Perspectives on Norwegian oil and gas

Speech by Minister of Petroleum and Energy Mr. Ola Borten Moe at Oslo Energy Forum, Holmenkollen Park Hotel, February 10. 2012.

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• Ladies and gentlemen, it is a pleasure for me to be here and to address you at the Oslo Energy Forum today. This important meeting place has, grown strong over the last 40 years not least as a reflection of the many successful developments in our oil and gas activities

• Our joint ambition should be to put in place the necessary foundation, so our successors can meet for the 80th energy seminar at Holmenkollen in 2052!

• Looking at the global picture, my point of departure is that the world needs more energy. This is important to global economic growth, and to get more people out of poverty. At the same time, we need to handle the challenge of climate change. We need to address these challenges simultaneously and in a balanced manner. It is impossible to solve one but not the other.

• The “new policy”-scenario of The International Energy Agency – IEA – indicates that global energy demand could increase by more than one third over the next 25 years. Within the 2 degrees scenario, the increase of energy consumption will be more than 20 %. In the 2 degrees scenario, the global need for fossil fuels will be almost as high as today in 2030.

• Almost all the growth in energy use will come outside the OECD-countries. 1.3 billion people lack access to electricity. Economic development and affordable, modern energy are prerequisites for achieving the needed improvement in living standards in poor and medium income countries. These countries are expected to experience continued strong population growth. We must maintain the ambition to provide more, stable and cleaner energy to more people.

• Everyone in this room knows there is a strong connection between energy and sustainable social and economic development. The good news is that never before in history has so many people, both absolute and relative, had the opportunity to rich lives and development.

• The bad news is that 1.3 billion people represent a stable and far too large number. And the number will not go down before sustainable economic and social development is established globally. This demands more energy. It is all about demographics, a topic underestimated in general.

• At the same time, we must tackle climate change – a global challenge that requires a global solution. These are the most important challenges of our time.

• I am a strong believer in global carbon pricing – through taxation or trading schemes – as the appropriate and most efficient policy instrument.  A price on carbon emissions will provide incentives for energy efficiency, such as switching from coal to gas, investing in renewable energy and developing new energy technologies, like carbon capture and storage. It will trigger emission reductions with the lowest costs and thereby make this ambitious policy as affordable as possible.

• Winston Churchill once said: “There is no such thing as a good tax”.  In a low carbon future context, I beg to differ.  We need a global carbon tax now, and it would be a good tax!

• In a situation without a global carbon price, it is important that countries and regions go forward and introduce measures to limit emissions.

• Energy security is an important consideration in energy policy. The prosperity of all people, in all countries, is closely linked to reliable access to affordable energy. Security of future energy demand, and thereby future incomes, is vital when companies and countries decide to develop major new, capital-intensive energy projects.

• Norway is an energy nation. We are the world’s 2nd largest gas exporter – and the 6th largest energy exporter. One fifth of the European Union’s demand for gas is covered by Norway. 

• We will continue to be a reliable and stable energy producer, supplying clean, reliable energy for decades to come.

• Our position as a significant energy exporter also gives rise to wider obligations at home. Let me give a few examples:

o Our joint task is to further reduce the environmental footprint from the Shelf. This means improving efficiency and finding smarter, cleaner solutions.
o I will also continue the work to promote even more use of renewable energy in Norway. Over the next decade we are committed to an unprecedented effort to further increase our share of renewable energy.
o We are working hard to make carbon capture and storage a realistic alternative in the future. As part of this multi-billion effort, we will open a cutting edge Technology Centre at Mongstad on the 7th of May.

• The challenges we face are huge, but this should serve as an inspiration to us all.

An industry for the future – Norway’s petroleum activities:

• From the beginning of our oil and gas adventure, our aim has always been to manage the petroleum resources for the benefit of the entire Norwegian people. We have succeeded. We have built up competence, and we have petroleum-related activities and businesses all over the country. In 2010, the petroleum sector contributed to 26 percent of the State revenues and 200.000 jobs, which is significant in Norway.

• Our sovereign wealth fund holds about 600 billion USD today, and it will increase as the Norwegian Continental Shelf will continue to produce large surpluses. This gives us other challenges than most other OECD countries – but still challenges.

• We can not spend too much money in our domestic economy and thereby ruin it. We must continue to reform society and industries to keep our ability to compete. We can not allow ourselves to get lazy.

• Today, we are still delivering results as a society – but it is not self evident that this will continue.

