Pareto Securities’ 16th Oil and Offshore Conference

Ladies and gentlemen! It is a great honor for me to be here, and share some thoughts on energy with you, at this conference on oil and offshore.

This week it is 150 years since Colonel Drake, as the first man, successfully drilled for oil in Pennsylvania. Since that day the oil industry has time and time again overcome seemingly impossible barriers and obstacles by technological progress. Because of this, the oil and gas activity we experience today is a true high-tech business. 

But not only technology has changed this industry over the last century and a half. Developments in government policies, strong growth in demand from developing countries, a more important role of national oil companies and oil becoming a financial asset, is a few other ones. Let me just briefly comment on a couple of them. 

1. Big oil is not the traditional international oil companies; today fifteen of the world’s largest oil companies are now state owned. The biggest IOC, ExxonMobil, produce 3 percent of world consumption. This has changed the world of oil.

2. Today, the daily trade of “paper barrels” (crude oil futures) – may be as much as 30 times greater than the world’s daily consumption of physical barrels of oil. This has changed the price formation in the oil market. But one may ask: only for the good? Or has it contributed to the strong volatility we have seen over the last years? Certainly, it has contributed to change the world of oil.

Now, let me slightly change subject and use some time to talk about Norway. Our economy is strong. In this time of poor economic performance, stressed state finances and strong growth in unemployment in the developed world, our economic performance is not bad. The latest reports from Statistics Norway show a change in GDP numbers, from negative to positive, and a falling unemployment growth. The recession in Norway has not been as deep and enduring as in other developed countries. That is mainly due to our oil and gas sector.

The oil and gas sector will be a key part of our economy for decades to come. Even though you sometimes get another impression by reading the news, the industry will remain its position for many years. Let me give you an example of the industry’s size in terms of value creation. 

In 1980 the value creation from the petroleum industry was equal to the value creation from all other industries in Norway. Since then, the value creation in the petroleum sector has accelerated, and is today two and a half times the value creation from all other industries. According to our latest figures, we will, even if we do not develop any new reserves – which I hope and believe we will, produce the same amount of petroleum in 2040 as in 1980. 

A crucial issue for Norway to deliver future production, is, of course, that oil companies continue their investments for decades. Long term energy prices as we see today will lay a foundation for new projects to be economic viable. However, the cost escalation we have seen over the last years must be partly reversed. This can be painful in the short term, but it is necessary to secure profitability of the resource base on the long term.  

My view is that the activity on the Norwegian continental shelf will continue on a high level. It is therefore interesting to look into some facts which describe the sector’s importance for the Norwegian economy. Workers from all over the country does not travel with airplane and helicopter far out in the rough North Sea just for fun.

The petroleum industry is by far the largest industry in Norway. The sector amounted to more than ¼ of Norway’s GDP, more than 1/3 of the governmental income in 2008 and stands for about ½ the value on Oslo Stock Exchange which in general is very energy dominated.

So far the total revenues from the petroleum industry to the Norwegian State amount to about 4000 billion NOK. As we speak, revenues are being saved and invested through the pension fund. This makes us able to secure wealth for coming generations and stabilize the Norwegian economy in turbulent times.

The industry is extraordinary capital intensive. According to international statistics, Norway is, measured in working hours, the most productive country in the world. If we adjust for the petroleum industry, we will fall down to the world’s 6th most productive country.

The industry contributes strongly to Norway’s diversified settlement. Until now we have five petroleum landfalls, about 200 000 are employed in the industry from all over the country. An illustrating example is the development of Snøhvit where workers from each municipal in the country except of one were represented!

Norway’s offshore and petroleum expertise are founded on long traditions. We have since the Vikings been a seafaring nation. For generations we have learned how to live by and from the sea. The petroleum era is a part of this and tells an incredible story of an industry which live in coexistence with other industries and users of the sea.

Since the beginning in 1969, we have in a welfare perspective, created what many describe as the World’s best managed petroleum industry. An important part in achieving this is the close and constructive dialogue between the industry and the government which has taken place.

The petroleum industry is closely monitored and is subject to strong health, safety and environmental regulations. I do not know of any petroleum industry worldwide which are stronger regulated. I know the industry ask for predictability – and I can guarantee you that we will continue this line!

Since we started oil and gas activities in Norway more than forty years ago, we have successfully had oil, fisheries and shipping using our ocean side by side. Of course, there have been some smaller conflicts, but I think this experience shows that with a careful regulation these important industries can live side by side. 

