Gas from Norway's High North Bringing Energy Security and Opportunities to Europe

Speech at the Atlantic Council 25. february 2016

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Ladies and Gentlemen, thank you for the opportunity to speak here today.

 After having spent four great days in Houston in connection with Ceraweek, it is a pleasure to be in Washington and to visit the Atlantic Council.

 I would like to center on three main topics:

  • The need to develop sustainable energy systems globally
  • Norwegian gas export as a part of the solution
  • The importance of well-functioning markets, including carbon pricing

 Sustainable development

Last year, the countries of the world adopted

- new sustainability goals for 2030
- and agreed on climate change action in Paris.

Consensus on these areas is important and they are closely interrelated.

The world population will continue to grow. Extreme poverty is to be eliminated, social inequalities be levelled out and universal access to energy climate secured.

At the same time, climate change has to be dealt with.

 The Paris Agreement was a significant step forward in the global fight against climate change. At last, we have all major emitters on board.

Sutainable development requires global solutions.

One important task is to develop sustainable energy systems

Three pillars:

  • Environmental pillar – reach climate goals and limit local pollution
  • Economic pillar – support growth and jobs
  • Social pillar – support affordable energy for all

In addition, energy systems must be reliable – they must provide energy security.

We need to be realistic. Renewable energy sources and energy efficiency cannot alone cover global energy demand for many decades ahead.

Today, fossil fuels cover more than 80 percent of world energy demand.

Global energy demand is increasing, and fossil fuels are, and will remain the backbone of world energy supply for decades ahead.

Norwegian oil and gas production is part of the solution, not part of the problem.

Switching from coal to gas

The task facing the global society is huge. Efficient policies are crucial for success. We need a framework that trigger the most cost effective emission reductions. If not, the goals will not be met because they will be too expensive

Norway has therefore for decades argued for establishment of a global price on greenhouse gas emissions. This is long overdue.

We have had this policy in Norway since the early 1990ies. And I can confirm – It works!

The EU cap and trade system is the main instrument in Europe's policies to fight climate change. Norway supports strengthening the ETS so that it to a larger degree can play a role as a technology-neutral, cost-effective driver for low carbon investment.

The use of the price mechanism is superior to all other measures when it comes to efficiently achieving CO2 emission reductions.

It is a dynamic instrument which provides incentives for the private sector to reduce their carbon footprint.

Such a policy tool would for instance trigger one of the quickest and easiest means to reduce emissions fast – replacing coal with gas.

Coal is the biggest driver of climate change. Thus the first step towards a sustainable, global energy system is to reduce the use of coal.

Remember  

  • coal covers 1/3 of global energy use
  • coal use has increased by 74 percent since 1990
  • coal use can easily be replaced by much cleaner gas in power production

By replacing coal with gas, emissions per unit power produced is  reduced by 50 percent.  It is a fast and cost effective way to reduce emissions in coal using countries.

Gas is also an effective back-up fuel for intermittent renewable energy sources such as wind and solar.

I therefore strongly believe gas should play a big role in an efficient climate policy.

In the US, significant reductions in CO2 emissions have already been achieved by replacing coal with gas.

The British government recently decided to scrap coal fired power plants. This is another example of a country wanting to benefit from increased use of gas, to achieve climate and energy goals while developing a cost effective energy system.

The UK story is also proof that a price on carbon is an effective tool. With a carbon price four times higher than the EU ETS, gas now competes well with coal in the UK power sector.

Norway - a gas exporter in the High North

Norway still has large untapped gas resources offshore. A considerable share is estimated to be outside Northern Norway, beyond the Arctic Circle.

Every time I speak to an international audience, I like to clarify some misconceptions around this subject.

First,  the Arctic, or High North, is not a high tension region

Second, there is no race for natural resources in this area.

Third, the High North is diverse. The Norwegian High North is very different from other parts of the Arctic.

For instance, the climate conditions as well as the operational conditions vary substantially throughout the Arctic region.

Norway's Arctic is mostly ice-free. That is why the Norwegian part of the Barents Sea is called the Blue Arctic.  

Due to the Gulf Stream the working conditions as well as the operational challenges in the Norwegian Barents Sea are comparable to those further south on our Continental Shelf.

As illustrated on the map behind me, the ice conditions are not comparable to offshore Alaska, Siberia or Nothern Canada

The Norwegian part of the Arctic is neither a "natural reserve", as some seem to believe. It is a place where people live and work.

Let me make a first point in that regard. I was born in what most people call the Arctic. Seemingly a desolate dark, frozen and remote part of the world.

Actually, it wasn’t until I entered national politics that I started to reflect upon this image of Northern Norway.

Half a million people live in these areas. We have universities, we have roads and we have ice-free harbours all year around.

Economic activity is fundamental to maintain viable communities in the northern regions of Norway -  the petroleum sector as well as fisheries and development of mineral resources are important sectors.

Moreover, in my view there are no conflicts between the different sectors. Co-existence is very much possible.  The petroleum sector and the fisheries exist side by side – and even reinforce each other.   

Also, our High North, the Barents Sea, is not a new area for Norwegian petroleum activity. We have more than 35 years of experience in the region.

Norway already produces petroleum in the region with the LNG plant at Melkøya and two large oil fields under development. Here as elsewhere, our activities are conducted in a safe and environmentally responsible manner.

In fact, last year our gas pipeline system from the Norwegian Sea to Europe was extended beyond the Arctic Circle.

Continued high exploration activity in the Norwegian part of the High North is crucial to make the necessary discoveries to sustain long term production.

