The Future of Oil & Gas - Norway's perspective

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Ladies and gentlemen, good afternoon.

I am honored to be here at the Petroleum Club in Houston, giving a talk on the future of Oil & Gas seen from Europe or more specifically from Norway.

Did you know that roughly 7000 Norwegians live and work in Houston and in the surrounding area? It is the biggest Norwegian community outside of Norway. To my mind, this is clear evidence of the strong link between Norway and Texas created by our access to oil & gas resources and the common challenge of turning these resources into jobs and economic wealth.

Norway and US are nations blessed with rich energy resources, although we differ greatly in size and population. That is true for Norway and Texas as well. However, in some aspects, Norway is comparable with your great State. Energy, and in particular oil and gas, play an important role in our economies and we have vast rural, sparsely populated areas.

The one hundred dollars oil price environment we are living in has significant implication for our economies. In a Europe, where many countries and citizens struggle hard to keep their economy out of ruin, and in a US where parts of the country for long time have seen high unemployment figures, Norway and Houston are different. We are in good economic shape.

A big question for the next weeks and months is how the ongoing discussion in the Euro-countries will play out. The solution they find will be important for the world economy – for the short and medium term oil prices. And therefore, also for our economies. On the top of this, we have the Iranian situation. Therefore, it is important for our economies to be prepared for different oil price scenarios for the months to come.

This afternoon I would like to do two things: First share my reflections on global energy realities with you and then present the status and perspectives for Norway’s oil and gas activities.

Since I took office last spring, I have used a lot of time to broaden the public perspectives on energy realities back home.

My message should not be controversial – the world needs more energy. More than 1.3 billion people live without access to modern energy services. 3 billion people live for less than USD 2.50 per day, and the global population will increase by 2 billion people to 2050.  Last year the world population reached 7 billion.

Energy poverty is a huge challenge, as can be seen from this slide showing the number of people without access to electricity and clean cooking facilities in the world.

Access to affordable, modern energy would have made a big difference for these people.

• Better hygiene (availability of hot water)
• Improved health (air quality)
• Better education (less work on children, electric light)
• Better possibilities to start new business with higher productivity.

Modern, affordable energy is needed to improve quality of life for billions of people. This will drive global energy demand going forward.

Only a small portion of the world’s people enjoy the level of energy services as people do in Oslo or in Houston. We do not need to use more energy in our daily life going forward, but focus on energy efficiency. We need to have these differences in mind when discussing global energy realities.

Even though it is natural to worry about poverty, we need to remind ourselves that the world is progressing, that things are getting better for the people of the world, as this graphic picture tells us. Life expectancy is steadily increasing and the wealth is spreading. Access to energy is one of the key drivers behind this development.

However, let’s not forget that the World’s population need for energy is set to grow, even if we should chose to look away from the access to energy challenge, as shown by this illustration published by the International Energy Agency.

And we should also keep in mind that fossil energy will be dominating even in the future, a fact which is often disregarded. This illustration is also taken from the International Energy Agency’s and it shows the energy mix in 2035 in a carbon constrained world.

We need cleaner energy to solve health problems from local pollution – and to tackle global warming.

Fossil fuels will be used for generations to come. We have the solutions to handle local pollution. We can do a lot by replacing coal with natural gas and invest in renewable energy and energy efficiency. But we need to develop technologies like carbon capture and storage as well.

Energy is the blood of the global economy. Without energy security an economy would stop. Therefore, security of supply is an important issue for all countries.

Different countries have different concerns when it comes to energy security. Importing countries are focused on availability and cost of future supply. Exporting countries are focused on security of future demand to pay for expensive new projects and infrastructure.

I am a strong believer in open and transparent markets as a key element to increase energy security for both exporters and importers of energy.  Price signals are the most efficient way to allocate resources. The effect of the higher prices of oil and gas the last decade on supply is clear to all, and I believe that we will still see relatively high prices in the future, even in the turbulent economic times we are currently experiencing.

America’s assumed need to import natural gas has vanished. The break-through of shale gas has changed the world of energy.

The question now is, will the economic viability of oil sands and shale oil, together with more efficient use of oil products, change the market also for oil?

