Strategy for the high north: Perspectives for petroleum activities in the Barents Sea

Speech by Minister of Petroleum and Energy Odd Roger Enoksen at the Barents Sea Conference in Hammerfest 24 April 2007

Dear conference participants!

It is a great pleasure for me to be the first speaker in the Barents Sea Conference here in Hammerfest. The conference is a major event, with workshops and an exhibition in addition to the conference itself. It focuses on the potential both for developments in the Arctic region, not least due to the potential for establishing the north as a new petroleum province. Naturally, focus is also on the potential for further cooperation between Russia and Norway. This 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 energy in the world in the years to come, and the challenges caused by this, both environmentally and otherwise. Secondly, I will try to show Norway’s role in this picture, focusing on the Barents area. Thirdly, I will also 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 within 2030. This is to a large extent due to increased demand in the developing countries in general, and in China and India in particular. 83 % of the increase in demand will be met by fossil energy. This means that oil and gas will continue to have the same relative importance in the energy mix in the years to come as they have today.

It is a big challenge to meet this increased demand: How to meet the growing energy needs without contributing to global climate change and pollution of the marine environment. This question is even more important 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, emissions to air from fossil fuels would decrease dramatically, allowing the world to continue using fossil fuels to meet future energy needs without harming the environment.

The other side of this coin is of course the intensified global focus on of security of energy supply. In most parts of the world, security of supply is a key issue and a key driver for all energy related politics. For instance, every EU country including Great Britain, is today in the situation that they are net importers of oil and gas. The EU is importing more than 50 % of its present energy needs, a figure that is estimated to increase to 70 % by 2030. And like other regions, this increase is mainly due to a steadily rising need to import oil and gas.

Norway has been a very stable and secure supplier of oil and gas to the EU for more than thirty years. This will continue for many years to come. Norway has steadily been exporting most of its oil and almost all of its gas to Europe since the 1970ties, when oil was first produced from the Ekofisk field. More than 7800 kilometres of gas transportation pipelines ensure the continuous exports of gas to landing points in Emden, Seebrugge, Dunquerque and Great Britain. On the political level, Norway is closely linked to EU energy market through the EEA agreement. We have a formalised and regular energy dialogue with the EU in this respect.    

Total petroleum produsction
Norway is the second largest exporter of gas to EU after Russia and the third largest exporter of oil in the world after Saudi-Arabia and Russia.

While production of oil is expected to decline in the years to come, total output from the NCS is increasing due to the production of gas. Our gas exports will nearly double in the decade from 2000 – 2010, almost reaching the level of Russian gas exports to the EU. It is estimated that Norway will export between 125 and 140 billion Sm3 gas to the EU in 2013.

Norwegian gas exports meet approximately 15 percent of the European gas consumption. France is the largest receiver of Norwegian gas. 35% of Norwegian exports go there. Our share of gas exports to Germany is around 30 %. When the Ormen Lange field comes on stream later this year, Norwegian gas will also have a market share of approximately 15-20 percent in the United Kingdom. In addition, Norwegian gas producers sell gas to buyers in Belgium, the Netherlands, Italy, Spain, the Czeck Republic, Austria, Poland and Denmark.

In 2006 the construction of the Langeled pipeline going from Nyhamna in Norway to Easington in Great Britain was finalised. Langeled is 1200 km long, and is thereby the longest subsea 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 come the Snøhvit LNG supplies to US and Europe by the end of this year. With the commencement of Snøhvit LNG, Norwegian gas will for the first time also be supplied to the US.

Going from South to North
This figure shows the resource base on the Continental Shelf as it is known till now. In addition, it both gives an impression of the Norwegian petroleum history and gives an indication for our future oil and gas activities. In 1965, the oil and gas activities naturally started in the southern  - and easiest in terms of access – part of the Continental Shelf. This explains why the produced share is much higher here than in the Norwegian Sea, and why the undiscovered share is much lower. However, even as more mature regions these two still hold a large interest for the oil companies. Thus, in the 19th and last licensing rounds there was a great interest from both national and international oil companies for new awards the North Sea and the Norwegian Sea.

