Norwegian oil and gas - prudent resource management

Dear audience,

I have spent much of my time over the last year on applying facts about energy to broaden perspectives on energy realities in the public debate.

When it comes to energy, public debate discusses society and developments as we would like them to be, not necessarily as things are.

This, of course, disturbs the picture – and makes it more difficult to do the rights things.

”Prosperity or clean air”

Now, back to the energy paradoxes. I would like to spend most of my time this morning on discussing a few of them.  

Some argue we need to choose between “prosperity or clean air”.

The underlying facts are basic and clear: The world needs more energy to create growth, reduce poverty and to improve quality of life for hundreds of millions of people. Improved energy efficiency is crucial – but cannot solve the challenge alone.

The International Energy Agency tells us that oil and gas will be an important part of the energy mix for decades to come. We know that significant new capacity must be brought on-stream every year, just to keep global production of oil and gas stable at its present level.

At the same time, we need to curb global warming. Our ultimate goal is to contribute to curtailing the human-induced temperature increase to a maximum of two degrees, as compared with the pre-industrial level. This is a huge and complex task. This requires comprehensive change in the global energy system over time.

Meeting the energy demand, while at the same time cutting emissions, is a question of morality. We cannot choose between the two. As global citizens we need to achieve both – and at the same time.

What are the implications for Norwegian oil and gas policy? The implications for sound resource management? Let me point at three important implications:

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First, we are well aware of our responsibility to contribute to the global security of energy supply. My message is clear: Norway is, and will continue to be, a long term stable provider of oil and gas.

Oil and gas from the Norwegian Continental Shelf have, for decades, contributed to meet the world’s energy needs. Why is this important? Well functioning energy markets are crucial to world development. And it is always those who have the least who pay the most when things do not work. Norway must do its part by providing stable production.

Second, we must produce oil and gas as efficiently and cleanly as possible.

Norway has always combined strict regulations on safety and the environment with principles of sound resource management. Let me give you one example:

Since we started oil production in Norway back in the 1970s, flaring associated with natural gas has been regarded as a waste of resources. If this simple principle had been applied in the rest of the world, up to 400 million tonnes of greenhouse gas emissions could have been avoided every year.

Norway introduced a CO₂-tax as early as 1991. Our experience is that putting a pricetag on carbon emissions has reduced these emissions through the use of more efficient technology and through more efficient developments and operations.

As a result, we have one of the world’s lowest emissions per unit of oil produced. That is good – but we still have to push efficiency going forward. Some argue and are afraid regulations like this reduces competitiveness. On the contrary is my message. It makes us move forward early!

Third, we will continue to export natural gas to Europe.

Natural gas that replaces coal is an efficient way to bring down greenhouse gas emissions. By replacing existing coal by natural gas in power production, up to 70 per cent less CO₂ will be emitted. Indeed, substituting gas for coal would bring us close to achieving the European goal of a 20 per cent reduction of greenhouse gas emissions by 2020.

Gas will also have a long-term role to play in a low-emission future. The World Energy Outlook states that the use of natural gas will increase in all scenarios – also when achieving the 2-degree target. Natural gas is a fuel for generations to come! Europe must stop talking about gas as a transitional source. It is an end source.

There is a considerable remaining resource potential on the Norwegian Continental Shelf. Only 28 per cent of the total recoverable gas resources have been produced. Norway has the resources to be a significant natural gas exporter for a very long time to come.

Lately there has been a debate in Norway on what I will call another energy paradox, namely that some argue we have to choose between activities at the Shelf or in other industries. Again, I do not accept that this is an either/or.

I am pleased to see a high level of exploration and investment in our oil and gas sector. High activity in the whole value chain today is a prerequisite for a long term stable value creation from the Norwegian petroleum resources – to keep production levels going forward, to have a sound resource management for the long term.

Almost all investment at the shelf over the next three years relates to existing fields, development of time-critical resources and to finalize ongoing developments. Stopping any of these time critical and highly profitable investments in order to help struggling  companies in other sectors from failure is a bad idea. The activity level in the petroleum sector is not a usable tool to regulate the activity in our economy in the short term.

It is also worth remembering that the oil and gas industry is global. Our oil and gas suppliers need to be highly competitive, as they operate in a global market. Many of them also deliver their services and products outside oil and gas. They compete on knowledge, quality and productivity. This is an important part of the Norwegian success story.

All our companies, competing in different sectors, must be so productive that they can manage our cost level. This will be a continuous challenge for all of us.

However, it  does not mean that avoiding unnecessary costs is unimportant. On the contrary, I would say it makes it even more important to control other costs.

If we do not succeed in controlling costs, we will not be able to recover the full value potential of our resources. This is necessary to create income for the State, income to be used to pay for education, police, healthcare, infrastructure and pensions for all Norwegians.

The petroleum industry needs to have a continuous focus on the cost level. A high cost level has a direct effect on the value cration, on our sound resource management. It is the responsibility of all stakeholders involved in the sector to work actively to keep cost at an acceptable level.

Drilling is perhaps the single most critical factor for future production. From exploration, to development of fields, to increase recovery rate from existing fields. Drilling is also the single most significant cost component.

Controlling costs must, of course, be done in a safe manner. I see safe operations as an important aspect of sound resource management. All involved need to manage risks effectively and work hard to avoid accidents. It is part of this industry’s licence to operate.

The Norwegian Shelf shall remain world leading in safe oil and gas operations.

