Speech held at gas conference

Excellencies, ladies and gentlemen,

Thank you for inviting me to speak at this conference on natural gas at Wilton Park. It is very interesting and stimulating to be here and meet people with so much knowledge about the gas industry.

Today I will talk about the prospects for gas as we see it from our side in Norway. We are a major exporter of natural gas, and market developments, especially on the European gas scene impact the gas activities in Norway.

The outlook for the global gas industry seems bright. According to IEA, gas will be the fastest growing of the fossil fuels, and in 25 years time global demand could reach 4000 BCM annually, 50 % more than today. IEA has talked about a golden age for gas.

The qualities of natural gas an energy source could justify the optimism on behalf of gas:  

• Gas is a clean fuel that offers significant emission reduction potential, particularly in power generation
• Gas is an efficient and flexible complement to renewable energy
• Gas prices are competitive and affordable in most markets
• Gas resources – conventional and non-conventional - are increasingly abundant and will last for 250 years with current consumption level. 

In other words: Gas meets all the requirements of a fuel for the future in an energy hungry world.

However, for Norway, Europe is the destination for most of our gas export, and in our view the prospects for gas in Europe are somewhat more uncertain than in other parts of the world.

Profound changes in European energy policies are under way. The 20-20-20 targets have been adopted and are being translated into concrete measures in the member countries. 

EU countries seem to go in different directions.

On the nuclear front, some countries are expanding capacity while others scale back or abandon nuclear energy all together.

Europe still uses more coal than gas in electricity generation. This despite that Europe could come a long way in achieving the 20 % reduction target by switching from coal to gas.

Strong investment in renewable energy and energy efficiency seem to be a common denominator, but the euro debt crisis now raises questions about how ambitious countries can afford to be in energy and climate policy.

As I view it, there are some uncertainties about the outcome of European energy policy regarding gas use. We don’t take it for granted that the demand for gas in Europe will continue to grow in the same way as in the past.

Debates in the media and among European policy makers have to a large extent been centered on the issue of security of gas supply. European gas import dependency is on an increasing trend. And the disruption of gas supplies through Ukraine in 2009 is still fresh in memory.

But are concern for supply security really based on facts and realities?

I think it is clear that supply security in Europe - short and long term security - has improved over the past years. One can point to the increased capacity to import LNG into Europe, new pipelines and interconnections and increased gas storage capacity. Also, resource availability has improved with the unconventional gas revolution.

Furthermore, the EU regulation on security of gas supply, adopted in 2010, is intended to improve the robustness of the gas infrastructure and the preparedness and crisis response at national and regional level.

While the concerns for gas security are understandable, we should not allow fears and one single event overshadow the facts and the qualities of gas as an energy source.

As a producer country, Norway takes the concern in full earnest. Gas security is also in producers’ interest as it fosters increased confidence in gas. Norway will be a stable and secure supplier of gas to Europe for many years to come and hence an important contributor to Europe’s gas security.

Safe, secure, sustainable and affordable energy are the basic goals of EU energy policy.  The Roadmap 2050 from the EU Commission examines ways these targets can be met. The roadmap seems to recognize that natural gas must play a crucial role in meeting Europe’s carbon reduction goals and security of supply needs, and will also be an essential complement to renewable energy.

We think that the roadmap can be seen as a shift towards a more favorable attitude towards gas. However, how the roadmap will impact gas politics remains to be seen.

In the long term, the roadmap stresses the importance of the CCS technology. This is a view the Norwegian Government shares.

Norway is strongly committed to develop and disseminate technology for carbon capture and storage.

In doing so we are building on the experiences from Sleipner and Snøhvit gas fields, where CO2 from the well stream has been captured and stored in the ground for approximately 15 years. A milestone in our CCS efforts will be the opening of Technology Centre Mongstad on the west coast later this year, designed to capture 100,000 tonnes of CO2 per year.  This makes it the largest CO2-demonstration facility in the world. A full scale facility is being planned, with an investment decision due in 2016.