• The activity level on the Continental Shelf is at an all-time high. The Norwegian offshore market is the world’s largest. One of last year’s biggest global oil discoveries was made in the North Sea.

• The government white paper, An industry for the future – Norway’s petroleum activities was recently debated and passed in the the Norwegian parliament, the Storting.

• In the white paper, the Government presented an ambitious strategy for the Norwegian oil and gas industry. I am pleased by the broad support our strategy received in the Storting.

• The significance of this support cannot be overstated. For a long-term, capital-intensive business like oil and gas, stability, predictability, continuity and long-term consistency are essential elements in oil and gas policy. The discussions in the Storting reflect a consensus that serves as a basic factor in your commercial decision making processes and in your planning of future business opportunities in Norway.

• The core element in the strategy presented in the white paper is a parallel and active commitment to exploit all our resources in the most efficient manner possible. We must focus on all the various parts of the resource base in parallel in order to achieve stable production, the highest possible yield from the fields, and maximum long-term value creation.

Increased recovery, discoveries

• A significant part of the production over the next decade will come from existing fields and discoveries. To help curb the decline in oil production in this timeframe we need to succeed in our efforts on existing fields. Many fields have produced for a long time and measures to improve recovery from these fields are urgent.

• There is high activity related to producing fields. An example can be Ekofisk south and Eldfisk II. Last year, the Storting approved development plans entailing investments of about 65 billion Norwegian kroner. The projects will increase recovery from the Ekofisk and Eldfisk fields by almost 500 million barrels of oil equivalent.

• In 2011, the Ministry approved 10 new developments. Several of these will also contribute to increased oil recovery from existing fields by using capacity in already existing infrastructure, thus prolonging the lifetime of other fields and facilities. We expect companies to submit numerous development plans over the next two years.

• A number of the new developments are tie-backs to existing infrastructure. In Norway, profits from a tie-back project will benefit the new field – rather than create a super-profit for the host infrastructure. The principle that the net value of a field must be generated and realized at the field will be maintained. 

• Timely production of resources in existing fields and around late-life facilities is a high priority for the Ministry. I strongly encourage you to view increased oil recovery as a key responsibility to be pursued and realized on all fields. Exploiting a field’s potential in full is a crucial element in your licence to operate.

• However, we also see new, stand-alone developments. This includes “a stream of old discoveries” that have finally been matured and become commercial.

• This also includes more recent discoveries, like the ones at Utsirahøyden in the North Sea. Effective, value-creating solutions are cornerstones in Norwegian oil and gas policy. Therefore, I am glad the owners of Luno and Draupne now have been able to agree on a solution that will trigger a coordinated, cost-efficient development.

Active exploration of opened acreage

• Existing fields and discoveries alone cannot realize the long-term production scenario we would like to see.

• New discoveries are needed as well – both in mature areas and in frontier areas. The medium-term production and value creation scenario – and in particular the long-term one – are closely connected to what we can find.

• This year we expect exploration levels to remain high, with 55 wildcat and appraisal wells to be drilled!

• Last year delivered remarkable exploration results in Norway:

o The Johan Sverdrup discovery – made in one of the most thoroughly explored parts of the North Sea – has the characteristics of being one of our largest oil fields.
o The significant oil discoveries on Skrugard and Havis, north-west of Hammerfest in the Barents Sea, open up a new oil province.

• These results are encouraging. We need more news like this in the years to come, to realise our strategies for the sector.

• Two types of licensing rounds have been established to achieve an appropriate exploration of both mature and frontier areas. The interest from the companies in our licensing rounds is at a record high. This signifies expectations for both medium and long-term production.

• Earlier this month, I offered participation interests in production licences in mature areas to 42 companies. 27 of these companies are offered operatorship. This is the most extensive licensing round ever undertaken on the Norwegian continental shelf, in terms of both the number of companies and the number of production licences awarded.

• There is unprecedented interest in our northernmost seas. Last year, 12 new production licenses were awarded in frontier areas in the Barents Sea, the highest number of awards ever made in this part of our Shelf.

• Last month I received nominations from 37 companies regarding blocks which the companies wish to see included in the next licensing round in frontier areas. I am happy to see more blocks being nominated in the Barents Sea than ever before – 181 out of a total of 228. Awards are expected in the spring of 2013.

• Hopefully, this strong interest will be a sound foundation for future exploration successes. I hope – and believe – we can look forward to many new, commercial discoveries in the years to come.

Open new, promising acreage

• Last year, Norway increased its Continental Shelf by 87.000 square kilometres through the new delimitation agreement with Russia in the Barents Sea.

