Subsea Technology – Norwegian and International Perspectives

Ladies and gentlemen,

I am very happy to be here in Bergen and to talk to such a large and distinguished audience on a topic of importance to both Norway and the region.

I’d like to start by saying a few words on the general outlook.

The last three years have been a reminder that it is difficult to predict the future and that risk and uncertainty are integral parts of the industry’s business environment. It is now more than two years since the financial turbulence started, and there is still great macro uncertainty.

Norway has been less affected than many other countries. One reason is the continued high activity level in the Norwegian Petroleum Sector, where we continue to see new projects and investments taking place.
 
The years running up to the oil price collapse in the winter of 2008/2009 were extraordinary for the energy and service markets. The cost increases in that period will to some extent have to be reversed if marginal projects are to be realized.

The Deepwater Horizon accident is also a very serious and important reminder of the risks associated with petroleum activities.  11 casualties and large economic, environmental and reputational costs were a stark reminder of the importance and value of good HSE regulation and practice to minimize risks. HSE is an integral part of Norwegian petroleum policy. Safety standards are high. All involved parties have their say. In Norway, I believe that HSE is key to maintaining public acceptance.

The authorities and the industry must now learn from the incident to ensure that we develop oil and gas resources safely and sustainably. Work is currently being undertaken by the risk management group under the integrated management plan for the Barents Sea – Lofoten area to assess the relevance of the Macondo incident for the various programs under the plan. The group plans to deliver its findings by the 15th of October.

The oil and gas industry in Norway remains the backbone of our economy.  There are still large remaining petroleum resources on the Norwegian Continental Shelf. After 40 years of production, about sixty percent of the expected resources remains to be produced.

The world needs more energy to support the economic growth required to improve living conditions for people around the world.
According to the IEA, fossil fuels are expected to remain the dominant source of energy and account for a significant share of the world’s primary energy-mix in 2030.
At the same time there are increasing concerns about the climate effects increased production and use of fossil fuels represent.  New policies must be introduced in order to address the climate challenge and to reach the 2 degree target.

The policy of a predictable licensing policy to sustain the level of activity on the Norwegian continental shelf will continue. The 21st Licensing Round will contribute to sustain exploration activities in frontier parts of the Norwegian continental shelf, and provide basis for new petroleum activities and value creation.

The majority of available blocks in the 21st licensing round are located in the Barents Sea. The Barents Sea is the least explored petroleum province on the Norwegian Continental Shelf. The deadline for submission of applications 3 November and we plan awards of new production licences during spring 2011.

Last week’s signing in Murmansk of 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.

The agreement is in full accordance with the law of the sea and international rules and principles for maritime delimitation. Under the agreement, the disputed area of 175 000 square kilometres has been divided into two parts of approximately the same size.  We will add an area twice as large as Finnmark.

This will form the basis for determining the Norwegian and Russian zones and our continental shelves in the Barents Sea and the Arctic Ocean. It will ensure clarity and stability with regard to jurisdiction, law enforcement and the management of resources.

This is very good news for future petroleum activities in Norway. New technologies for clean production will be integral to the development of new resources in this area.

Awards in Preannounced Areas
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 is still an attractive place to invest for the international oil industry.

Efficient and timely exploration of our acreage is a priority for the Government.  It is important to ensure optimal resource management. It is necessary to maintain the level of activity on the Norwegian Continental Shelf and the demand for goods and services to this sector.

It was therefore very positive that by the recent deadline for applications in the Awards in Predefined Areas 2010, we received applications from 41 companies. This shows that mature areas on the Norwegian shelf still attract interest. Access to prospective acreage together with interest from companies is key to sustain the level of activity on the Norwegian continental shelf.
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. A new report on IOR commissioned by the Minister was presented today.

Subsea technology
Now, to the topic of today. I believe that subsea technology is an important part of the solution to many of the questions I have touched on so far. Subsea technology will be important as standardized technology in mature areas in order to cut costs and for time critical projects. In frontier areas such as in the Barents Sea cutting edge subsea technology will be important for tomorrow’s development soultions. Already we have seen the importance of such technology in Norway in the “subsea to beach” projects Ormen Lange and Snøhvit. The commission for increased oil recovery which presented its report today also emphasized the importance that increasing the productivity from subsea wells can have for future IOR.  

Norwegian subsea competence is an important competitive advantage internationally and should be so also in the future. In a recent report prepared by Rystad Energy for INTSOK it was projected that the global subsea market may reach USD 50 billion in 2014, from USD 21 billion in 2009. Growth follows expected increase in deepwater areas like Australia, Brazil, US Gulf of Mexico, and West Africa.

I think that there are several reasons why subsea technology has grown to be such such an important industrial cluster in Norway. One driver was the demand for solutions to the challenges that nature and geology presented: The need to develop smaller satellite fields in water depths often deeper than what divers could undertake. This drove technology development toward integrated solutions.  Also the presence of and the competition between the three Norwegian operators, Statoil, Hydro and Saga, was important. Three of the world’s largest subsea suppliers have their main offices in Norway. Also, Norway focused a lot of effort on long term research and development in areas such as multiphase flow. These efforts increased substantially the distance subsea wells could be located from the host platform.

I think that is interesting to note the process by which the Norwegian industry has interacted with the major international oil companies. The international oil companies present on NCS have drawn upon Norwegian expertise in their worldwide operations, but also giving Norwegian suppliers a foothold in important overseas markets. New challenges in petroleum provinces overseas have then enabled Norwegian subsea contractors to come up with innovative solutions that are of great benefit on the NCS.

This is just one example of how the Norwegian supply and services industry is integrated in the global market for goods and services. In fact, estimates indicate that the Norwegian service and supply industry has a market share of 12-13 % in the global offshore market, the Norwegian Continental Shelf (NCS) included.

With regard to subsea production systems, Norwegian suppliers have gained global market shares in the range of 60-70%, and companies such as FMC Technologies, Aker Solutions and GE are truly global payers within this segment, and constitute the so-called “subsea-valley”.

In terms of challenges and opportunities, I think the subsea industry in general has reason to be optimistic. For Norway, we do not foresee many major subsea developments in the magnitude of Ormen Lange and Snøhvit in the near term. However, for smaller discoveries subsea tie-backs tend to be the most viable development concept.  As the NCS is maturing we expect an increasing number of such discoveries. Both system suppliers and subsea entrepreneurs will benefit from this. Besides, we need to maintain and upgrade a large number of existing subsea wells. This will entail a multitude of contract opportunities.

Through difficult times before, the Norwegian supplier industry has proven robust and adaptive. With the prospects of a continued high activity level on the NCS, and international markets picking up, this is promising for the industry.

Bergen and Subsea
Finally I would like to highlight the importance of this region for Norway as a petroleum nation, both because of the E&P activities offshore but not least because of the industrial competence present here.

The Bergen area serves as a good example of the way that Norway has succeeded in establishing close collaboration between industry, R&D and authorities. It constitutes a world leading cluster in subsea technology. Since the early eighties the subsea industry in the Bergen area, Norway, has grown to become one of the world’s most complete environments for subsea technology. The regional cluster consists of some hundred companies and organizations with subsea as their only or main business area.

The cluster’s world leading position and the established interaction between participants formed the basis for the Norwegian government’s appointing of the cluster as a Norwegian Centre of Expertise for subsea technology, in 2006. More than 80 companies and organizations form the body of NCE Subsea.

Ladies and Gentlemen, I thank you for your attention, and I look forward to an interesting and rewarding conference, in a vibrant subsea environment here in Bergen.