Energizing Research

Published Dec 12, 2003
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Norwegian Minister of Petroleum & Energy, Einar Steensnæs

The prime ambition for the Norwegian Petroleum & Energy Minister, Einar Steensnæs, is to give research and development within the industry a boost. The Coalition Government has made it clear they want to see dedicated efforts on developing more environmentally friendly technology before further licenses are granted in the sensitive northern areas of the Norwegian Continental Shelf (NCS).

That is one reason why Steensnæs held back the much-wanted Nordland VI licence in the 17 licensing round. But he is not ruling out the possibility of offering it at a later stage.

Understanding why Nordland VI has been held back, and why the Coalition Government is eager to underline the need for further impact assessment in the Northern Areas, two issues are important. The environment is one obvious problem.

‘Nordland VI lies close to Lofotveggen, right in the middle of one of Norway’s most important fishing areas,’ Steensnæs points out. From day one he has made a point of developing a fruitful discussion with the fishing industry and as well as with environmental organisations.

When taking office he spoke of an impact assessment of the Barents Sea taking years. ‘Well, at least it will take year 2002, and maybe some of year 2003 before we can go ahead both with Nordland VI and with sensitive licensees in the Barents Sea,’ Steensnæs says today.

‘The industry feel they already have the necessary information both on the environment and the technology to get started. If they have all the information they claim, which we will be assessing when we have put all the information together, it might take less time than what I first expected,’ Steensnæs explains. ‘But there is no way we will reach a conclusion about where and how to explore before well into year 2003.’

Lasting Protection
‘We should also keep in mind that there are zones that will need lasting status as protected areas,’ Steensnæs points out. He will not go in detail on which areas he has in mind until all reports on consequences for the environment are finished.

It is also worth noting that the Coalition Government has chosen a Minister for the Environment, Børge Brende, who seems to have much more influence within the government than what we saw with the previous minister in the Labour Government.

Another reason for holding back on some of the most attractive licenses on the NCS is to use it as bait for oil companies. The Ministry wants to see continued dedication to the Norwegian Continental Shelf (NCS) from companies that are possible candidates for the Northern Areas. Steensnæs is well aware of the competition the NCS is getting from emerging oil areas of the world, though he will not call Nordland VI bait.

‘I have cautious expectations to the 17the licensing round,’ he says. ‘There are good opportunities both for interesting oil finds near the coast, and for large gas finds further offshore,’ he says.

‘Off course some oil companies are disappointed they did not get Nordland VI, but we were just not ready to hand out that license,’ he says with a smile.

Reports show that 2001 was a disappointing year for Norwegian exploration. Consultants at Edinburgh based Wood Mackenzie have released a study on the North Sea recently. It showed that of 21 wells drilled on the NCS petroleum was found only in 12. In addition, the number of oil equivalents found is 75 percent lower than what was found the previous year. That gives the lowest rate since 1993. These numbers also show that new finds made during 2001 can make up for only 27 percent of oil equivalents produced on the NCS. 430 million oil equivalents were found, whereas 1.57 billion oil equivalents were produced from the NCS.

Wood Mackenzie underlines that there is still no reason to call the NCS a mature region. But some new major finds should come relatively soon.

‘When it comes to making sure oil companies find the NCS interesting also in the future, stable and good financial conditions are important, as well as a dedication from the authorities to take part in development and innovation,’ the minister points out.

Dedicated to Research
‘We are in the forefront of offshore research and development, but it is important not to loose our pace,’ Steensnæs says. He feels that is exactly what we have done the past couple of years.

‘Dedication to research has not been as evident lately. I therefore hope to be able to energize that process,’ he says eagerly. ‘I hope to look back and see that I was able to increase the authorities dedication and funding to offshore research and development.’

That is good news to the Federation of Norwegian Manufacturing Industries (TBL), which is disappointed with the governments spending on research.

‘The oil companies spend NOK 1.5 billion a year on research. The government spends NOK 200 million, and that figure has shrunk over the past few years,’ Knut Aaneland at TBL says. Both Steensnæs and Aaneland agree that further innovations will increase the recovery rate on the NCS, which at the moment is 44 percent.

‘The recovery rate has steadily increased over the years, and we believe it will at least reach 50 percent,’ Steensnæs says.

