International Oil and Gas Business Days

Speech by Deputy Minister of Petroleum and Energy Anita Utseth on Intsok International Oil and Gas Business Days, 28 . August 2007

Ladies and Gentlemen.
I am very happy to be here today and it is a true pleasure to see that the International Oil and Gas Business Days attracts such a wide audience.
I’d like to start off with a few highlights about the Norwegian petroleum sector. Although Norway is a small country in terms of population; in terms of oil production and exports we are ranked as the world’s fifth largest exporter. We are also a major exporter of gas. We supply Europe with about 15 percent of its gas demand. Our resource base remains large: After some thirty years of production undiscovered resources are estimated to be roughly equal to the volumes that have already been produced.

The petroleum sector has contributed significantly to our economic growth and to the Norwegian welfare state. It is the largest industry in Norway and accounts for about one quarter of value creation in the country. Important here is the way that Norwegian society has incorporated the petroleum industry into society. Political consensus has for a long time been that the industry should contribute to welfare for all Norwegians and to the country as a whole. This is one reason why we have maintained national control, developed our resources in a timely manner and developed a resource management policy that emphasises private initiative under government supervision.

Norway also very early established policy on local content and domestic technology development. We promoted the establishment of local industry and promoted technology and knowledge transfer through co-operation with the International Oil Companies. The NCS was, and remains, a testing ground for new technology and collaboration between the industry and R&D institutions. The government will continue to prioritise research and development. Industry, research institutions and government must continue to work together. Intsok is a very important element here as it gives this triangle additional leverage internationally.

Intsok, the Norwegian business partner, has existed since 1997. These ten years have seen great changes in the world. We have seen the integration of China and India into the global economy. The IT-revolution and accompanying productivity improvements have changed the ways that many companies do business. Continued integration of the world’s capital markets has lowered the cost of capital, and increased its accessibility. Looking at the energy markets, the oil price has risen significantly over the last five years. And energy security is today a buzzword.
When Intsok was established in 1997 it was seen to be important that the Norwegian oil and gas industry in the future should become less dependent on the activities on the Norwegian Continental Shelf. The ambition was to strengthen the petroleum cluster’s international competitiveness. Closer co-operation between government and industry was called for. Over the years the Intsok model has been tested, and has proven to be a success.

Over these ten years, the Norwegian oil and gas industry has progressed from focusing mainly on activities on the Norwegian Continental Shelf to being engaged all over the world. Let me point at four characteristics of this highly successful process.

First, the growth in the international sales by the supply and service industry. In 2005, international sales amounted to about 50 billion NOK. In fact, international sales have tripled in ten years. This shows that the Norwegian based industry is highly competitive both at home and abroad.
   
Second, gaining a foothold in overseas markets is not reserved for the large firms only. Today there are many Norwegian small and medium sized companies who have a large degree of their sales abroad.

Third, the industry is more than ever engaged in markets that are distant – geographically and culturally. During the last ten years the UK and North America have been the most important markets – and they still are. There has however been a sharp growth in other markets, such as Latin America, China and West Africa – the latter one account for almost the same size in sales as US and Canada together.
Fourth, many of the companies have established offices abroad. This is important, because gradually Norwegian companies are becoming more familiar with the business practices of other countries. This means that we are building up a knowledge base that can also be transferred to other industries, and perhaps to Norwegian society at large.

So, going international is no longer simply optional for Norwegian companies; it is an integral part of the commercial strategy for most of our oil and gas industry. This development is also reflected in the reasoning behind the merger between Statoil and the oil and gas part of Hydro. Combining the resources and knowledge of the companies will contribute to a financially and technologically sound company which will be a stronger international player than the two companies are separately.

As I see it, our main task is to supply energy in a manner that is reliable and environmentally sustainable. The International Energy Agency estimates that even with our best efforts to restrain energy growth, the world consumption of energy will increase with 38 % by 2030 and fossil fuel will still meet 77 % of the energy demand. At the same time as there is a strong need for energy and large timely investments, the access to resources are growing increasingly challenging. This is due to technical barriers as well as stricter commercial conditions imposed by host countries. And more fundamentally, we are faced with the challenge on environmental impacts. In short, we will need a lot of secure and clean energy.

At least three fundamental challenges for the Norwegian oil and gas industry can be derived from this:

One The environmental challenge - This will have to be addressed both by government and industry. The industry will be affected by stricter requirements and greater public awareness. On the other hand, there will be a need for improved technology – related to both petroleum and renewable sources. 
Here I am optimistic regarding the Norwegian oil and gas industry’s ability to meet this challenge. During the last decades, the industry has met environmental requirements at the Norwegian Continental Shelf – related to both emissions to air and sea and to sustainable co-existence with the environment and other industries. Both environmental-friendly technologies and managerial skills developed in order to deal adequately with the environment create new business opportunities for the industry worldwide.

Second: Globally, National Oil Companies now control around 90 % of oil and gas reserves and 75 % of production. The strengthened position of the NOCs is likely to imply more direct involvement with host country governments.
The traditional relationship between NOCs and IOCs will therefore probably be affected. This means that both oil companies and the supply and service industry might have to find new ways of cooperation .I believe the Norwegian oil and gas cluster are well-equipped in dealing with potential new business alliances. Both our oil companies and suppliers have experience from cooperating closely with other players in the petroleum cluster as well as regulating bodies and various levels of authorities.

Third: More direct involvement with host country governments also gives rise to new issues. Many resource rich countries turn to the oil and gas industry for assistance in converting their natural resources into sustainable growth. Both oil companies and the supply industry frequently meet new local content requirements.
Norway has for decades cooperated with developing countries, lending our own experience in resource management. A fairly recent policy initiative, The Oil for Development (OfD) initiative aims at assisting developing countries with petroleum resources (or potential) in their efforts to manage these resources in a way that generates economic growth and promotes the welfare of the population in general, and a way that is environmentally sustainable.

Let me also add that Intsok has been contributing to OfD programme with industrial expertise. I believe that Norwegian companies can make positive and concrete contributions to resolving many local content and social responsibility issues because they have experience from a close dialogue with the Norwegian government on exactly these matters.

In addition to the Oil for Development program, the Norwegian government will from next month host the international secretariat of the Extractive Industries Transparency Initiative. The purpose of the Initiative is to promote transparency in revenue streams in the extractive industries, thereby reducing the risk of corruption and contributing to good governance and sustainable development

The government’s goal is that the Norwegian petroleum sector will continue to thrive in the future. The government will continue to support the internationalisation of the oil and gas industry.

We will only succeed if we interact with players in other countries and markets. Intsok illustrates that cooperation between different industry segments is possible. It proves that cooperation between oil companies and the supply and service industry is mutually beneficial. And finally – it serves as an encouraging example of the cooperation between the public and private sector, which we so often strive for.

Thank you!