Speech/statement | Date: 23/03/2007
Speech given by Odd Roger Enoksen, Minister of Petroleum and Energy at Mexico - Norway meeting on cooperation in the energy sector - 22 March 2007
In this presentation I will briefly present the Norwegian oil and gas sector as well as the main characteristics of our electricity market. I will also touch upon the planned merger between Hydro and Statoil.
Macroeconomic indicators for the petroleum sector 2006
The petroleum sector has contributed significantly to our economic growth and to the Norwegian welfare state, ever since our petroleum production started in the early seventies. Today, the petroleum industry is the largest industry in Norway: In 2006, the sector accounted for 25% of the value creation in the country (GDP)
Through direct and indirect taxes and direct ownership, the state has ensured a high proportion of the values created from the petroleum activities. In 2006, the state’s net cash flow from the petroleum sector amounted to approximately 36 percent of our total revenues. The investments amounted to 25 percent of the country’s total real investments.
Petroleum exports accounted for over 50% of Norway’s total exports. Exports of petroleum related goods and services are not included in this figure.
The Norwegian oil and gas resources are part of our national wealth. Thus, the whole population should benefit from the depletion of these resources. This implies that our petroleum revenues must be managed with the view of improving the welfare of present and future citizens of Norway. A Fund called the Pension Fund has been established to this effect.
The largest Oil producers and exporters in 2006
Norway is at present the 5th largest exporter of oil and number 10 as a producer. We produced nearly 2.8 mill b/d in 2006. In 2007 we expect that the production will fall to 2.6 mill b/d.
Norway has, like Mexico, since the start of the producer-consumer dialogue in the early 90’ies been an active supporter and participant. Norway has had a special situation with it’s position as an oil exporter combined with it’s membership in OECD and IEA (with a special agreement). On this background it has been very important for the Norwegian authorities to support activities that can contribute to better understanding and cooperation between oil producers and importers.
As large oil exporters, Norway and Mexico have had a close dialogue on oil market issues over the years. We have cooperated in limiting production of oil both in the late 80ies, 1998 and in 2002. We will return to this issue in later presentations.
The largest Gas Producers and Exporters in 2005
The production of gas of around 85 bcm (3 TCF) in 2005 almost equals the export as inland use of gas is limited. Hydro electricity has almost a 100% share when it comes to heating and cooking. Hence, the Norwegian demand for gas is very limited. Norway is the 7th largest producer of gas and no. 3 as an exporter.
Norway supplies more than 15% of the European market and is the second largest exporter of gas to EU after Russia.
The gas market in EU/EEA, Norway is part of the EU’s Internal Energy market through the EEA agreement, has gone through significant changes during the last decade.
The policy is to establish a genuine gas market and regulate gas transport/transmission which are natural monopolies. Norway has been very active in this process and has reorganized our gas sales structure as part of this process.
Total petroleum production
This is how we see future production of oil and gas. Norway is expected to reach a plateau in its production of oil and gas this year. In the next decade production of petroleum peaks before it start declining, as we see it today.
Looking at gas alone it is estimated that the production will increase from 85 (3 TCF) bcm in 2005 to 130 bcm (4,6 tcf) during the next decade. This development compensate for the decline in production of oil, NGL and condensate that has been ongoing since the turn of the century.
Future exploration of the Norwegian Continental Shelf will include the Northern Seas that have a great potential. This could change this profile.
Going from South to North
This illustration both gives an impression of the Norwegian petroleum history as well as an indication for the future oil and gas activities.
The oil and gas activity started in the southern part of the Norwegian continental shelf more than 40 years ago. This explains why the produced share (marked in grey) are much higher here than in the Norwegian Sea further north, and why the undiscovered share (marked in red) is much lower.
In the very North, in the Barent Sea roughly indicated to be inside the pink line, our estimates are much more uncertain as we only know the geology in the southern part of this area. However, we estimate that 17 % of the total reserves are located in this area. So far, only one field is in the development stage that is the Snøhvit (snowwhite) field, which will start its production of LNG this year.
The overall situation for the Norwegian Continental Shelf is that around 1/3 of the resources is produced, 1/3 is remaining in the ground and another 1/3 is yet to be found.
