The oil industry must also have two ideas in its head at once

01.12.2015
Tord Lien accepts to some extent that new offshore developments may be postponed. But Norway’s petroleum and energy minister has little sympathy for delaying projects on existing fields where time-critical resources could be lost. He calls on the companies to make the necessary investments.

| Bjørn Rasen and Sverre Chr Jarild (photos)

Petroleum and energy minister Tord Lien.

Petroleum and energy minister Tord Lien.

 

"The oil industry must also have two ideas in its head at once"

 

Dark clouds loom on a fine autumn day in Oslo in the form of yet more negative oil headlines in the Norwegian press. Statoil’s halfyear profits have halved. Lien is its biggest shareholder.

The Progress Party politician seems in a buoyant mood as he sits on the ministry’s reception desk, munching an apple and taking snuff while saying farewell to his previous visitors.

His good humour is not undermined by – relatively speaking – brief downturns. Norway’s oil sector has been through troughs before in its 50-year history. And the lesson is that something can be done about it.

“I appreciate that Statoil is doing what it’s said it will – working purposefully to adapt to a different price position,” Lien comments. “That emerges from the figures published today.

“Prices have changed considerably over a relatively short time. We’d all naturally prefer them to be different. But the bottom line is still in the black. Given the present conditions, my impression is that the company is doing good work.”

Bumpy

The minister has been in the job for two years. It must have been a bumpy ride so far. He gives the following status report for the NCS:

“Two years ago, we were worried that the level of activity was too high and that this would create challenges. The concerns are different today.

“We’ve moved from a period of sharp growth lasting to 2013- 14, which contributed to an unsustainable development in costs – even when oil prices were high.

“The price level we have now was difficult to envisage then. The first time I presented an oil price expectation was in the revised national planning budget for 2014.

“Our forecast then was that prices would decline – but not by as much as they have done. That’s naturally affected the companies.”

But activity on the NCS remains at a high level in historical terms, he points out, and emphasises that major investments continue to be made in new and existing fields.

“At the same time, parts of the industry are experiencing a much tougher time than the overall figures for investment might suggest,” he accepts.

“Things have definitely changed. We were worried about finding enough people to crew all the rigs. The position has reversed today, and is very demanding for the rig and petroleum sector.

“Getting down the cost per barrel of oil produced is absolutely essential. We must recover more resources in a shorter time and with a lower investment.”

Lien’s concerns extend beyond the petroleum sector. He is also responsible for a huge hydropower output and other renewable energy in Norway. And he emphasises that the oil industry must also have two ideas in its head at once.

“We must make provision for long-term value creation. This includes providing access to new exploration acreage, for example. That’s why work on the 23rd licensing round is so important.”

This exercise includes blocks in Barents Sea South-East, the area acquired by Norway after a boundary settlement was reached with Russia.

A treaty on the dividing line and collaboration between the two countries in the Barents Sea was signed on 15 September 2010 by foreign ministers Jonas Gahr Støre and Sergei Lavrov.

“A commitment to petroleum research is also important in the big picture,” Lien says.“ That could encourage activity next year – we must maintain expertise and capacity in the industry.

“In a longer perspective, such work will contribute to realising more resources. That’s the lesson we can draw from history.”

 

Petroleum and energy minister Tord Lien.

Long-term.
“We’ll make provision for value creation – over the long term,” says petroleum and energy minister Tord Lien. “This includes providing access to new exploration acreage, for example. That’s why work on the 23rd licensing round is so important.”

 

 

Research

Research and development plus new blocks in the Barents Sea represent the long view. More immediately, newspaper articles are calling for action on current tax problems.

At the same time, rigs are being stacked and a certain number of developments have been postponed. Capital is being rationed by the oil companies.

That could hit time-critical projects, which must be implemented now to ensure that their resources are recovered before necessary platforms and transport systems shut down.

Quite a few of these projects are socio-economically profitable, but do not seem able to surmount investment constraints in the companies.

The question then is whether the minister intends to use a carrot-and-stick approach. But he maintains that this is already in place within the framework.

“We’ve created a system where a field development which is worthwhile socioeconomically will also be commercially profitable. I don’t think anyone would disagree with that.“

However, you could undoubtedly ask whether the field projects are profitable enough to make it into the investment portfolios at the companies.

“We regard the postponement of new field developments with a degree of understanding. But it’s not okay when such delays involve existing fields with time-critical resources.

“These could be lost if the companies fail to make the necessary investment. Both the NPD and my ministry must then emphasise that we expect profitable projects to be implemented.”

He maintains that the government has made this explicit all along, and feels that the companies “understand what we’re saying, and the dialogue with [them] functions by and large.”

Lien observes that the government must show understanding that not all commitments can be met at times when capacity in the industry is under heavy pressure.

“But that isn’t the case today. The obligations inherent in being a player on the NCS remain unchanged. And I expect them to be followed up.”

He is not prepared to go into the tax position in any depth because it does not fall under his ministry. While not claiming that Norway’s tax model is perfect, he feels it is better than in most other oil-producing countries.

“It ensures a good distribution of risk and revenues between government and companies. We have a model which is dynamic by nature, and structured so that it can adapt to change. There’s less need to amend our regime than in many other places.”

Lien does not think the Norwegian model should be compared with that in Britain, where adjustments have been made, because the UK continental shelf has a different resource base.

He sees drawbacks in permitting active use of tax provisions as a countercyclical measmeasure. What then happens when oil prices again reach USD 100 per barrel – or plummet to USD 20?

