Foils from the speech in pdf

Dear conference participants!
It is a great pleasure for me to open the 5th INTSOK annual Russian/Norwegian oil and Gas conference which this year is named Partnership in the North. The conference is a major event. It focuses on the potential both for development in the Arctic region and further cooperation between Russia and Norway. This focus is well aligned with the Norwegian Government’s objective to achieve sustainable growth and development in the high North.

In my presentation today I will concentrate on 3 topics. I will start with some reflections about the increasing need for more energy in the world in the years to come, and the environmental challenges this cause. Secondly, I will try to show Norway’s role in this picture, focusing on the Barents area. Thirdly, I will share some thoughts regarding the internationalisation of the Norwegian Petroleum industry and the cooperation with Russia.

What is ahead ?
According to the IEA the global energy demand will increase with 53% in the period from 2004-2030. This is to a large extent due to increased demand in the developing countries in general, and China and India in particular. 83% of the increase in demand will be met by fossil energy which means that gas and oil will continue to have the same relative importance in the energy mix in the years to come.

To meet this demand is a big challenge: how to meet the growing energy needs without contributing to global climate change and pollution of the marine environment. This question is even more central in the arctic than other places in the world as the nature is more fragile. Part of the answer could be CO2 capture and storage. The Norwegian Government is focusing on developing this option, and CO2 capture and storage also receives considerable attention in many other countries around the world. If we succeed in developing this option, it would reduce emissions from fossil fuels dramatically, allowing the world to continue using fossil fuels to meet future energy needs without harming the environment.

A part of the picture of global increased need for energy is that the issue of security of supply has been of increasingly importance the last decade. In EU, as elsewhere in the world, security of supply is a key issue and a key driver for all energy related politics. Every EU country, Great Britain included, is today in the situation that they are net importers of oil and gas. EU is importing more than 50% of its energy needs today, a figure that is estimated to increase to 70% in 2030. This increase is mainly due to a steadily augmenting need to import oil and gas.

Norway is a very secure supplier of oil and gas to EU. There are many explanations for this somewhat bombastic statement. Norway has steadily been delivering most of its oil and as good as all its gas to Europe since the 1970ties when oil was first produced from the Ekofisk field. Norway is closely linked to EU’s energy market through the EEA agreement and we have a formalised and regular energy dialogue with EU.

Norwegian gas-share of consumption
Regarding the sale of oil gas and Norway is the second largest exporter of gas to EU after Russia and the third largest exporter of oil after Saudi-Arabia and Russia.

While production of oil is expected to declinine in the years to come,total output from the NCS is increasing due to the production of gas. Compared to the last 5 years the production of gas can increase with more than 40% in the period of the next 5 years. It is estimated that Norway will sell between 125 and 140 billion Sm3 in 2013. As you can see from this map all Norwegian pipelines have their final destination in an EU country.

France is the largest receiver of Norwegian gas with 35% followed by Germany, Belgium and UK. In 2006 the construction of the Langeled pipeline going from Nyhamna in Norway to Easington in Great Britain was finaliced. Langeled is 1200 km long, and with this the longest sub sea gas pipeline in the world. Langeled will transport gas from the Sleipner field and the Ormen Lange field. The

production from Ormen Lange will start in 2007. In addition comes the Snøhvit LNG supplies to US and Europe.

Going from South to North
This figure both gives an impression of the Norwegian petroleum history, and gives an indication for the future oil and gas activities. The oil and gas activity started in the southern part of the NCS more than 40 years ago. This explains why the produced share are much higher here than in the Norwegian Sea, and why the undiscovered share is much lower. The fact that the North Sea and the Norwegian Sea are mature areas does not mean that they have no interest for the oil and gas companies. In the 19th and last licensing round at the Norwegian continental shelf there was a great interest from both national and international oil companies for the North Sea and the Norwegian Sea.

In the period from 2007-2013 it is estimated that the investments will increase with more than 130 billion NKR compared to the prognosis given in the state budget for 2007. In the coming 4 years existing fields will be object for 70% of the investments. These positive figures are to a large extent due to the steadily high oil prices, which make production from marginal fields economic. Actually, we even see that fields like Yme in the North Sea that was closed down in 2001 will be reopened to extract the remaining reserves in the field.

However, in a longer perspective the importance of the Barent Sea will increase. In this area we estimate that 17% of the reserves are located, and only 1% is produced. I will know turn to this area for the remaining part of my presentation.