As you might know, we are in the middle of an election campaign in Norway. If you listen to the different political parties, it seems to be a huge difference in their approach to our most important industry. However, if we look at our history, there has been broad support in the Parliament when important oil decisions have been taken. This has been the case since before Statoil was created as a national oil company in the early 70s and to the same company was partly privatized in the beginning of this century. The last example was the framework for future oil activities in the Norwegian Sea which we agreed in early June. I am a strong believer in the importance of a broad support for the oil and gas policy also going forward.

Stability and predictability in the framework conditions, continuing improvement in recovery in existing fields and access to new area are crucial to find new resources, curb falling production and create values and working places. All this are necessary conditions to maintain petroleum activity. Especially important in the short and medium term is increased oil recovery.  Decisions made today must not be over affected of the uncertainties we for the moment see in the energy markets. 

Let me now turn into a bit more gloomy subject, but a subject also with opportunities. We are facing a global and severe threat – the threat of climate change. At the same time we are also facing a world in need of energy. We must join forces to meet this global challenge. 

Due to strict regulation the Norwegian petroleum industry produce petroleum with low emissions compared to other producers. Still, the petroleum industry is the largest contributor to greenhouse gas emissions in Norway. 

But being the world leader in environmental friendly oil and gas production today, gives us no reason to relax. We need to take additional steps to reduce the carbon footprint of our upstream activities. We have put in place the World’s most stringent economic and administrative policies and measures to secure that the industry will continuous improve its environmental performance. This will also be crucial for the industry’s support in our society, and hence also its political support. This is a piece of the partnership between the common society and the industry – a partnership I earlier have called The Social Contract.

The Goliat development in the far north is an example on how our policies work. The field will be included in the emission trading system and in addition pay a CO2-tax. Together these policies give the companies involved strong incentives to limit the emissions from the field. But we also pushed for technical solutions that reduce emissions offshore in addition. Therefore, the field will use a combination of power supplied from onshore and gas turbines offshore. By this we have achieved the best solution with respect to the environment subject to the local power grid conditions. We have also put in place a process to secure further use on power from onshore during the life span of the field if that is a viable solution at a later stage. With the Goliat development we have introduced a new level for these kinds of developments. New developments must to a greater extent than we so far have seen be connected to the onshore power grid. This is why I want to improve the legislative framework in such way that large power users must to some extent contribute with investments in the central power grid.

The combination of high income and high emissions in the petroleum industry is an interesting paradox. Even though it may seem as a cliché, I believe fossil fuel is a part of the solution as well as a part of the problem. At the same time as the World needs energy, we can with the revenues from fossil fuel production, develop renewable and sustainable energy sources for the future. When the Nobel Prize winner Rajendra Kumar Pachauri talked at the prize award he said: “Norway should not be ashamed of producing the oil and gas the World will need for many years. But you can use your wealth to do more for the climate; increase development in biomass, wind and other renewable.” 

Norway has taken on a responsibility to help a much needed future technology to mature; namely carbon capture and storage. As you know this is a key technology in reducing global emissions. Being the responsible minister for the Norwegian carbon capture and storage projects, I have first-hand knowledge on how complicated these large industrial projects really are. This is not at all a plain sailing. We do not have all the answers. Therefore, we also strongly focus on an international sharing of experiences so we could learn from each other. The construction of the Test center for carbon capture at Mongstad started for around two months ago and I have great expectations for this project. A successful project will be a great step towards a future commercial technology which may also be used to capture CO2 from coal fired power plants. 

Carbon capture and storage is not the only solution needed to reduce greenhouse gas emissions. We also need to increase our focus on renewable and  energy efficiency. Only through a broad focus, will we be able to meet our common climate challenge. 

As you might know, our electricity sector is close to 100 percent hydro power today. That is quite unique, but not a pretext for doing nothing on additional renewable production domestically. Renewable production offshore represents some exciting possibilities for Norway. First, the wind resources offshore are very good. Second, we have offshore competence and an existing offshore industry. Third, offshore wind and hydro power complement each other. An offshore wind industry is today far away but we made the first step towards an offshore wind industry with the submission of a legislative proposal and strategy for offshore wind previously this year. I have a belief that Norway in the long term can supply Europe with clean offshore wind power. The key is to find how the economics of such a solution can work.

Next Tuesday, I am invited to open the world’s first full scale floating windmill located in the North Sea west of Haugesund. The mill isbuild by Hywind, a subsidiary of StatoilHydro and illustrates how oil companies can use their world class petroleum technology in developing renewable technology.

I am confident that we will be successful both when it comes to CCS technology and offshore wind power. The question is more how quick this will be. I am pretty sure if we 150 years from now, look back upon today, we will consider our present energy technology just as pre-historic as we now see Colonal Drakes’ drilling methods.

Thank you for the attention!