“Our tax model is good and predictable, and enjoys broad support among politicians and in the industry,” the minister maintains.

 

Petroleum and energy minister Tord Lien.

 

 

< Gives results.
“A commitment to petroleum research is also important in the big picture,” says petroleum and energy minister Tord Lien. “That could encourage activity next year – we must maintain expertise and capacity in the industry. “In a longer perspective, such work will contribute to realising more resources. That’s the lesson we can draw from history.”

 

Record

Bright spots are to be found even in these difficult time. The Norwegian gas machine has set a record for exports in both gaseous and liquid form this year. With today’s energy mix, the question many people are asking is what prospects Norway has for remaining a substantial gas supplier to other European nations. Lien is an optimist.

“We obviously have the resources and a fantastic infrastructure built up over several decades. This delivers high regularity, we have the expertise, and are a trusted exporter both as a nation and an industry. Everything’s in place.

“Our aim is to convey a clear message to the European buyers. We expect the signals emerging from their systems – which are more politically controlled than here in a number of EU countries – to confirm that this commodity will have a substantial role.

“Both the EU member states and the European Commission are on the right track, and I’m looking forward expectantly to the new EU gas strategy.

“This will probably be published in the first quarter of 2016, and I believe gas – including ours – will continue to occupy a big place in Europe’s energy supplies for a long time to come.”

“I’ve made it clear to the EU that its plans should extend to 2030-40 in order to provide the right investment incentives on the NCS. Further capital spending on infrastructure will call for a big effort.”

Lien sees big scope for Norwegian gas. It is public knowledge that the big Dutch Groningen field is having problems in maintaining production. That also applies to a number of other smaller sources of European gas.

“Where we’re concerned, this is about maintaining a high level of exports for decades to come,” Lien observes. “The government will lay the basis for this.

“That will ensure the resources we have in the ground continue to create value for the benefit of our children and grandchildren, while helping our friends in Europe with the reliable gas deliveries they need to reach their climate targets.”

Negative

Gas enjoys a greener image in the rest of Europe than it does in Norway. Petroleum has increasingly becoming a negative term among sections of the Norwegian public, and is discussed in terms very different from a few years ago.

Lien says that the government and the industry must highlight the value created in the form of revenues, employment, and spin-offs where energy plays a central role in social development.

“Oil and gas are contributing to a cost-effective energy system which is fundamental for growth, welfare and prosperity,” he notes.

“The industry and this government take the climate issues seriously. We need to overcome two major challenges simultaneously.

“One is to build an energy system which is sustainable not only in climate terms but also socially and economically. And we must produce enough energy to continue moving hundreds of millions of people out of poverty.”

Norwegian gas is definitely part of the solution, Lien says. He identifies two important reasons why a clear disconnect between economic growth and greenhouse gas emissions can now seen for the first time since the Industrial Revolution.

One relates to Chinese growth, which has moved from being driven by transport and industry to a focus on services. The other is that the Americans are replacing coal with gas. These factors explain half the changes which have been seen, he says.

“We still need oil, and Norway has just under one per cent of the world’s remaining crude resources. Some people then ask whether we should shut down the country’s biggest source of value creation by far, which employs people all along the cost, to save the world from one per cent of its oil.

“It would be extremely unwise politically, and lead to our production being replaced by oil from other suppliers who cause larger emissions per unit produced than we do.”

He believes that people’s understanding of the significance of this industry is probably greater now, with oil prices around USD 50 per barrel, than it was two years ago when they were double that.

But that is not enough. The minister says he has told chief executives in the supplies sector and at the operators that they must become more visible in the public debate to boost understanding of the industry among opinion-formers and a larger proportion of the public.

He says he is pleased that more industry leaders have taken on this role, and are “speaking out better and more clearly than before.”

Names

A relevant question for Lien where plain talking is concerned is the government’s policy with regard to field names on the NCS, after a change in practice by his predecessor.

Ola Borten Moe from the Centre Party dropped the habit of using labels drawn from Norse history and mythology in favour of well-known parliamentarians such as Johan Sverdrup.

The petroleum and energy minister has the final word on such names, and has not made any change in approach public. But he recently approved a development entitled Maria.

Lien is less concerned with this issue than Moe. “It makes sense that field names convey a meaning in the public mind. But I believe the state ought to refrain from managing such matters in detail.

“The industry should be able to think for itself. We have formal authority to decide, but I’d nevertheless urge the companies to pick labels which mean something.”

His attention is more concentrated on the challenges currently facing the industry – and the exercise of government authority.

“In times like these, the government – and the NPD is the most immediate agency here – should meet the industry in a manner which is firm but based on dialogue.

“That’s more important than ever. We in the ministry must do the same. Despite demanding times, we must do the job properly so that we help to ensure the right investments are made.”

 

"We still need oil, and Norway has just under one per cent of the world’s remaining crude resources."

 

 

Norwegian Continental Shelf no.2-2015

Main page - Contents
Bente Nyland on the NCS: Glass is half-full
Thinking outside the box made Maria’s development possible
Special report: 50 years
Norway’s offshores sector safer than before
Safety carries a cost
Seeking to cut documentation
Eldar Myhre and son Aslak discuss what oil has done with Norway
NPD profile: Diskos database crucial for exploration success
Making huge volumes of offshore data available
Adding up to acclaim
Rockshot: Tight formations
Geology: Many benefits for society
www.norskpetroleum.no: Find facts about the NCS