Petroleum activity in the Barents
On 1st December last year, the Norwegian Government presented its strategy for the high north. Meeting the challenges and opportunities of the high north is a main priority. The strategy discusses most areas of relevance for the arctic part of Norway such as energy, fishery, environment, education, research etc. Cooperation with Russia is of great importance to make the most of the potential of the Barents area.

As mentioned, the overall objective of the Government’s high north strategy is to create sustainable growth and development. I think the ongoing development of the Snøhvit field serves as a very good example of the opportunities that such developments bring to local and regional businesses.

In the feasibility report for the Snøhvit field development it was estimated that the local share of the value of all contracts would amount to roughly 600 millions NOK. Already, contracts for more than three billions have been assigned regional companies. Of this amount more than 2 billions are assigned companies in the Hammerfest area.

Regarding manpower, around 11 000 Norwegians have been engaged in the construction work at Melkøya until now. Approximately 4 000 are from the western part of Finnmark of whom more than half are from the Hammerfest area. From an environmental point of view Snøhvit is also interesting as the CO2 contained in the natural gas is captured and stored in the ground.

Integrated Management of the Marine Environment in the Lofoten -Barents Seaarea
The Nature in the high North is vulnerable. To deal with this environmental challenge the Norwegian Government presented the Integrated Management Plan for the area from Lofoten to the Barents Sea in March 2006. The plan is a pioneering effort to achieve an ecosystem-based management of the oceans surrounding Norway.

It is the first time we have completed such a thorough process. All influences on the eco-system in the Lofoten - Barents Sea area were evaluated within the larger context, and it concluded that the Barents Sea environment is in a satisfactory state. To get a coherent picture of the environment in the entire Barents area we are also cooperating with Russia.

The Government intends to maintain this satisfactory state also in the future, and it has put restrictions on petroleum activity in the management plan area:

• Zero-discharge from the activity is a prerequisite for all petroleum activity in the Norwegian Barents Sea.
• No petroleum activities will be initiated in coastal areas and in areas of particular fisheries and environmental importance (dark blue colour).
• As we move further away from the coast-line, fewer restrictions are placed on petroleum activity (medium and light blue colour)
• No petroleum activities will be initiated outside Lofoten and Vesterålen during the current parliamentary period.

For the areas named Nordland VII and Troms II the question of petroleum activities will be considered when the management plan is revised in 2010.

The Management Plan will be a dynamic process. Until the time of revision, the Government has decided to carry out extensive research and mapping to strengthen our knowledge about the area. It also places a sound basis for petroleum activity in the Barents Sea.

Let me turn to the ongoing and future petroleum exploration activity in the southern part of the Norwegian Barents Sea.

Field development - Snøhvit and Goliat and awards 19th licensing round
60 % of the Norwegian Continental Shelf is opened for exploration activity. In the Barents Sea, only the southern part is currently available to the industry. Some estimates indicate that the Arctic might contain as much as 25 per cent of undiscovered global petroleum reserves. However, this cannot be determined until we have harder facts. The Norwegian Barents Sea is still largely a frontier area. According to our estimates undiscovered resources sum up to more than 6 billion barrels of oil equivalents – with a large upside potential.

We know the geology well only in the Snøhvit-Goliat area. In the northern parts of the Barents Sea our knowledge is limited, but the potential is there. In the picture to the left you see which blocks that were awarded in the 19th licensing round. Our intention – by awarding what might be characterised as “key blocks” – is to obtain updated information about the potential in these relatively unknown areas. Over the next few years, extensive exploration activity and drilling will take place.

The Snøhvit and Goliat field are shown in right part of the slide. Snøhvit is the result of the first exploration activity in the Barents Sea during the 1980’s. The first LNG from Snøhvit will be shipped to Maryland,USA this autumn. For the first time USA will receive gas from the Northern areas. The partners in the Snøhvit license are currently planning for the construction of new production capacity at Snøhvit LNG, also known as a train two. In order to make such a development possible, it is necessary to make new gas discoveries in the area. New exploration activity is therefore essential, and discoveries such as Tornerose bear proof of a very promising future.

Development of the Goliat oil discovery is another very promising project. The exploration wells drilled so far have proven that Goliat is a major oil discovery. Investment in developing the Goliat field is now likely to exceed twenty billion NKR. This makes the Goliat field development one of the most significant future field developments on the Norwegian continental shelf. Development of this field will definitely put Northern Norway on the petroleum map.

