The Role of Oil and Gas in a Low-Carbon World

Ladies and Gentlemen,
I’ve been asked to make some introductory remarks to this mornings’ panel debate on the role of oil and gas in a low-carbon world. This is a topic that I am eager to share my thoughts on. 

The world is increasingly concerned about fossil fuels and the potential environmental effects increased production and use of fossil fuels represent. The companies operating on the Norwegian Continental Shelf have developed and implemented increasingly advanced technologies. Together, we have achieved a good track record as far as the environmental standard is concerned. Our policy has been to let the companies face strict environmental measures, and you should prepare yourself for a future with even more emphasize on environmental aspects and in particular, demands for reduced emissions of greenhouse gases.

Outlook for the NCS
It is this cooperation and interaction between the public and private sector that has made the Norwegian Continental Shelf a success story. In a predictable framework, we have focused on prudent resource management, high standards on health, safety and environment and a fair governmental take. With this focus, and by stimulating continuous technology development, we have built Norway’s largest industry. The sector today produces a quarter of our gross domestic product, a third of the governmental income and half of our export earnings. 

In a low-carbon world oil and gas production is necessary to meet the world’s energy needs, and Norway is determined to deliver in this respect. So – what does the future look like for Norway?

Our oil production has gradually declined over the last decade, and is now considerably lower than in the peak year 2001. This is a natural consequence of our large fields maturing. A huge effort is required to halt the decline rate. Development of new, smaller fields has only to a certain extent been able to neutralize the production decline from existing fields. 

The decreasing oil production is a concern to me. A focus area is to increase oil recovery from existing fields. With today’s plans and existing technology, approximately 50 per cent of the in-place oil will be recovered from the fields on the NCS. An increase in the recovery rate has a large upside. A 1 per cent increase in recoverable petroleum will have a gross value of about 45 billion US dollars.

Increased recovery is an area where technology is essential to progress, and where I am dependent on you – the commercial companies – to come up with good solutions. We will set the framework conditions, but we will not achieve our goals unless you are willing to spend money and brains on improving technology.

Gas production is a different story. Our natural gas production has doubled since year 2000. The last couple of years, fields like Ormen Lange and Snøhvit have increased our gas export even further. We have established an extensive and robust gas infrastructure that will serve us faithfully for many years to come.

At the same time the situation in the gas market is demanding. The global economic turmoil has reduced demand. Supply has increased because of unconventional gas production in North-America and large volumes of LNG are flooding the market. Together, these factors will have an effect on the gas market going forward. I am confident that Norwegian producers will act responsible in the challenging market environment we now are into.

If we look a little further into the future, I am optimistic on behalf of natural gas. This is also reflected in how we see our future production. We expect the increases in the gas production to continue over the next decade. As we see it now, production in 2020 will be in the 110 to 130 bcm range. As you all know, gas has advantages to coal with regard to carbon emissions, and gas-fired power stations are adequate solutions as back-up for renewable power production. Increased gas production is therefore necessary in the transition to a low-carbon world.

Our long-term production level depends on what new discoveries we make. When it comes to acreage, we will continue to offer attractive exploration opportunities for the industry. Our annual Award in Predefined Areas will continue in mature areas. In more frontier areas the numbered concession rounds will come regularly. 

In addition to the area already open for petroleum activity, we have decided to start an opening process in the Jan Mayen-area. Jan Mayen is a small, volcanic island 600 kilometers northeast of Iceland. I will decide on how this process will evolve over the next couple of months. As you might know, we do have an intense debate on how to manage the areas outside Lofoten and Vesterålen. The Government has put in place a process that will bring more knowledge to the table. This knowledge will be used when we revise our integrated management plan for these areas within the year. We will then, amongst other things, decide on the way forward when it comes to petroleum activities. 

Technology development on the NCS
What we have achieved on the Norwegian Continental Shelf is a gigantic technology development with steep learning curves for the entire Norwegian industry. Not only for the oil and gas companies, but there are hundreds of spin-off companies that are contributing to the continuous development of technology, to improve both resource management and environmental solutions. Where the Swedes have their Volvo and Ericsson, and the Danes have their Louis Poulson and Arne Jakobsen, we have PGS, DeepWell, Grenland Group, Aker Solutions and many other companies working for the oil and gas companies all over the world. This is our industrial adventure. These companies have played an important role in the development of better environmental standards in the industry, and I am confident that they will continue pushing technology limits. That is inevitable for oil and gas to play a role in energy mix of the low-carbon world.

