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The Norwegian approach to oil and gas Energy minister tells Anchorage audience how his country deals with offshore development as the search for new resources moves north Alan Bailey Petroleum News
With cold climates, abundant space, abundant wildlife and abundant natural resources, Norway and Alaska have much in common — they also share a common goal of developing their natural resources in a sustainable manner, Ola Bortea Moe, Norwegian Minister of Petroleum and Energy, told an Alaska World Affairs Council audience in Anchorage on Nov. 4. But, in a 40-minute overview of Norway’s approach to oil and gas development, Moe described a situation that also differs in a number of key respects from the Alaska oil and gas scene.
Moving north All Norwegian oil and gas development has occurred offshore, with that development moving progressively farther north since the country’s oil industry began in the North Sea in the late 1960s. In 1993 exploration moved north into the Norwegian Sea, and in 2007 into the Barents Sea, Moe said.
Unlike Alaska’s Arctic seas, Norway’s seas of the far north remain ice free thanks to the North Atlantic Gulf Stream, and gas fields are not too distant from gas pipelines hooked into the European gas markets, Moe said. And in striking contrast to Alaska, oil and gas development becomes increasingly controversial the closer it comes to the coastline, he said in response to a question from the audience about contention over offshore development.
Tax stability In response to a question from Alaska Sen. Hollis French about the level of Norwegian taxation on the oil industry, Moe responded that although Norwegian taxes are fairly high they are very stable and predictable.
Just as important, when it comes to taxation, is the need for long term trust — if people are going to invest billions of dollars they need confidence that the tax system will not keep changing, Moe said.
“We do not change the system every now and then. We are a reliable partner. They know what they get when they come to Norway. And they know what they don’t get when they come to Norway. I think this is a fair deal,” he said.
Moe said that the Norwegian government obtains oil revenues from three sources: company income tax; a government share in each oil and gas license; and the government’s two-thirds stake in international oil major Statoil. The marginal rate of tax for oil companies in Norway is 78 percent, but most expenses and investments are tax deductable, he said.
Norway established its key oil and gas development policies when its oil and gas industry first started, Moe said. Those policies included a presumption that the rights to subsea oil and gas resources are vested with the state; that the international petroleum industry should take a lead in developing Norway’s resources; and that competition between different companies with different strategies is fundamental to success.
“I am a strong believer in an open and transparent market as a key element to increase energy security for both exporters and importers of energy,” Moe said. “Price signals are the most efficient way to allocate resources.”
Sustainable development As the oil and gas industry moves north, Norway is focusing on sustainable development through the appropriate balance of encouraging economic activity; taking care of the social impacts of development; and addressing environmental and climate change concerns. With the world demanding increasing amounts of energy, fossil fuels will be needed for many years into the future, even although energy usage is becoming more efficient and there is an increasing use of renewable energy sources, Moe said.
“The world’s need for energy continues to grow and the answer to this is to produce fossil fuels in a more sustainable manner,” he said. It is possible to replace the use of coal by the use of natural gas and it is necessary to develop technologies for carbon capture and storage, he said.
Norway is already capturing carbon dioxide for underground storage in fields such as Snohvit in the Barents Sea and the country is investigating the potential for retrieving and storing carbon dioxide from industrial flue gas, Moe said. Norway is already a major producer of renewable energy, especially hydropower, and is planning to increase its renewable energy production, he said.
On the other hand, there have been 150 oil and gas discoveries on the Norwegian continental shelf since 2000, with one of the most recent of those discoveries, the Aldous/Alvadsnes oil field in the North Sea, being one of the largest oil fields ever found in Norwegian territory. Apparently Total missed the field by just three meters when drilling in the 1970s.
“That was probably the most expensive three meters in the history of the world,” Moe quipped.
Government regulation Norway uses government regulation to balance the risks involved in oil and gas development. As part of this oversight, the government does its own cost/benefit analysis of developments planned by industry, with the government evaluating the relative needs of different users of the ocean, including the fishing industry, and mandating some aspects of industry plans where it sees fit. For example, the government might require two companies engaged in adjacent field developments to share a single offshore platform in the interests of improving overall efficiency.
“The ones paying for excessive costs are not the oil companies but the citizens of Norway,” Moe said.
Norway is especially focusing on the need to maintain production by improving oil and gas recovery rates from existing fields. The anticipated ultimate oil recovery from the Ekofisk field, for example, has increased over 40 years of field operation from 17 percent of oil in place to 52 percent, thus extending estimated field life by an additional 40 years, Moe said.
Most new areas with potential for oil and gas development are in the far north, but prior to opening any of these areas the Norwegian government goes through impact assessments and resource estimations, with the Norwegian parliament making a final decision on whether to allow exploration to proceed.
“The high north is one of the main focal points of the present government,” Moe said.
And the high north is a politically stable region, subject to the international law of the sea and with no international “race for the Arctic,” he said.
Barents Sea In the Barents Sea, where Norway recently signed a treaty that resolves a longstanding border dispute with Russia, the Snohvit gas field has gone into production 25 years after its discovery; the Goliat oil field is under development; there is an as-yet undeveloped oil find at Skugura; and there is a gas find at Norvarg.
“The Barents Sea is one of the cleanest, richest and the most productive marine areas in the world,” Moe said. “We must therefore balance the need to maintain the qualities of the Barents Sea against our work towards continuous and sustainable developments.”
The northern Norwegian developments are already having a ripple effect on local communities, with the town of Hammerfest growing, for example. Building the necessary skills and competence to involve local people in what is happening and to ensure local benefits is very important, Moe said. But rather than depending on the Norwegian government for this, the people of the north have the main responsibility for taking advantage of the new opportunities available to them, he said.
Handling controversy Asked by Petroleum News about how Norway handles the type of controversy that has stymied oil exploration in Alaska’s Arctic outer continental shelf for several years, Moe said that the same controversies exist in Norway. Non-governmental organizations and other groups raise great concern about oil and developments, and energy has “for generations” been a great controversy in the Norwegian public debate, he said.
“I think this is healthy and important because it is healthy for a society to discuss and debate and be aware of very important developments and the way that we are going to work in the future,” Moe said.
In the end, better decisions are made and better solutions are found, he said.
Over the years Norway has developed sophisticated processes for collecting information and giving everyone a say. Then, ultimately, the Norwegian parliament through a political process decides on whether to open a new area for development, Moe said.
And, although controversy often continues, once that parliamentary decision is made and exploration licensing takes place oil companies can move ahead with certainty, he said.
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