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Petoro ONS MAGAZINE 2014
Photo: Ella Bye Mørland, Ministry of Petroleum and Energy

Petroleum and energy minister Tord Lien:

Offering stability and opportunities, wants investment and cost efficiency

Stable operating parameters and attractive acreage are seen by petroleum and energy minister Tord Lien as his contribution to maintaining high and long-term value creation from Norway’s petroleum sector. In return, he wants expertise, a willingness to invest, efficiency improvements and cost reduction from the companies. He also wants a global climate deal, but believes the industry itself is best placed to know which measures are the most effective.
Almost a year into the first experience of government both for himself and for the Progress Party to which he belongs, Lien has gained a reputation as an enthusiast for Norway’s oil and gas industry.

“The petroleum sector is a pillar of our prosperity,” he emphasises. “For more than 40 years, it’s been highly significant for Norwegian welfare, growth and value creation.

“We can safely call this sector the engine of our economy, and it’ll remain that for many decades to come. Today, 250 000 people are employed directly and indirectly in the petroleum sector, from Agder in the south to Finnmark in the north.”

Lien notes that oil and gas have also formed the basis for a technologically leading industry which delivers products, solutions and services needed to produce these resources in a sustainable and efficient manner.

“This high-tech supplies industry is now our second-largest export sector after sales of oil and gas,” he points out. “Norwegian products and services are delivered to every corner of the globe where petroleum is produced, and we’re among the leaders in many areas.

“The strong growth we’ve seen in offshore investment during recent years looks like coming to an end. Although capital spending is forecast to decline in 2015, however, it’ll still be historically high. And we expect that level to persist.

“Developing Edvard Grieg, Ivar Aasen, Gina Krog and Aasta Hansteen means heavy investment on the Norwegian continental shelf [NCS] at present. And the development of Johan Sverdrup will also be important in the years to come.”

He says that the government is concerned to maintain a high and stable level of activity on the NCS. “Our main contribution will be the provision of predictable operating parameters and the award of attractive acreage.

“The goal is to develop enough profitable projects in all phases of the activity, so that we can maintain high long-term value creation from the NCS.

“We must explore more, improve resource recovery from existing fields, make optimum use of available infrastructure, and establish new facilities where that’s profitable.”

On the potential for improved recovery, Lien notes that the average expected recovery factor for NCS fields is about 46 per cent, and that this is very high in a global perspective.

“A big potential still exists for improving recovery from our producing fields,” he says. “Statoil, a key operator on the NCS, is aiming at an average recovery factor of 60 per cent.

“Every percentage point increase in recovery represents a gross sales value of about NOK 300 billion. But it’s important to stress that getting these resources out is technically challenging and expensive.

“A number of improved recovery projects must be implemented today if they’re going to be profitable, so giving the go-ahead for them is time-critical. To realise this potential, we need active and competent companies willing to invest on the NCS.”

One contribution being made by the government is support for research into and technology development for improved recovery, Lien reports.

“In April, I was present at the opening of the University of Stavanger’s research centre on this subject, which is a collaboration between industry and scientists.

“The Research Council of Norway will provide it with NOK 80 million over eight years, in addition to financing from the companies. This centre represents an important contribution to developing new technology for improved recovery.”
Asked what the industry and the government can do to get costs on the NCS under control, the minister acknowledges that these have increased substantially in recent years.

“Much of the rise can be attributed to international conditions, but many cost components can be influenced by players on the NCS.

“The government is responsible for making appropriate provision and ensuring stable operating parameters, but the players have the main responsibility for reducing costs.”

Lien says that he expects the industry to turn every stone and work actively to develop simpler and more intelligent solutions which boost productivity and reduce unit costs.

“That’ll mean more projects will be profitable. The main goal of petroleum policy is to facilitate profitable oil and gas output within acceptable limits. High costs represent a threat to value creation and the tax revenues which accompany such production.

“We’ve seen a number of projects postponed over a short period. These represent big potential value for society. Lower costs could help to realise these developments, so it’s in the government’s own interest that action is taken to make more projects profitable rather than to reduce activity.

“The purpose of cost reduction is to ensure that a greater number of profitable projects are implemented, which could benefit the supplies industry by ensuring a higher level of activity.”

Increased costs without a corresponding rise in oil prices have reduced cash flow for oil companies, limiting their capital and imposing a stricter prioritisation of projects.