In the period from 2007-2013 it is estimated that investments will increase with more than 130 billion NOKR compared to the prognosis given in the State budget for 2007. In the coming 4 years, existing fields will be the object of 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, and presumably of greater interest to you, the importance of the Barents Sea will increase in the longer term. In this area we estimate that 17% of the reserves are located. I will focus on this area for the remaining part of my presentation.

The Barents Sea – emerging frontier area
Energy security has re-emerged as a major issue of international politics. The worldwide search for greater diversity of supply extends to the petroleum resources of the Norwegian Continental Shelf. Thus, the Norwegian energy chapter is now moving into the high North, beyond the Arctic Circle into the Barents Sea.

On 1 December last year, the Norwegian Government presented its strategy for the high North. The key external drivers for this policy are: Energy, climate change and Russia. As I already mentioned, it is also the combination of these three factors that is drawing increased international attention to the high North. On this basis, key words of our policy for the North are presence, activities and knowledge.

Meeting the challenges and opportunities of the high north is a main priority. The main issues are: sustainable use of renewable and non-renewable resources, climate change and environmental protection. It all amounts to securing safe and healthy living conditions for people in the region, based on sound economic activities. We will develop the petroleum reserves in the high North, while at the same time working actively to combat climate change.

At present, we see the Barents Sea emerging as a new petroleum region. Next year, the first tankers carrying natural gas will be heading for the US from our northernmost town of Hammerfest. However, plans to develop other oil and gas fields are also being made.

I think the ongoing development of the Snøhvit field is worth mentioning as a good example of the opportunities that petroleum developments could 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 million NOK. Till now, however, contracts for more than three billion NOK have been signed with regional companies. Of this amount more than 2 billion NOK have been signed with 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 which 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.

The Snøhvit field is is a real opportunity to demonstrate how modern management can develop a petroleum resource base while protecting the environment, using technology that enables lower levels of emissions and – not to forget – moving ahead while preserving the thousand-year old tradition of harvesting renewable resources and at the same time show the opportunities that petroleumdevelopments can bring to local and regional businesses.

Integrated Management of the Marine Environment in the Lofoten - Barents Sea area
The Nature in the high North is vulnerable. To deal with this environmental challenge, the Norwegian Government in March last year presented its Plan for Integrated Management of the area from Lofoten to the Barents Sea. 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 and over-aching process. All influences on the eco-system in the Lofoten - Barents Sea area were considered in a larger context. The conclusion was 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. To obtain this, restrictions have been put on petroleum activities in the management plan area as follows:

• Zero-discharge to sea is a prerequisite for all petroleum activities in the Norwegian part of the Barents Sea
• No petroleum activities will be initiated in coastal areas and in areas of particular importance to fisheries and the environmental (dark blue colour)
• As we move further away from the coast-line, fewer restrictions are placed on petroleum activities (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 is dynamic. Until the time of revision, the Government has decided to carry out extensive research and mapping to extend our knowledge about the area, geological and otherwise. This will constitute a sound basis for future petroleum activities 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 developments in the Barents Sea - awards 19th licensing round
60 % of the Norwegian Continental Shelf is opened for exploration for and production of oil and gas. In the Barents Sea, however, only the southern part is currently available to the industry for petroleum activities. 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 more facts. The Norwegian Barents Sea is still largely a frontier area. According to our estimates, undiscovered resources could total more than 6 billion barrels of oil equivalents – with a large upside potential.

The geology of the Barents Sea is well known 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 the blocks that were awarded in the 19th licensing round. Our intention – by awarding what might be characterised as “key blocks” – is to obtain updated geological information about the petroleum potential in these relatively unknown areas. Over the next few years, extensive exploration activities and drilling will take place.

 The Snøhvit and Goliat fields are shown in right part of the slide. Snøhvit is the result of the first exploration activity in the Barents Sea during the early 1980’s. The first LNG from Snøhvit will be shipped to Maryland in the US this autumn. For the first time, the US will receive gas from the Northern areas. The partners in the Snøhvit licence are currently planning for the construction of new production capacity at the Snøhvit LNG plant, also known as a train two. In order to make such development possible, it is necessary to make new gas discoveries in the area. New exploration activities are therefore essential, and discoveries such as Tornerose (wildcat 7122/6-1) bear proof of a very promising future.

