Speech to Sparebank1 Markets Conference

Minister of Petroleum and Energy Kjell-Børge Freiberg gave the opening speech at Sparebank 1 Markets Confereance in Oslo 27 February 2019.

Ladies and Gentlemen, distinguished guests,

Good morning to you all!

I am happy to address this important event. During the next two days, the conference will cover both the oil and gas sector, and renewables. Norway has a lot to offer in both respects. Given that the topic of this first day is the future of the Norwegian Oil and gas sector, this will also be the topic of my address.

So, let me begin by stating my two key messages: 

  • Norway is a good place to do business in oil and gas.
  • The opportunities are still great.

This is why I believe that our most important industry, the oil and gas industry, has a bright future ahead.

Let me start with why I think Norway is a good place to do business:

The fundamental principle for our oil and gas policy is well established.
We – the Norwegian Government – set the framework conditions.

The oil companies are responsible for the activities:
Exploration. Development. Operations.

In such a model, the incentives in our regulation are important. When companies pursue their interests, they will also choose the solutions that are good for the society as a whole. In addition, our system should collect the resource rent to the State. And; all activities should be safe, responsible, effective and with low emissions.

This is what our fiscal system and the rest of the regulations aim for. So simple. So hard.                                                                    

In this respect, taxation of oil companies is key. We tax the net profit of the companies hard, but we have a balanced and fair system. We take a lot of the upside, but we also take most of the downside risk. The reimbursement system for exploration costs is an important part of the system.

A long term, capital intensive industry needs stable and predictable framework conditions. Hence, stability, predictability and
knowledge based policies has been, and is, an important element in our petroleum policies.

Despite what you sometimes hear in the public debate, most Norwegians support a stable and predictable oil policy. So do a wide majority in the Parliament, including all the large parties. Ministers has come and gone – but the main elements in the oil and gas policy has stayed the same.            

In addition to the fiscal framework, we know that companies need attractive areas to look for new oil and gas. If, the State do not allow companies to find the resources, no benefit will come to the society.

So, we work hard to offer attractive exploration licences. We are very pleased that the interest is very high.

Having a stable and balanced regulatory regime alongside new opportunities, Norway has developed a competent petroleum industry with oil companies, service companies, investors, universities, research institutes that both cooperate and compete. In addition, we have unions, governmental bodies and politicians.

This has been a success factor fostering innovation and competitiveness. I am convinced it will continue to be so.

My Government has high ambitions for the oil and gas industry. The aim is to continue to be a world leader in Health, Safety and the Environment.

We have high ambitions on reducing greenhouse gas emissions. Therefore, we have had strict measures in place to minimize emissions for decades. We have never allowed flaring of associated gas.

We have developed an efficient, integrated gas export machine. The main tools today to increase efficiency and reduce emissions are a high CO2 tax, and being part of the European Trading Scheme, ETS.

As part of the ETS, the oil and gas sector will contribute to more than 40 per cent emission reductions in 2030, compared to 2005.

The emission costs oil companies face deliver results. On average, the production on the Norwegian Continental Shelf emits much less CO2 per barrel produced, than the world average.

Our approach to reduce greenhouse gas emissions will also be
valid when emission targets are enhanced, to follow up on the Paris Agreement. The price of quotas will reflect the ambitions and the emission costs within the system. Stricter goals will be reflected in the price, and therefore in the incentives the companies have to reduce their emissions.

The production on our Shelf covers around 2,5 percent of global oil and gas demand. Less production from Norway would mean higher production from somewhere else. Most likely from places with higher emissions.

As a politician, I see it as one of my tasks to talk about these facts. Because the facts proves all the good reasons why everyone involved in the oil and gas industry should be proud of it.

Oil and gas will give the Norwegian society large revenues for many years to come. It will still provide huge employment opportunities onshore, and keep Norwegian based businesses competitive and innovative.

This highly competent industry will also improve the way things are done, driving down costs and emissions.

In addition, an industry with knowhow, financial resources and experience with complex projects may develop new climate and energy solutions.

Let me give you one example. For decades, we have been storing CO2 below our seabed. We have two ongoing projects connected to the Sleipner and Snøhvit gas fields, and we are now looking into the possibility to establish a value chain for carbon capture and storage. These technologies are key in the global effort to limit global warming.

The oil price and the industry changes fast. Looking at the most active companies in the last licencing round, the players are very different from the early days.

However, we now have a new, and a good, mix of companies. Large international ones that are active in all phases. We have smaller and more specialised companies. And we have Equinor. In addition, we now also have mid-sized companies whose main
priority is Norway. It is also interesting to see how BP and Vår Energi have found a new approach to their presence in Norway.

In short, we have companies that are both able and willing to go after the opportunities that are out there.

Beyond the innovative drive in the industry, the sheer size and importance of the industry to the Norwegian economy is something to be proud off and something to show key stakeholders.

This year, the industry's expected share of total investments in production capital in Norway is one fifth. This does not take into account exploration.

The scale of the investments on the shelf compared to the mainland economy is hard to grasp. To give you one example: Last week I received the development plan for the Duva field, which will be tied to the Gjøa platform in the North Sea. This is a mid-sized project, with investments of almost ten billion Norwegian kroner.

To put it in perspective: Five years ago, when I was mayor in my home municipality of Hadsel in northern Norway, I attended the opening of a new hospital at Stokmarknes, together with Prime Minister Erna Solberg. The price tag for the hospital was a bit more than one billion, or one tenth of the Duva investment. 

Such messages are important to get out to the public. The oil and gas industry matters, not only in terms of investments, but in terms of jobs and value creation.

I would like to end this speech by highlighting why the Norwegian Shelf is still going strong and why I believe that there are still great opportunities out there. 

Two months after I was born in 1971, Norwegian oil production started. Today, as I push 50, we still have more resources left than we have produced.

The industry is doing a good job at reducing costs and keeping them low. In addition, we see that there are many projects in Norway, both greenfield and brownfield that are very profitable.

We also believe there is ample potential to discover new large field. I am therefore very pleased that the interest from the oil companies is high and that the exploration activity is again increasing. Making discoveries in areas with existing infrastructure is very important in order to maximise the resource potential on the Norwegian Shelf.

This year Johan Sverdrup will start production. I say no more.

In addition, exploring less mature parts on the Shelf is equally important. Two thirds of the remaining resources yet to be discovered are located in the Barents Sea. In a long-term perspective, the Barents Sea will be important in order to maintain a high production level.

To conclude:

  • Norway is still a good place to do business, and
  • The opportunities are still great

Thank you for your attention!