We will pursue this by continuing to award more acreage both in mature and in frontier areas.

With the maritime delimitation treaty concluded with Russia in 2011, a new vast area came under undisputed Norwegian jurisdiction.

This year, we are for the first time awarding production licenses in this area. The interest from the industry – including US  companies - is high. The upcoming awards and the exploration that will follow, will be very interesting to follow.

Norway's gas production outlook

All our oil and gas production is offshore. Philips Petroleum did its first find in 1969. Production started in 1971. Since 1990 gas exports have increased significantly, mainly to EU countries. Last year, the value of our gas exports surpassed that of our oil exports.

Natural gas is a vital source of energy for Europe. It is crucial for maintaining electricity security and residential heating during winters and as feedstock for industry. More than 250 million Europeans rely on gas on a daily basis.

Commercial companies engaged at our Shelf, deliver almost a quarter of Europe's gas use; we are the second largest exporter after Russia.

Our gas is exported through an extensive and well-functioning pipeline system.

A grand total of 8300 kilometers of pipelines connecting Norwegian gas resources to Europe. 8300 kilometers… – that is equal to the distance I travelled only days ago, Oslo – Houston. And then some …

Thus, Norway is important to the EU for gas supplies. In the same way, the EU is important to Norway for gas demand. Security of supply and security of demand are closely interrelated. They are two sides of the same coin.

So far, only one third of our estimated gas resources have been produced. Another third are expected to be produced over the next 20 years. The final third will be left for production beyond 2035.

There are exciting times in front of us in terms of exploration, particularly in the High North.

In other words, the Norwegian gas machine will be able to continue to deliver energy to Europe for decades to come.

I am confident on behalf of Norwegian gas resources. We have professional companies from Norway, the US and Europe, a stable regulatory framework, a skilled and efficient bureaucracy, a flexible and reliable gas transport system to Europe, and not least; the resources necessary to compete in a well-functioning market for the long term.

European Energy Markets

Speaking about well-functioning markets, I think a well-functioning integrated European gas market also is the best way to create value from Norwegian gas resources.

An efficient market gives producers at our Shelf the right incentives to maximize the value of their Norwegian assets.

When meeting people here in the US, I have often been asked whether Norway considers US LNG as a threat. The answer to that is a clear no. A competitor yes, but not a threat.

First of all, competition makes everyone better. Companies on the Norwegian continental shelf have on several occasions shown strong ability to adapt to changing market conditions.

Second, diversified supply sources is a prerequisite for a well-functioning market. It is also a precondition for strong security of gas supply in Europe.

Strong security of supply is in turn essential to maintain the attraction of natural gas in the European market. As such, Norway indeed support the EU goal of increased diversification of gas supply sources, especially by strengthening the pipeline infrastructure.

As for Norway, we have a competitive resource base. We can deliver energy security and help EU-countries reduce their emissions by switching from coal to gas.

More than 30 per cent of our untapped gas resources are estimated to be in our Northern region.

In the coming few years companies will have to decide on how to expand gas export capacity from the area.

They have two alternatives. One is to connect a gas pipeline from the Northern region to our existing system further south. This is a cost-efficient solution. The second option is liquiefaction and export of LNG by ship. LNG offers more market flexibility to producers.

If they feel confident about future gas demand from the EU, the likelihood of the pipeline alternative increases. Improved demand security will help to ensure that essential investments in the gas sector will be made.

Norway is ready. EU can benefit from more pipeline gas from our High North if they so choose.

Also, the role of gas in Europe's climate policies should be recognised and expressed more clearly.

Energy security

Energy security is at the heart of the debate on gas in Europe.

In some EU-countries, questions are raised when it comes to the security of Russian gas supplies.

Over the history, gas and gas from Russia – and the Soviet Union before that - has been a reliable source of energy for Europe.

Gas supplies have remained stable through decades – even during the cold war - and there have been no major disruption to supplies.

I think we all should recognize the challenge an exporter faces if your customers does not pay for your products.

New LNG facilities, storage capacity, pipeline inter-connections and reverse stream capacity have been constructed in the last 15 years.

This has improved the functioning of the gas market and has enhanced gas security.

The essence of the gas security issue for Europe is that of those countries that still depend on a single source of supply.

This means policy measures must aim at the challenges of these isolated markets, rather than uniformly apply across Europe. This is also reflected in the EU Commission's gas strategy.

One should remember that energy security is not the same as energy independence. Rather the opposite.

Many countries are heavily dependent on gas import, but at the same time enjoy a high level of energy security, because their supplies are diversified. Gas from new sources will enhance this level of security.

I see gas security in Europe as good. The work must however continue and I support the efforts in EU-countries to further improve the functioning of the market – including establishment of more infrastructure underpinning the efficiency of the market and development of an effective regulatory framework.

These are preconditions for energy security, affordable energy and an effective climate policy in Europe.

Concluding remarks

To sum up.

When Norway as a gas producer looks into the future, we first and foremost hope that we will see a fully integrated and well-functioning European market.

This is a prerequisite not only for efficient utilization of the energy resources, but also for security of supply and a sustainable energy system in Europe.

Gas has an important role to play.

Diversified supply sources, both from the east and the west are very much welcome. This will ensure that gas continues to be an attractive energy source for Europe.

Also European climate policies, if cost effective, should increase the attractiveness of gas.

I am convinced that gas in general and Norwegian gas in particular, will continue to have important roles to play for sustainable and cost effective energy systems.

Thank you for your attention!