• This provides new opportunities for production in the long run.

• The Government has already initiated an opening process for the Barents Sea South East. It includes both an impact assessment and geological mapping. An opening process is going forward for the area around Jan Mayen as well.

• In Norway, the Storting decides whether to open new acreage for petroleum activities or not. My plan is to submit a proposal to the Storting in the spring of 2013.

• The Ministry is also collecting more knowledge about the effects of oil and gas activities in the north-eastern part of the Norwegian Sea. My aim is to finalize this work before the end of the year.

Activities in the far north

• Analyses indicate that around a quarter of the world’s remaining undiscovered oil and gas resources may be located in the Arctic. Five countries are involved in oil and gas activities in the High North: Canada, Greenland, Norway, Russia and the United States.
• In my view, we all share a common goal of sustainable economic development. There is no race between us. We are in different phases and we have different national contexts. But we all have knowledge and experiences that we can benefit from sharing.
• Therefore, I will invite Ministers from the petroleum countries of the High North, together with leaders from companies with deep arctic oil and gas experience, to discuss how we can ensure sustainable oil and gas activities in the High North.

• After thirty years we see the prospects of long term and significant petroleum activities in the Barents Sea. We have

o a producing field,
o a discovery under development,
o new, commercial discoveries in process,
o many wild-cat wells to be drilled, and
o strong industry interest in new licenses.

• If we succeed in our exploration, great opportunities will arise for Norway – especially in the form of positive economic and social effects in the north – but also challenges.

• We have seen the substantial economic effects generated by the development of the Snøhvit gas field in the Hammerfest area.

• The considerable ripple effects generated by the petroleum activities stem mostly from deliveries of goods and services in the development phase and during the production period of fields. Ripple effects are important, not least to increase people’s understanding of our industry.

• I am convinced that the oil and gas activities will flourish and establish a better future for the people and the region. All stakeholders will benefit from this!

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Europe and gas

• Norwegian gas can play a significant role in reaching the EU’s ambitious climate goals. Natural gas as an energy source has several attractive qualities: 

o It is a clean fuel that offers significant emission reduction potential, particularly in power generation

o Gas is an efficient and flexible complement to renewable energy.

o Gas prices are competitive and affordable in most markets

o Gas resources – conventional and non-conventional - are increasingly abundant and will last for 250 years at the current consumption level. 

• In Europe, debates in the media and among policy makers have to a large extent centred on the issue of security of gas supply. The trend towards increasing European gas import continues, while the disruption of gas supplies through the Ukraine in 2009 is still fresh in memory.

• But is concern for supply security really based on facts and realities?

• I think it is clear that supply security in Europe – both short and long-term security – has improved over the past years. Consider for example the increased capacity to import LNG, new pipelines and interconnections, as well as increased gas storage capacity. In addition, the unconventional gas revolution has brought improved resource availability.

• We should not allow fears and a single event overshadow the facts and the qualities of gas as an energy source.

• As a major producer, Norway takes the concerns raised in full earnest. Gas security is also in the producers’ interest as it fosters increased confidence in gas.

• The owners of the Snøhvit field are now working to see whether there is a basis for increasing export capacity from the field. The solution will also depend on what is considered to best promote further developments in the Barents Sea as such.

• The main question will remain, as it always does in relation to these issues: Will there be sufficient gas volumes available for transport that can carry the cost of building new infrastructure?

• This is a “chicken and egg” issue. No export capacity – no gas. No gas – no export capacity.

• Another prerequisite is the existence of a market on the European continent that demands more natural gas. Further infrastructure investments in Norway in the order of hundreds of billions of kroner require real security of demand. Gas producers need clear signals from policy makers on the role of gas in the energy mix, as well as a coherent and predictable regulatory framework, to ensure that necessary long term investments are undertaken.

Closing remarks

• I see a bright future for the oil and gas industry in general, and for the Norwegian Continental Shelf in particular.
• Yesterday, some participants asked for clear political signals in energy policy. I think most countries have an energy policy – and a strategy. This makes it possible for you and others to operate.

• In liberal democracies public debate is important. Percepted opinion affects policies and just as important: How government talks and behaves on issues. If you define reality, and thereby public debate, you are half way to victory. Many stakeholders have understood this better than you, at least seen from my point of view.

• So, I thought I should turn the question around, by referring to Kennedy: Do not ask what the government can do for you, but what you can do for society.

• In my opinion, also that part of reality and that part of history deserves to be told more than today.

• Thank you for your attention!