The Norwegian Continental Shelf – Future Perspectives

Slides in pdf

Ladies and Gentlemen,

It is an honour to open this conference, the 9th in a row, organised by Intsok to facilitate American – Norwegian industry co-operation.

The conference theme is about arctic conditions and deepwater. However I feel slightly removed from the arctic environment having already spent several sunny days in Mexico City and Houston.

Being in Houston for the first time, I both appreciate the climate and the warm hospitality that has been extended to me.

 

Global Investment levels
Indeed Houston is a hot spot – also industrywise. According to reports by Douglas Westwood, the US Gulf of Mexico dominates a growing offshore market.  Thus, it is not surprising that Houston is a hub in the exploration and production business, which makes it so important for the Norwegian oil and gas industry to be present here.

The Norwegian Continental Shelf (NCS) is also a vibrant offshore market for the petroleum industry, in fact it comes second only surpassed by the US Gulf of Mexico. The activity level is very high at the moment and the next years look promising too. I will spend some time addressing the future perspectives of the NCS:

 

Investments on the NCS
In the period from 2007-2013 it is estimated that the investments will increase with more than 130 billion NOK  - about 21 billion USD - compared to the prognosis given in the state budget for 2007. In the coming four years existing fields will be object for 70% of the investments.

This is of course a sign of a maturing shelf. On the other hand these are positive figures because it means that we can prolong cost efficient production from existing fields. This is to a large extent due to the high oil prices, which make production from marginal fields more economic. But also new business models and technology development come into play. Actually, we see that fields that have been closed down, will be reopened to extract the remaining reserves.
For 2007, the investments excluding exploration costs are expected to amount to about 13 billion USD (82 billion NOK)  An estimated 3,7 billion USD  (NOK 23 billion ) will be expended in connection with exploration.

Petroleum production
We have for a number of years had a stable oil production of around 3 mbd. However, production does not come by itself. Production in 2007 could drop to 2,6 mbd. This is lower than our previous forecasts.

The main reasons for such a reduction are delayed projects and a shortage of both exploration and production rigs. On the other hand, high oil prices will help justify investments in exploration and IOR projects. Exploration and IOR projects are likely to increase recoverable reserves. We therefore believe that investments in the coming years, will enable a higher level of oil production after 2011.

 

Gas Production
The story is different when it comes to gas. In 2006 our gas exports was about 3 tcf (85 bcm). This places Norway as the second largest exporter to the EU-countries. We cover around 16 % of their total consumption. Our most recent forecast indicates that gas production will continue to increase and could reach a level of around 4.4 – 4.9 tcf (125 – 140 bcm) by the middle of the next decade.

 

Going from South to North
This figure gives an impression of the Norwegian petroleum history, but also an indication of the future. Exploration started in the southern part of the NCS more than 40 years ago. This explains why the produced share is much higher here than in the Norwegian Sea, and why the undiscovered share is much lower.

Even if the North Sea and the Norwegian Sea can be considered mature areas they still hold a significant potential. In our latest (the 19th) licensing round both national and international oil companies demonstrated a substantial interest for the North Sea and the Norwegian Sea.

However, in a longer perspective we expect the importance of the Barents Sea to increase. We estimate that this area holds 17% of total reserves. 

Field development - Snøhvit and Goliat - 19th licensing round
As of today 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 a quarter 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.

Only in the Snøhvit-Goliat area we know the geology well.  The northern parts of the Barents Sea have not been mapped to the same extent, but the potential is there. By awarding what we can characterise as “key blocks”, we intend to obtain more information about the potential in these relatively unknown areas. Over the next few years, extensive exploration activity and drilling will take place.
    
Snøhvit is the result of the first exploration activity in the Barents Sea during the 1980’s. For over 30 years, oil from the Norwegian continental shelf has found its way to US markets. Now the time has come for natural gas. This fall, shipments of liquefied natural gas - LNG - from the Snøhvit field will sail to the Cove Point terminal in Maryland – creating yet another strategic bond between the United States and Norway across the Atlantic.

And it may be a new bond to last for a very long time: The Snøhvit licensees are currently planning for the construction of new production capacity at Snøhvit LNG - 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. Recent discoveries such as Tornerose, give reason to be optimistic.