In Europe the interdependence between gas consumers and producers have significantly contributed to the prosperity after World War II. Even during the cold war, Russian gas supply was stable and reliable for consumers in Western-Europe. However, the perception of insecurity when it comes to availability of gas is still living in capitals in Europe.

Energy policy is important as well. Availability of a fuel is not independent of importing countries’ energy policy. One example is the development of a gas field and infrastructure: It takes a long time from a decision is taken until production can start.

Clearly, open and transparent markets are important for countries’ energy security.

Today, the world faces several interdependent challenges. We need to solve the energy challenge, the climate change and the energy security challenge simultaneously. We need to take all these issues into consideration into our policy making.

This slide shows a very famous Norwegian painting by the Norwegian painter Theodor Kittelsen. The person in the painting eyes the end of the journey, the castle of gold and honey.

I am not suggesting that doing business in oil & gas in Norway is all pleasure and no pain, but the optimism and possibilities are like never before. Let me explain why.

My small country, with 5 million inhabitants, is the second largest gas exporter and the seventh largest oil exporter globally.

It all started back in the 1960s. We invited the international oil companies to take a lead in the first phase of our oil and gas activities.  In fact, the American oil company, Phillips, wrote a letter to the Norwegian Government asking for exclusive rights for prospecting after hydro carbons on the Norwegian Continental Shelf. Nice try, but not very successful.

Attracting international oil companies was both a necessary and successful strategy. We had the resources under the seabed.  The companies contributed with their skills and knowledge, both to discover fields and to develop and produce them.

This provided results. Production and activity increased. State income increased. Norwegian oil companies, as well as a supply and a knowledge industry were created.

The Norwegian petroleum adventure would not have been possible without the presence of American oil companies. All the major companies contributed, Exxon, Conoco, Phillips, Chevron, Mobil, Texaco and Amoco. They are still present, although, in smaller numbers due to restructuring.  

The big international companies are very important players on our Shelf. They have been joined by many more companies lately. This competition between different players with different strategies is fundamental for the State to capitalize on our full oil and gas potential.

Norway, today, has a large supply industry. They deliver their products and service both domestically and internationally. They hold cutting edge technology and are one of the most competitive industries in Norway today.

Our story is one of going north. Activities started in the south; in our part of the North Sea. Later it moved north to the Norwegian Sea and the Barents Sea. Today we have producing fields in all these three areas.

The green areas on the slide are open for oil and gas activities today. The red has not been opened yet. In the yellowish we are going through processes and analysis these days to decide whether to open them up or not. I will come back to those processes later.

Even if the North Sea still is dominant when it comes to production, the areas further north has a huge potential for future activities. All new areas are in the north.

Our story is also the one about a sustainable activity. Our petroleum policy focus on all the three elements related to having sustainable petroleum activities. 

• You need economic activity. Without value creation, there will be no society
• You need to take care of the social dimension. Also to keep the license to operate
• And, of course, you must take care of the concerns on the environment – including climate change.

My opinion is that it is possible to have sustainable petroleum activities. Our experience in the North Sea, the Norwegian Sea and the Barents Sea supports that it is possible in all this areas.

The government put forward an updated strategy for the petroleum sector in a white paper last summer, which received support from all political parties in the Parliament in December last year. I called the white paper “An industry for the future”. This slide is the key picture from the white paper. And hopefully it explains the title of the white paper for you all.

It illustrates that a high production from our shelf is very much achievable.

The figure illustrate that we have a resource base to exploit. During the past 40 years, we have extracted around 40 per cent of the expected recoverable resources. Sixty per cent of our resources remain in the subsurface. And we still have some areas with a potential that is not included in these numbers.

A steady activity level must be maintained in order to achieve the goal of long-term management and value creation from the petroleum resources. The strategy we put forward is a parallel and active commitment to:

• increase the recovery rate in existing fields;
• to develop all commercial discoveries;
• to continue to explore;
• and to open new areas.

We work to increase the recovery rate in existing fields. There is still a huge potential, as illustrated by this slide.

I often tell the Ekofisk-story, and it is one worth mentioning once more. Specially here in the US. ConocoPhillips have been a prudent operator for the field for more than 40 years. As the first producing fields on the NCS, Ekofisk and Eldfisk had produced for 40 years when a plan for further development was submitted last year. This is likely to set the stage for another 40 years of production.

