Oil and Gas Industry – Implications of a Multipolar World

Speech by Mr Terje Riis-Johansen, Minister of Petroleum and Energy, at Offshore Northern Seas 25.08.2010.

Ladies and gentlemen

The Offshore Northern Seas - or ONS - is truly one of the world’s leading meeting places for the petroleum industry. I visited ONS for the first time two years ago, and it is a great pleasure for me to take part in this unique event again.

The ONS headline this year, “Energy for more people”, is timely and highlights a critical component of the energy realities we are faced with.

My point of departure is therefore the global energy challenges.
• We need to provide more energy, to meet growing demand
• We need secure and safe energy
• We need clean energy

These challenges are tied together. The global population is growing. We must combat poverty and raise human welfare. This fuels energy demand, especially in developing countries.

At the same time deep emission cuts are called for. Evidence of continued global warming and climate change continues to mount. The time for worldwide action is now!

Stepping up to the global energy challenges is complex. There are no simple solutions, no single technology or policy measure, which can solve these challenges over night. Consequently, fossil fuels will remain in the global energy mix for many years to come.

As the world’s third largest exporter of energy the global energy challenges are ever present, here in Norway, when we define our national energy policy.

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The oil and gas industry in Norway is the backbone of our economy. In my view the prospects for our oil and gas activities are very good.

There are still large remaining petroleum resources on the Norwegian Continental Shelf. After 40 years of production, sixty percent of the expected resources remain to be produced.

The agreement between Russia and Norway on the maritime delimitation line in the Barents Sea and the Polar Sea will add new areas to our continental shelf.

As a farmer I know the importance of enlarging your property. This time we will add an area twice as large as Finnmark. I am both honored and proud to have participated in this historic event which is very good news for future petroleum activities in Norway.

In the past years we have seen a strong interest from the industry to explore for and develop petroleum in Norway. Last year saw a record numbers of new wells and discoveries.

The high level of activity tells me that the Norwegian Continental Shelf still is an attractive place to invest for the international oil industry. For me as minister for petroleum this is reassuring. 

Efficient and timely exploration of our acreage is a high priority for the Government. This is necessary to maintain the level of activity on the Norwegian Continental Shelf and the demand for goods and services to this sector.

Our supply industries have over many years shown ability to develop cutting edge technology and services. It is competitive globally. A tour of the exhibition here at ONS should be more than enough to convince anyone who might be in doubt about this. I am very proud of the achievements of the Norwegian petroleum supply industry.

A key objective of the Norwegian Governments petroleum policy is to create upstream - related jobs and opportunities onshore. Roughly 200.000 people - 8 percent of the workforce – all over the country are directly or indirectly engaged in providing services and goods to this industry. This clearly shows the importance of the industry and that the Government policies have been successful. 

In Hammerfest the development of the Snøhvit and Goliat fields clearly shows what difference field developments can make locally. If we succeed further in our exploration efforts in the north, other struggling communities may experience similar dramatic improvements.

It is the Government’s ambition that Norway shall remain a significant supplier of oil and gas to the world markets for a long time. One way to achieve this target, and perhaps the most important one, is to increase the recovery factor from the existing fields. 1 per cent higher recovery from our shelf could be worth 30 billion USD, according to some estimates.

For this reason, improved oil recovery is of high priority for Norwegian authorities. I have therefore appointed a committee that will present proposals and recommendations on how recovery from fields can be increased further. Their report will be handed over to me in the near future, and this issue will be an important topic in the forthcoming White Paper on the petroleum activities.

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Dear audience, I would like to take this opportunity to comment on the Deepwater Horizon accident in the Gulf of Mexico. The accident is obviously a wakeup call for all of us engaged in the oil industry. 11 lives were lost. Local communities and industries in the area have been heavily affected.

I have followed the situation closely since the blowout took place in April. Last month I travelled to the US to discuss the issue with representatives from the US government and from the industry. I also visited the incident area and landed on a vessel involved in the work on the Macondo well.

For the oil industry, which is expected to provide energy in a safe, technologically sound and environmentally responsible manner, the incident represents a setback. It was a shock to many that a blowout of this dimension could happen.

What can we learn from the accident? What is the appropriate response from the industry and governments? Will it affect the industry’s ability to provide oil and gas from offshore areas? 

These are some of the questions we – the oil and gas industry and governments – must ask ourselves and in time have proper answers to.

We do not have a complete picture of the accident today. Its causes and consequences will become clearer in the months to come. Several investigations and inquiries are in the making. The results from this work will give us better answers to our questions.

What about Norwegian petroleum activities in relation to the accident?

The probability of a blowout has not changed significantly because of the accident. And the probability of a blow out is low, in Norway as in other petroleum provinces.

Acute oil spills from the oil and gas industry have not caused noticeable environmental damages on the NCS.  No acute oil spills from exploration and production activities have touched land.

We have high safety standards on the Norwegian Shelf. Risk trends have shown positive development in recent years. Still, statistics do not tell us what will happen tomorrow, and shall not lead to indifference. Low risk is not a static state.

Therefore, we continuously look into our regulations and seek to further improve safety standards. A key element in this is to learn from other countries and their experience.

So, what concrete initiatives have we taken over the last weeks?

Our Petroleum Safety Authority has set up a group to assess possible implications of the Deepwater Horizon for Norwegian petroleum activities. They have already identified areas for deeper analysis.