The Goliat oil discovery is another very promising project. The exploration wells drilled so far have proven that Goliat is a major discovery. Developing the Goliat field is likely to exceed 3.2 bill USD (20 billion NOK). This makes it one of the most significant future field developments on the NCS.

 

High North Strategy
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, education, research and environment.

The environment of the High North is vulnerable. To deal with this 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 in the north.

Cooperation with Russia is also an important element of our High North strategy.
We can only ensure sustainable use of resources and sound environmental management in the Barents Sea with Russia’s engagement and Norwegian-Russian cooperation.

The combination of industrial complementarity and geographic proximity calls for energy cooperation. Both sides stand to gain from cross-utilization and co-development of skilled labour, specialized offshore technologies, logistical networks and other infrastructure in the High North.

The overall objective of the High North strategy is to create sustainable growth and development. The ongoing petroleum activities serve as a very good example as to how the oil and gas industry can create opportunities for local and regional businesses development.

However, this potential can only be realized with the expertise and technology provided by the international oil and gas companies and their supply chains. Obviously the Barents Sea is a place where we would like to see the American oil and gas industry participate.

Let me underline: All along the NCS – from the south to the north – Norway has benefited from the best of American skills and experience. It started with the very first production license being awarded to Esso (ExxonMobil today).  First production occurred in a different license, Ekofisk, which came on stream in 1971. Today ConocoPhillips is investing heavily to expand production.

Let me also mention Marathon whose approach to the Alvheim field development has helped unlock values also in the surrounding areas.

Furthermore American oil companies and suppliers are contributing to research and development in Norway.  It probably goes without saying that arctic conditions as well as deepwater operations are among the top priorities in our national strategy for research and technology development in the petroleum sector.  I think today’s conference and the workshops tomorrow deserve to be seen in such a broad context. 

 

Merger and internationalisation
Even though activity level on the NCS is expected to increase in the years to come, Norwegian oil companies and the supply industry are positioning themselves for future activities abroad. 

One element in the internationalisation process is the plans for the merger between Statoil and Hydro. This merger is to a large extent grounded on the companies’ ambitions to enhance international competitiveness. With this merger the new company will become one of the largest offshore companies in the world, and a potential partner or operator for any offshore activity.

The government is positive to this merger. However, there are challenges that need to be addressed. For instance there are concerns that the new company will become a too strong player on the NCS.

The government is considering all possible effects of the merger and will follow this process closely.  A White Paper will be put forward to the Parliament this month. Issues related to the state ownership of the new company and the management of the NCS will be discussed. The government must ensure that competition will not be reduced. I will express clear expectations that the new company will act as responsible corporate citizen.

 

International sales in the supply industry
Also the supply industries have a significantly higher orientation towards international markets today, than was the case only some years ago. The influx of the Norwegian oil and gas industry is evident here in Houston, but also other areas in the world are subject to increasing Norwegian exports as well as direct investment.

In the period 1995-2005, international sales of the Norwegian supply industry increased from 2.5 billion USD to 8 billion (15.5 billion NOK to about 50 billion) .

The main point however is that such a growth would not have taken place without co-operation between the Norwegian supply industry and international oil companies. I think US oil companies in particular have been instrumental in providing overseas business opportunities for Norwegian suppliers. Long standing partnerships on the NCS have no doubt produced a constructive framework for expanded co-operation elsewhere in the world. Likewise, I think the industry cluster here in Houston is one that will strengthen US -Norwegian business relations – relations that will be beneficial to both parties also beyond the Gulf itself. 

 

Conclusion
Let me conclude

• We are currently experiencing a period of vigorous activity on the Norwegian shelf.  Higher oil prices have brought significant increases in the activity level providing ample business opportunities for the global supply and service industry.
• Only about one third of the total resource base has been produced. There is still a substantial potential for enhanced production and new discoveries.
• There is still a lot of ground to cover in the Barents Sea and the High North – both in terms of exploration and technology development. But we are moving ahead!
• US oil companies and US suppliers will continue to be important to the future development of the NCS.

Today Norwegian and American corporations share business opportunities worldwide both as partners and sometimes as competitors.  I certainly think this event today illustrates the ties between our respective petroleum clusters.

Thank you for your attention