Merger and internationalisation
Even though petroleum activity in the Barents will increase in the years to come we see that the Norwegian oil companies and the supply industry are positioning themselves for future activities abroad. This is in my opinion a consequense of the fact that both the oil companies and the supply industry have reach a level were they hold unique experience, know how and technology for especially deep water extraction of oil and gas. In addition we believe, despite the activity in the north, that the total activity at the NCS will slowly decline in the coming decades.

One element in the internationalisation process is the plans for the merger between Statoil and Hydro. This merger is to a large extent grounded in the need to be more competitive abroad. With this merger Statoil/Hydro will be one of the largest off-shore companies in the world, and a potential partner or operator for any off-shore activity.

The government is positive to this merger. Hovewer, there are challenges that need to be adressed. I am here mainly thinking of the fact that the new company will get dominant position at the NCS. This may be a challenge for the competition at the NCS. The government are reflecting upon this issue and will follow this process closely. I expect that the merged company is aware of its responsibility related to maintain the competition in the Norwegian supply industry.

In a white paper that will be put forward to the Storting (Parliament) before Easter, issues related to the state ownership of the merged company, and the management of the NCS will be treated.

Also the supply industries have a significantly higher orientation towards foreign markets today, than what they had only some years ago. Institute for Research in Economics and Business Administration has in a recently publicised study mapped the Norwegian supply industry international activities.

Some of the findings are that companies mainly focusing on petroleum in 2005 had 46% of their sale abroad. 93% of the companies that directly or indirectly have contracts with oil companies in Norway also have part of their sales abroad. The report estimates that total sales abroad in 2005 were nearly 50 billion NKR compared to 30 billion NKR in 2003.

Cooperation withRussia
In the internationalisation process it important to strengthen our long standing cooperation with Russia. Russia and Norway are both significant producers of oil and gas. We are neighbours in the North, and we share the responsibility of managing the vast Barents Sea. Moreover, both are interested in developing an ever closer co-operation to ensure sustainable management of the natural resources in the Barents Sea.

The Energy cooperation between Norway and Russia had its formal point of departure when a joint declaration was signed by President Putin when he visited Oslo in 2002. This declaration has been reaffirmed in various situations, by various ministers in the years that followed. President Putin also declared that Norway and Russia are strategic partners in development of hydrocarbons in the north when he met our Prime Minister in 2005.

Further, both Statoil and Hydro are engaged in various activities in North-Western Russia, and Norwegian suppliers are delivering goods and services to the Russian oil sector. On the Russian side several companies are suppliers to the Norwegian oil and gas industry. There are also ongoing initiatives that I believe will lead to further cooperation in the future.

INTSOK is currently working on a project mapping relevant business actors in the N-W Russia to facilitate contact between Norway and Russia. The results will be available from a database and the project has the Government’s full support. Another example is Petro Arctic that gathers around 360 companies with a common aim to put regional companies in position for contracts in Snøhvit and Goliat in the years to come. Petro Arctic has close cooperation with sister organisations in Arkhangelsk and Murmansk.

A prerequisite for cooperation is knowing each other and initiatives like these will contribute to exactly that.

In this respect, it is important to have a long term perspective. Somehas expressed that the story of cooperation with Russia gotr a serious setback with the decision in October last year to develop the Shtokman field without foreign participation. This shows, in my opinion, a lack of perspective. The strategic importance of the high north is not in any way limited to Norwegian oil companies participation in one gas field in the Barents Sea. The perspective is much broader than that. As the cooperation between our two countries continues to develop, I am sure there will be possibilities for industries in both countries.

We will continue to develop our co-operation with the Russians. And together we share the ambition of developing this region in accordance with the highest environmental standards, and with the most advanced technologies. Our ambition is to be in the lead in developing these possibilities.

To sum up; we now have a real opportunity to demonstrate how modern sustainable management methods can be applied to develop the petroleum resources in the North. In this respect cooperation with our Russian neighbours is very important.

Exploitation of the petroleum resources will have to take place in harmony with the environment. We must continuously develop our knowledge of the ecosystem in the North to secure that our decisions are taken on the basis of the best available information. I believe that all of this is possible with the participation of a highly competent industry. I am convinced that Northern Norway and the Northern areas in a broader meaning will experience many great achievements in the years to come. The potential and possibilities are there.

I will also use this opportunity to wish you all an instructive and successful conference.

Thank you for your attention!