Merger and internationalisation
As part of our oil and gas policy it has been important to develop our national industries, not least our oil and gas companies.
Statoil was established as a 100 % state owned company in 1972, and was partly privatized in 2001. In Hydro the state has had an owner share of less than 50%.
There are now proposed plans for the merger of Statoil and the the oil and gas division of Hydro.
This merger is to a large extent based on the need to be more competitive abroad. With this merger Statoil/Hydro will be one of the largest off-shore companies in the world, and a potential partner or operator for off-shore activities.
The government is positive to the merger. Hovewer, there are challenges that need to be adressed. There are concerns that the company will get a too strong position on the NCS. The government is considering all possible effects of the merger and will follow this process closely.
In a white paper that will be put forward to the Storting (Parliament) before Easter, issues related to the state ownership of the merged company, and the management of the NCS will be dealt with.
Let me turn to our domestic energy sector
Hydropower in Norway
Norway is the world's sixth largest hydropower producer, and the largest in Europe. The average annual production is about 120 Terawatt hours. The domestic demand for electricity is almost 100 per cent covered by this source of energy.
Electricity plays a dominating role in stationary energy consumption and nearly all electricity production in Norway is based on hydropower.
Today, the hydropower sector is the largest on-shore industry in Norway, with huge investments spread around the country.
There are concerns in Norway regarding the high dependency on hydro power. In order to diversify our sources for production of electricity, the government has established a target of building windpower stations with a generating capacity of 3 TWh by 2010. Today the production capacity is around 1 TWh.
Gas fired power plants will also play a more important role in the near future. So far 5 projects have been licensed, 2 plants are under construction (Snøhvit included), and a number of plans for building gas-fired power plants currently exists.
A Nordic Electricity Market
The Norwegian electricity market is not isolated. The security of supply is a common concern within the interlinked Nordic power market consisting of Norway, Sweden, Denmark and Finland.
Apart from an increase of production capacity, an efficient use of the Nordic transmission capacity and the capacity to neighbouring countries is vital to secure more reliable electricity supply.
A well-functioning Nordic energy market is very important. Such a market leads to an efficient use of the resources available and give signals to obtain the investment needed.
We have to make sure that the transmission grid within Norway and to our neighbouring countries is sufficient and well-functioning.
Power prices depend on supply and demand in the Nordic market.
An efficient power exchange with neighbouring countries is in place through NORPOOL.
A comprehensive co-operation between the Transmission System Operators, the Regulators and Authorities is essential.
Technology development - CO2 capture and storage
Let me also address the CO2 –challenge.
As a major producer of fossil fuels Norway has an important role in contributing to technology development. IEA estimate that carbon capture and storage can constitute 20-28 per cent of total emission reductions by 2050.
- Norway has extensive experience in storing CO2 in geological structures. Since 1996, one million tonnes of CO2 per year have been separated from gas production on the Sleipner Vest field in the North Sea for storage in a geological formation 1,000 metres below the seabed.
- In the Snøhvit field in the Barents Sea, 700 000 tonnes of CO2 will be separated annually from the natural gas and re-injected and stored in a formation 2 600 metres under the seabed.
- At Mongstad, the world's largest full-scale carbon capture and storage project in conjunction with a projected combined heat and power plant will be constructed. The project is to be fully operational by the end of 2014. Several technological solutions will be tested in parallel in the first phase of the project. This will be of great interest to other future gas-fired power plants in the world.
Let me conclude:
- We are currently experiencing a period of vigorus activity on the Norwegian Continental shelf. High oil prices provide ample business opportunities for the oil companies and supply industry.
- Norway is one of the largest oil and gas producers in the world and given that only one third of the total resource base has been produced Norway will be a large producer in the years to come.
- Hydro will continue to be the most important energy source for producing electricity in the future, but new renewable sources and then especially wind and bio-fuel, as well as natural gas, will constitute a larger part of the energy mix in the future.
- CO2 emissions constitute a huge global challenge, Norway want to be in the forefront in inventing technology to capture and store CO2.
Thank you for your attention.