It could also be mentioned that our petroleum directorate last year prepared an atlas over suitable formations for CO2 storage on NCS.

However, carbon capture technologies are still immature. We need to reduce costs – and risks associated with these technologies.

Internationally it seems that CCS is losing support.  This is worrisome. CCS, if and when commercialized, has the potential to make use of gas sustainable.

In the UK, developments have, as we see it, been encouraging lately. UK is a very important and attractive market for Norway’s gas producers and a positive approach towards natural gas is most welcome. The Statoil-Centrica gas sales agreement was a very good piece of news, which underlines the strength and depth of the partnership Norway and UK enjoys in the energy field.

Norway is, as you are familiar with, one of Europe’s major suppliers of gas and only Russia exports more gas than we. This is a position we are keen to maintain. I’m certain we have the resources, the infrastructure and the skills and technology to remain a significant gas producer for many decades yet.

How is the oil and gas business going in Norway these days? The answer is excellent, times are very good indeed. 

Oil companies are investing more than ever, demand for new acreage is strong and the number of companies searching for oil and gas has never been higher. High gas and especially oil prices support this high level of activity.

And last but not the least, exploration results have been fantastic. In the mature North Sea, the Aldous/Avaldsnes was possibly the largest discovery in the world last year and one of the largest fields ever in Norway.

In the frontier Barents Sea the discoveries of the Skrugard and Havis oil fields is something of a breakthrough which open up a new oil province in this region.

These discoveries are mainly oil though. The amount of gas discovered has been somewhat disappointing. Nevertheless, the potential for finding new gas resources on the NCS is great. In the Barents Sea, despite the recent oil discoveries, we still expect gas will make up the major part of the remaining resources.

The agreement on the maritime boundary between Norway and Russia in the Barents Sea and the Arctic Ocean that was concluded last year, opens up large new areas for possible petroleum activities. Seismic activities are already taking place.

Gas production in Norway last year amounted to some 100 BCM. A production between 105 and 130 BCM per year by 2020 is our best estimate today.

The bulk of future gas production will continue to be exported. Current domestic use of gas is very modest, some 2 BCM annually. And although the government generally is in favor of increased use of gas in Norway, the small size of the Norwegian population and economy place a limitation on the amount of gas that can be used for domestic purposes.

In the long run – later than 2020 – new infrastructure needs to be built to avert a decline in production.   

There exist concrete plans to extend the infrastructure in the North Sea further to the north, in the Norwegian Sea and the Barents Sea.

In the Norwegian Sea a 500 km rich gas pipeline is being planned with a capacity of around 20 BCM annually.  The pipeline will start at the Luva field with landfall at Nyhamna processing plant.  From there dry gas will be shipped into the Langeled system. If a decision to go forward with the project is taken later this year, what we expect, the pipeline should be in operation in 4-5 years time.

This new infrastructure will stimulate exploration activity and enable us to produce oil and gas from fields currently without gas evacuation. 

For the gas in the Barents Sea two transportation alternatives exists: either ship transport via extension of the existing LNG facility or a new pipeline to be connected with the existing Gassled system in the south.

If pipeline transport is chosen, the gas will end up in the European market. The LNG option offers increased flexibility to other markets. A decision will most likely be taken later this year and will impact resource development in the Artic for several decades.   

Which alternative will be chosen depends on several factors, including the future position of gas in European energy market.  

Gas production is a long term activity that requires large upfront investments. For each of the alternative infrastructure projects in the Barents Sea we are talking about a capital cost of some 3 billion euros. Gas producers need clear signals from policy makers on the role of gas in energy mix as well as a coherent and predictable regulatory framework, to ensure that necessary long term investments are undertaken.

 In conclusion,

• Gas is a clean fossil fuel and will be crucial in a future low carbon world
• Global demand will increase
• Gas is and will be available
• New pipelines and new LNG facilities will strengthen security of supply globally
• EU regulations adds to this in Europe
• Norway will still be a major producer
• However we need clear signals from Europe to make the right investment decisions.

I thank you for your attention!