Comprehensive systems are  developed and implemented in order to achieve this. Regulation of an industry is complex and mulitifaceted. We need to assess the regulations to further improve. We need to understand the benefits and the costs to ensure efficient regulation.

I am a strong believer in the basic principle of the Norwegian model, that wages and benefits are, and should be, negotiated between the employees and the employers. And that, in policy making, authorities work closely with employees, industry and other interested stakeholders. This approach helps us achieve efficient, workable solutions.

Last year I appointed an expert group to analyse, and identify obstacles, that limit the rig and drilling capacity at our Shelf. The group was also asked to propose measures to improve movement of rigs into the Shelf and actions that should be taken to reduce costs connected to the use of rigs in Norway.

In their report, the experts documented that high costs related to drilling could hinder us from realising the full value potential of our oil and gas resources.

In its report, the group highlighted two factors as the most important ones for the access of rigs and as the reasons behind the extra high drilling costs in Norway:

• Difference in regulations between the North Sea countries
• Higher operational costs

To address these issues, they recommended actions.

In order to fascilitate a constructive debate on the issue, I have invited all interested stakeholders to take part in a consultations process on the report. Based on this input a decision on follow-up will be taken.

High north – “economic activity or environment”

Another “paradox” I would like to address relates to the High North. Some seem to argue that we must choose between Economic Activity or the Environment in this part of the world.

Let me use this paradox to also exemplify our strategy for long-term oil and gas production.

The first exploration well in the Arctic was drilled almost one hundred years ago. More than 400 discoveries have been made over the years. Oil and gas activities in areas with harsh environments are not a new phenomenon.

In Norway, we started oil and gas drilling in the Barents Sea in 1980. Environmental concerns are taken seriously in this ice-free area – as on other parts of our Shelf.

Our oil and gas sector was developed in cooperation with international companies with broad experience – with great benefit for all parties. They shared expertise and knowledge, developing, and strongly contributing to build oil and gas expertise in Norway and a strong national oil industry. This partnership now stretches into new positive developments in the High North.

Later today, Ryan Lance from ConocoPhillips and Cathy Pepper from Exxon Mobil will talk about their experiences in the Arctic.

I am confident that we can solve the challenges together.

To conclude. The question is not economic activity or protection of the environment – the challenge is to develop and implement technical and operational solutions that are needed to take care of relevant environmental concerns. It is not a question of if we can do both – but how. 

Strategy for long-term oil and gas production

The present optimism regarding our High North is based on the actual discoveries, development projects and exploration activities. Fifteen years ago, this area seemed to face a bleak future.

Today, the situation is different. This area can now be used to illustrate all parts of the Norwegian long-term oil and gas production strategy.

Our strategy, presented last year, stresses that efforts must be made on four areas in parallel:

Increase recovery from fields in production
Develop profitable discoveries
Continue active and thorough exploration in all areas open for petroleum activities
Open new acreage for petroleum activities

What does that entail in real actions for the High North?

To maximize value from the Snøhvit gas field, which started production in 2007;
To finalize the development of the Goliat oil field; *
To develop Skrugard/Havis – two recent, adjacent oil discoveries of oil;
To mature other potential commercial discoveries;
To continue to explore in licensed areas – many exploration wells are planned for the next three years;
Continue to include new areas in licensing rounds. We have two ongoing rounds in the area, the 22^nd round and APA2012. We have already seen that there is great industry interest in more acreage in our High North;

Finalise the opening processes in the Barents Sea and around Jan Mayen. My plan is to submit to Parliament a proposal on opening of these areas for petroleum activities in the spring of 2013;

Complete the process of collection of knowledge in the North-eastern Norwegian Sea

(Geological mapping north in the Barents Sea)

These perspectives create additional promising opportunities for Norway – not least in the form of positive economic and social effects in the North. We have seen the enormous economic effects in the Hammerfest area generated by the development offshore. I am sure additional ripple effects will materialise in our High North as we continue to implement our strategy.

Today, Arctic Norway is established as a full-fledged petroleum province, with activity all through the value chain. I believe that a significant part of our energy future will be in the Arctic. I therefore invite you, the industry, to take part in writing new chapters in the Norwegian success story.

Will this ever end, some might ask. There is not more than 18 months since many were talking about sunset, and what to do after. I think the Norwegian adventure has just started. The resources are there, we just need the knowledge to find them – like Johan Sverdrup.

Conclusion

In conclusion, my message is clear: The world needs energy, and Norway will continue to be a long-term and stable provider of energy.

This is necessary to create growth, to reduce poverty and to improve quality of life for hundreds of millions of people.

At the same time, we must curb global warming. These are the main challenges the world faces today, and they can – and must – be solved together. There are no easy solutions to these challenges. We need to have a multi-track approach, and we need to do several things in parallel.

This is why we also work hard to adapt the Norwegian society in an increasingly more renewable direction, with more production of renewable energy and a better electricity grid. This is why we work hard on technology development, and why we spend so much money, time and energy on our CCS project at Mongsad. Developing CCS technology, renewable energy and improving energy efficiency are absolutely necessary to break the chain between economic development and carbon footprint.

The 40 years of development of cutting edge technology at the Norwegian Continental Shelf proves that long term research and innovation are capable to change the realities. This experience gives me a good foothold for being a technology optimist.

It is not a question of oil and gas or renewable energy. We need to do both.

It is therefore quite timely that ONS has chosen “Confronting Energy Paradoxes” as the theme for this year’s conference. We do indeed see some assumed contradictions that can be challenged and solved.

Thank you for your attention!