Norway has been on the forefront of innovation, not least within deepwater. But the development goes fast. With emerging deepwater oil areas around the world, Norwegian companies are facing fierce competition. With the sale of Norwegian entities to foreign companies and with what Steensnæs identifies as a slow down within Norwegian research, he has some worries for the future - if the R&D work is not put on top of the agenda both for the authorities as well as for oil companies and contractors.

Gas Plants
Research within gas processing is a prime area for the coalition government. Steensnæs has announced a will to transfer billions of kroner to Naturkraft if the company is willing to build an emission free gas plant. Naturkraft has been given all necessary permissions to start building two gas power plants on the West Coast. According to their chief information officer, Geir Fuglseth, they are planning to start building the plant during the summer 2002. Steensnæs has encouraged Naturkraft to postpone the gas power plants until more environmentally friendly technology is available.

‘We have not decided whether we will postpone the project,’ Fuglseth says. There is no technology available, which can stop emissions all together. But it might be possible to contain the damaging gases, and to store them in a safe place instead of letting them out into the atmosphere, according to Fuglseth.

Work Force
Another question the minister has to deal with is the shrinking work force within the oil & gas industry. Lately The Norwegian Oil Industry Association (OLF) has started a campaign to attract more young people. According to them approximately 50.000 jobs will need to be manned by 2020.

‘We are going to need many people with diverse competence to develop and use advanced technology in order to extract as much oil and gas as possible from all fields,’ Tor Arnesen at Norske Shell says. He is head of OLF’s recruitment project.

‘Doing research and thereby creating exciting companies is one way of attracting young people to the industry. Another way is to make them believe the NCS is a place to work also in the future,’ Steensnæs says.

Production Cuts Stay
Norway has agreed, together with Russia and Mexico, to follow OPEC’s production cuts, and lowered production with 150 000 bpd from 1st January 2002. The cuts are planned to continue until June 2002.

‘So far we have seen a positive result of stabilising the oil price around USD 18-19,’ Steensnæs says. He can see no reason to change the arrangement at the moment, although there have been reports of countries like Qatar increasing their production.

‘As long as the main producers like Saudia Arabia and Venezuela are true to the production cuts plan, we see no reason to doubt it. I have ongoing communication with the oil ministers both in Venezuela and Saudi Arabia,’ Steensnæs underlines.

Based on the latest estimates from the operating companies and an overall assessment done by the Ministry of Petroleum and Energy and the Norwegian Petroleum Directorate, the average oil production for the first 6 months of 2002 is estimated to be 3.17 million barrels per day. After a reduction of 150 000 barrels per day, the allowed average production for the first 6 months in 2002 will be 3.02 million barrels per day during this period.

In May 2001 Statoil was allowed to buy 15 percent of the State’s Direct Financial Investments (SDFI) in connection to the company’s privatisation process.

Now the rest, approximately 6.5 percent of the total SDFI assets have been put up for sale. Final decisions on which companies will get them will be decided in late February or early March 2002. Norsk Hydro is expected to get some of the licenses. In the Oseberg and Grane areas Norsk Hydro was the only company allowed to bid, as it is operator there. The same goes for Norske Shell, which was the only company, allowed bidding for shares of the Draugen field, which it operates.

‘The intention of these sales is to increase the oil companies effectiveness on the NCS, by allowing them bigger shares in fields important to their production. In this way we hope to create added value for all involved,’ Steensnæs says.

Petroleum Fund
The Norwegian Petroleum Fund is a continuous theme for discussions, both on whether more should be spent and about how it should be invested. Recently the Director of the Oslo Stock Exchange, Sven Arild Andersen, voiced a desire to bring the investments of the Petroleum Fund back to Norway.

‘Norway will loose billions of kroner if the Petroleum Fund continues to be invested abroad,’ according to Andersen. He is not alone in advocating more spending on developing industry in Norway instead of investing in industry abroad.

‘I can to a certain degree agree with that,’ Steensnæs says. 'However, there is a limit to how much the state should invest in Norway. If we were to invest the whole fund in Norway the state would totally dominate finances and industry in the country, and that would not be healthy in the long run,’ he points out.

Andersen also said to Norwegian Broadcasting Corp. (NRK) that politicians should not have the responsibility for the Petroleum Fund, which Steensnæs strongly disagrees with.

‘We live in a democracy, where politicians lay down the ruling principles, not the experts,’ Steensnæs says. ‘When it comes to making the actual Petroleum Fund investments of course we will continue to leave that to professionals, as it is done today. But politicians will always decide the strategy for the investments.’

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