The recovery rate on the field has gone up from 17 originally to over 50 percent under the current plans. This is a net addition of around 470 million barrel of oil equivalents. To me, this is a great illustration of exploiting opportunities. 

On average, fields on the Norwegian Continental Shelf have increased their oil reserves by a factor of around 1,7 from the original development plans and up to 2010. Our average oil recovery rate is high compared to other oil provinces. This is good, but I believe we must always aim to do even better. The higher oil price environment we now live in, will help make more of resources commercial as well.

We need to develop all commercial discoveries. 150 discoveries have been made since year 2000, and we see that old discoveries become commercially viable due to new technology and higher oil and gas prices.

We had fantastic exploration results in 2011. Our biggest discovery last year – Sverdrup – holds resources estimated at between 1,7 and 3,3 billion barrels of oil equivalents. It was the largest offshore discovery globally last year.

In addition to this, the Skrugard discovery in the Barents Sea was the third biggest. The positive exploration results from 2011 also continued into 2012 for the Barents Sea. Next to Skrugard we made a discovery of equally size called Havis in January 2012. The estimates of the two discoveries combined is 400 to 600 million barrels. This is a breakthrough in this area and opens up a new oil province.

This year several high impact and near field exploration wells will be drilled.

Additional acreage is important for long term activity and production.

The Norwegian Government is very well aware of this and my ministry has launched several processes to open new areas for petroleum production.

Some years ago, the U.S. Geological Survey projected that around a quarter of the world’s remaining hydrocarbons may be located in the Arctic.

In this respect, some say there is a “race for the Arctic”. The Arctic coastal states have, however, demonstrated during the past few years that there is no “legal vacuum” in the Arctic. The UN Convention on the Law of the Sea largely regulates what we do in the maritime areas. The Arctic coastal states deal with their rights and obligations in a legal and responsible manner. This has left the Arctic as a very stable region. There is no race between the different countries.

Our common target is sustainable management and responsible cooperation between the Arctic states – and the aim is sustainable economic development.

Later in June I will host a Ministerial meeting on sustainable petroleum production in the Arctic followed by a Ministerial on Offshore Safety. Both meetings will focus on sustainable and safe management of petroleum resources.

The yellowish areas shown in the map are currently under review. The red areas on the map are presently not yet opened for petroleum activity. As you can see they are in the High North.

We have a thorough process before opening, we have to make an impact assessment and resource estimation and the results of these have to be publicly available for comment. The final decision is made by the Norwegian Parliament.

In the yellowish areas opening processes are ongoing. They cover the areas around Jan Mayen and the new areas in southern part of the Barents Sea – this is the Norwegian part of the formerly disputed area with Russia.

The processes should be finalized in 2013 for Barents and Jan Mayen.

If nothing unexpected happens, the industry can look forward to much additional new acreage to explore for petroleum on in only a few years time.

This illustration shows that the Norwegian Continental Shelf is indeed an attractive place for new oil companies.

The amount of new companies has been steadily increasing since 2002 and they choose to stay. What better evidence do you need to be convinced of the attractiveness of the Norwegian Continental Shelf?

This development has been very positive and has contributed to new ideas, increased activity and new discoveries.

40 years with challenges on the Norwegian Continental shelf has created an internationally competitive Norwegian petroleum industry with world class technology and expertise.

Norwegian petroleum industry has grown its international operations substantially in recent years, winning contracts in all major petroleum provinces.

Subsea equipment and services is a segment where Norwegian companies are world leading and where their presence is felt in the Gulf of Mexico.  

Today, Norwegian supply companies are developing and trying out technologies for subsea compression on the Norwegian Continental Shelf. If successful, this technology could lead to substantially lower cost and increased recovery from subsea gas fields.

To sum up: The world need more, cleaner and secure energy. Norway will do our share to deliver that.

By a parallel and active commitment to both increased recovery rate, development of discoveries, exploration and new acreage, Norway will deliver stable production for decades to come. We will make production and consumption of oil and gas ever more environmentally friendly.

Norway is the land of opportunity for oil companies. Our resource base is good; we have a very predictable legal framework and political environment and a well developed infrastructure. New and interesting acreage will soon be available for oil companies and the 22 licensing round will soon be announced.

It’s tempting to site President Roosevelt “Look to Norway”.

Thank you for your attention!