However, when it comes to ongoing drilling activities, no such activities have been suspended by the Petroleum Safety Authority because of the accident.

The specific national circumstances are a key input when designing a regulation regime. A system functioning very well in one country might be totally dysfunctional in another one. Hence, I think the best way forward is to further improve existing regimes - including the already established international cooperation between different regulators. In addition, we need to continue our effort to share knowledge and build capacity in developing countries with oil and gas potential.

We are working on updating the Integrated Management Plan for our most northern oceans, including the Lofoten/Vesterålen area. We have asked a group of governmental agencies to look into the relevance of the Deepwater Horizon accident for relevant studies done under the Management plan. They are asked to report on this issue by mid October.

Both the awards in predefined areas 2010 and the 21st licensing rounds proceed as planned. However, future awards of licenses will take place when we have more knowledge about the accident. This knowledge will, of course, be taken into account in the process.

It took almost three months to stop the leak from the Macondo well. A number of technical solutions where attempted more or less unsuccessfully in the weeks after the blow out. In mid-July a new sealing cap was installed which finally stopped the leak.

We need to be better prepared when the unthinkable happens. A well leaking for almost three months must be avoided. Solutions that can stop a leak quicker must be technologically qualified. What the appropriate solutions is, might differ from well to well and from country to country according to differences in, amongst other, geology.

We have challenged the Norwegian oil industry in this regard. They are working on this as we speak. This is clearly a key follow-up from our side. 

I know other countries discuss the same issue. I do have a close dialogue with my UK colleague on this.

It is important to see this type of solutions in a global context. Having many of the same companies involved in deepwater activities around the world should make this easier. The work initiated by four of the largest oil companies in the world in the US is very positive. That the International Association of Oil and Gas Producers has put the item high on its agenda is equally positive. As you all know, without the companies closely involved, the appropriate solutions will not emerge.

New technical solutions, reforms in regulations, frameworks and industry practices can and must now be expected, all leading up to increasing the overall level of safety for offshore oil and gas exploration. A strong commitment from both the industry and the regulators is needed to succeed.

In all our work, I can guarantee you all: we will never compromise on safety standards.
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Ladies and gentlemen,

I would also like to use this occasion to highlight the role of natural gas in the energy mix – the cleanest of the fossil fuels.

Globally, natural gas must play a major role in meeting the growing needs for clean, safe and reliable energy globally. I will argue that the changes in the gas market in recent years have strengthened the case for gas.

Firstly, the unconventional gas revolution. Production growth in the US in recent years has surprised everyone. The future production potential of gas has increased dramatically. Global gas resources are abundant and could last for 250 years with current gas consumption.

Secondly, LNG has globalized the gas market. The number of importing and exporting countries of LNG has increased significantly in recent years. Production of LNG has increased by a factor 5 in the last 5 years. This increased availability of LNG has strengthened the case for gas as a secure and reliable fuel.

The abundance of natural gas, and the increased availability worldwide, has reinforced the position of natural gas in the global fuel mix.

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Moving towards less carbon intensive solutions is vital to secure a sustainable future energy supply. I believe that CCS is needed as a part of the answer to how we meet energy demands and the call for CO2 reductions at the same time.

In an energy and climate change perspective, CCS offers potential to reduce CO2 emissions by 85 to 95 per cent from coal and gas fired power plants.

The Norwegian Government is taking concrete action to further develop and advance this technology. Construction of Technology Centre Mongstad – TCM – started in June 2009, and it is scheduled to be operational in late 2011. The next stage is a full scale CCS plant capturing up to 1.2 million tonnes of CO2 annually.

As you know, Norway has long and unique experience in the field of storage of CO₂. The projects of Sleipner and Snøhvit are operational. At Sleipner CO2 storage has been done safely, for 14 successive years.

All steps in the CCS value chain have been proven and are in operation today: capture, transport, injection and underground storage. But we are still facing challenges when it comes to global roll-out of this technology.

In order to make CCS commercial, we need to create business opportunities. Solving the energy problems of tomorrow the most competent players must be involved, including the major energy companies. The involvement of Statoil, Shell and Sasol at the TCM - is in my mind - a striking example of how this can be done. 

We need a commercially attractive framework for private investment. Norway believes that global action is necessary to move CCS forward. CCS must be included in an appropriate financial mechanism that covers actions in developing countries, and stimulates CCS-related investments.

Making CCS commercially attractive also requires predictable legal and regulatory frameworks for safe transport and storage. It is the governments’ responsibility to establish such frameworks, and we are making significant progress in this area.

To give you an example – In October last year, the parties to the London Protocol agreed to a Norwegian proposal to allow for transport of CO2 across national borders offshore. We now look forward for this amendment to be ratified.

Thus, addressing the challenges of global CCS deployment requires increased international cooperation, and not least political leadership. Last month US Secretary of Energy Steven Chu hosted the Clean Energy Ministerial in Washington D.C. It was truly inspiring for me to contribute to the meeting, and share experiences from our efforts in Norway. We decided to set up a CCS Action Group to address strategic, financial and regulatory issues.

I will also point to the excellent cooperation we have with the UK and the other North Sea neighbouring countries on transport and storage issues in the region.

Conclusion

Ladies and gentlemen – working with energy is intriguing. We rely on it around the clock – knowing that current energy trends are clearly unsustainable.

We are stepping up to the challenge of our lifetime – climate change. We are not merely providing more energy, but also cleaner energy.

Thank you for your attention.