 Development of the Goliat oil discovery (7122/7-1) is another very promising project. The exploration wells drilled so far have proven that Goliat is a major oil discovery. Investments in developing the Goliat field are now likely to exceed twenty billion NOK. 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.

In one of the licences awarded in the 19th licensing round last year, a wildcat drilled earlier this year resulted in a promising discovery – the Nucula. This licence is located relatively close to shore and in an environmentally sensitive area. The drilling operation was a success, with no spills and high emergency preparedness. The licence, with Hydro as operator, is currently evaluating the data from the well. The Nucula has been discovered in a relatively unexplored part of the Barents Sea. The results of the well are therefore also regarded as positive for the over-all prospectivity in this part of the Barents Sea.

Merger and internationalisation
I will now say a few words about the proposed merger between Statoil and the oil and gas activities of Hydro. This is a subject I suppose you are occupied with.

Even though petroleum activities 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 consequence of the fact that both the oil companies and the supply industry have reached a level of competence were they hold unique experience, know-how and technology for, in particular, deep water extraction of oil and gas. In addition we believe, despite the activities in the north, that the total activity level on the Norwegian Continental Shelf will slowly decline in the coming decades.    

 The most visible result of this internationalisation process so far is the plan to merge Statoil and the oil and gas activities of Hydro. This merger is to a large extent based on the need to be more internationally competitive. With this merger Statoil/Hydro will be the largest off-shore company in the world, and a potential partner or operator for any off-shore petroleum activity.

The Government is positive to this merger. However, there are challenges that need to be addressed. These are largely tied to the fact that Statoil and Hydro combined will be a very large operator, especially in producing fields in the northern North Sea. My response to this is that other fields will be developed in the coming years with other operators, ensuring the continued good mix of companies with this task.

Perceptions also exist to the effect that the merged company will be the largest purchaser of goods and services on the Continental Shelf. This is in some respects true, especially when it comes to purchases in existing fields. In the coming years, however, other companies who are operating exploration activities and new developments will contribute to filling the “purchase gap.”

 But the Government will of course in any case follow all these aspects closely. But I expect that the merged company is well aware of its responsibility to maintain full competition in the Norwegian supply industry. This will of course also be in the best interest of the company itself.

Statoil and Hydro are also important actors with regard to research and development on the NCS. The main part of this activity is financed through the joint ventures on the NCS. This fact, and the importance of continued research and development for the competitive position of the merged company will, in my opinion, imply that the company focus in this respct will be upheld also in the future. 

In addition, the supply industry has a significantly higher orientation towards foreign markets today, than some years ago. The Institute for Research in Economics and Business Administration has in a recently published study mapped the international activities of the Norwegian supply industry. Some of the findings are that companies that were mainly focusing on supplies to the petroleum sector in 2005, had 46 % of their sales abroad. 93 % of the companies that directly or indirectly have contracts with oil companies in Norway also have parts of their sales abroad. The report estimates that total sales abroad in 2005 were nearly 50 billion NOK, as compared to 30 billion NOK in 2003. 

All these issues have been broadly discussed in the proposition to the Storting that was submitted before Easter.

Cooperation with Russia
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 dialogue and cooperation between Norway and Russia was started as early as 1992. It has been widened and strengthened in later years. President Putin also in 2005 called for a strategic energy partnership between our two countries in the high North. Successive Norwegian governments have accepted the invitation.

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 petroleum 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 on mapping of 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 full support of the Government. Another example is Petro Arctic that gather around 360 companies with a common aim to put regional companies in position for contracts in the Snøhvit and Goliat field in the years to come. Petro Arctic has close cooperation with sister organisations in Arkhangelsk and Murmansk.

A prerequisite for cooperation is personal knowledge of each other, and initiatives like these will contribute to exactly that.

Prospects for energy cooperation will, among others, be linked to resource potential and investment climate.  I take a long-term view on Norwegian-Russian relations in the field of energy. In this respect, it is important to have a long term perspective. Some have expressed that the story of cooperation with Russia got a serious set-back 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 future of our relationship is not determined by a single decision about a particular field development or access to reserves in a particular 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 and sustainable management methods can be applied to develop the petroleum resources in the North. In this respect a good and continuous 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!

Presentation in pdf 

(The speech was held in Norwegian)