Asked how this affects Norwegian offshore activity, Lien says: “Licensees on the NCS commit to explore, develop and produce in an effective manner. That also means costs are kept under control. This is crucial for ensuring the highest possible value creation.

“I’m keen to see action which reduces unnecessary costs. The key words are enhanced efficiency, standardisation and good teamwork. Such measures yield benefits both through more profit per barrel and by making a larger proportion of our resource base worth exploiting.”

Lien says that a number of projects, particularly on producing fields, must be implemented now if they are to pay off. These are time-critical. Postponing them because of temporary cuts in company investment budgets could be costly for society.

“My message is clear. Cost cuts which mean that the companies leave commercial reserves in the ground aren’t good. Extracting only the most profitable oil or gas from the reservoir – skimming the cream – is quite simply irreconcilable with the obligations licensees have on the NCS”.
Lien notes that a new area of the NCS was opened for oil and gas exploration the first time since 1994 during June last year, when Barents Sea South-East was made available.

On the potential for discovering and developing oil and gas in the far north, he says that estimates from the Norwegian Petroleum Directorate and the interest shown in Barents Sea South-East by the industry indicate that this is an exciting area which could contain substantial petroleum resources.

“Work on the 23rd licensing round is under way,” he adds. “A proposal on areas to be included was circulated by my ministry for public consultation earlier this year.

“Seismic surveys are now being shot in Barents Sea South-East, and the deadline for applications in the round is planned for the second half of 2015.”

The acreage proposed for allocation includes completely new and exciting areas of Barents Sea South-East as well as promising prospects in the rest of the Barents Sea and the Norwegian Sea, Lien reports.

“This licensing round will provide big new opportunities for Norway, and for its northern region in particular. Petroleum operations open major prospects in the far north.

“We must exploit the possibilities available to us right now. This is the context in which the petroleum sector contributes capital, jobs and development of competence.

“The oil and gas business is a growth sector. Its operations in the far north will also encourage other profitable industrial activities in the region.”

Serious climate changes could occur unless the world reduces its greenhouse gas emissions, Lien acknowledges when asked how the government and petroleum industry players should respond to this challenge.

“It calls for global solutions and for all countries to play a part. The government gives high priority to international cooperation in the climate area, and will contribute to talks which yield a broad and ambitious agreement.

“We want to reinforce [Norway’s] climate compromise, and will conduct an ambitious policy in this area which aims at a long-term transition to a low-emission society by 2050.

“At the same time, it’s a fact that the world needs energy to lift millions of people out of poverty. The International Energy Agency has emphasised that fossil energy will play an important role for a long time to come. We must overcome the climate challenges while producing the energy the world needs.”

Lien notes that Norway devotes substantial resources to developing greater supplies of renewable energy, carbon capture and storage (CCS) and many other emission-reducing measures.

“Virtually all electricity generated in mainland Norway is based today on renewable sources. This means that, unlike most other industrial countries, our greenhouse gas emissions from domestic energy consumption are low.

“At the same time, our offshore operations are among the cleanest in the world. The carbon tax on emission from petroleum activities on the NCS was introduced as early as 1991.”

Norway’s offshore oil and gas sector has also been covered by the European Union’s emission trading regime since 2008, Lien points out.

“The combination of carbon tax and emission allowances means that our petroleum sector pays a high price – more than NOK 450 per tonne – for its greenhouse gas emissions.

“That’s led in turn to substantial cuts in the amount of greenhouse gas released from the sector, measured by emissions avoided.

“Our gas, an important energy bearer in many countries, also releases much less CO2 than the alternative – which is coal. This means that global greenhouse gas emissions could be substantially reduced by replacing the average coal-fired power station with efficient generating capacity fuelled with Norwegian gas.

“For that reason, I would maintain that we’re taking the climate challenges seriously, while also serving as an important energy exporter.”

Lien argues that the industry itself knows best which measures are the most effective. “Our role as politicians is to establish the parameters so that the industry can take good and efficient decisions. That also applies in the climate area.

“At the same time, I’m concerned to have a good and close dialogue with our petroleum sector.”
“Licensees on the NCS commit to explore, develop and produce in an effective manner. That also means costs are kept under control. This is crucial for ensuring the highest possible value creation.”
Tord Lien
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