Climate, energy security and poverty reduction
To achieve this low-carbon world Norway is convinced that we need a global legally binding framework and that the rich countries with financial flexibility need to take responsibility. The Copenhagen Accord is not legally binding. Last week Norway notified the Climate Change Secretariat that we associate ourselves with the Copenhagen Accord. If we are to reduce global emissions by 80 per cent in 2050, the world is dependent on all countries’ commitment to reduce emissions, including the large developing countries. 

The climate, energy and poverty challenges are integrated challenges and the solutions need to be coordinated. I am convinced that the single most important tool to achieve this is a global carbon price. However, I cannot emphasize the challenges in front of us strongly enough. It will not be easy to reach the low-carbon world. We are dependent on companies like yours to manage the emission reduction targets the authorities are setting. In particular in relation to technology developments and commercializing the energy solutions of the future commercial companies need to contribute. A private-public partnership is needed.

Norwegian contribution
In addition to a carbon price, governments must also take responsibility to mature the energy technology of the low-carbon future. 

I am proud that Norway has taken a global lead in developing CCS-technology. This is done in cooperation with companies like Statoil and Shell. The Norwegian state is by far the biggest contributor financially to the world-class Technology Centre Mongstad, which is now under construction. This is a good example of how private companies and public authorities can work together to solve the challenges ahead of us. 

We are also incentivizing investments in renewable energy generally – and the renewable energy technology of the future specially. Last year I attended the official openings of two prototypes for renewable energy production in Norway. They are examples of innovative thinking from energy companies, using their competence to develop renewable energy solutions.

1.  The world’s first full-scale floating offshore wind turbine was set on stream. Statoil’s Hywind project, located about 10 kilometers off the Norwegian west coast, will give us important knowledge on how wind and waves affect the structure, help us identify technology gaps and learn about operational concepts.

2.  The world’s first osmotic power plant was opened some 60 kilometers south from where we are now. It is owned by Statkraft and is intended primarily for testing and development purposes. The aim is to be capable of setting up a commercial plant within a few years’ time. 

These are good examples of a commitment from Norwegian authorities to support the maturing of exciting energy technology for the future. The amounts of energy produced by these two projects are negligible, but to me it is important to support commercialization of ideas that can contribute in the long term perspective. 

In addition to this, Norway contributes by financing research both in the EU and domestically. In Norway we have developed two national research strategies Energy21 and OG21. Both strategies focuses, among other things, on how the energy and petroleum research can contribute towards a low-carbon energy future.

Technology developments made in “public-private partnership”
Another example of how regulation drives technology development is related to flaring on the Norwegian Continental Shelf. When we started oil production in Norway back in the 70-ies every field development needed a solution for gas evacuation. It was seen as a waste of resources to burn unnecessary natural gas. As a result, we have managed to keep flaring at exceptional low levels. 

The next step-change in flaring was connected to the introduction of the CO2-tax back in 1992. The response from the industry was to develop technology which made it possible to end continuously flaring of gas. This is yet another example of how the interaction between authorities and companies gives results. Norway has always been in the forefront on environmental technology. This is because you, the industry, have managed the challenges we, in the government, have given you. I intend to keep Norway in the forefront on environmental technology, and I hope – and am dependent on - you being in with me on this.

A close private-public partnership will be necessary when we are going to solve the multiple challenges of climate change, energy security and poverty reduction.

Conclusion
Norway is determined to remain an attractive area for oil and gas companies, with a stable and predictable framework. I can understand that some of the regulation imposed on the Norwegian Continental Shelf has seemed demanding. I believe that looking back, we can be satisfied with the results we have achieved together, both when it comes to industrial solutions and environmental technology. I hope that Norway – with your expertise – still will be in the forefront on environmental technology for the future as well. We are not afraid of trying out new technologies, and my door will always be open for companies with great ideas!