oil and gas activity. 

III: Energy and energy security

The energy potential in the High North/the Arctic is relevant for Europe, Asia and even the US.

The complexity of the global energy picture. Interdependence. Energy ties between the US and Norway. Numerous Norwegian petroleum and shipping companies based here in the world’s petroleum capital, Houston.

I would like to stress once again that we welcome the participation of US companies in the Norwegian High North. Building on our existing partnership.

Thank you.