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Oil & Gas in the North Sea

by Jan Hagland, Director of Information for the Norwegian Petroleum Directorate

    In his award-winning standard book on the world history of oil, "The Prize", author Daniel Yergin describes the discovery of oil and gas in the North Sea as the "biggest play" so far in the history of petroleum - in other words bigger, and from an energy-strategy viewpoint more significant than the finds in the Middle East, South America and Alaska.

    A comparison of this kind may appear somewhat strange today, since there is no doubt at all that the world's largest oil reserves are to be found in the areas around the Persian Gulf. These are the regions that will guarantee future supplies of this vital raw materials.

    At the same time it is a fact and one that substantiates Yergin's words that as early as 1978 it was said in Opec circles that Norway would become one of the world's most important marginal producers of oil.

    An observation of this kind really conceals what it underlines: that the North Sea and the Norwegian continental shelf are synonymous with oil and gas in Europe. This applies in particular to the Norwegian sector of the North Sea since Norway exports 90 per cent of its entire oil production.

    Today Norway sits on approximately half of the remaining reserves of oil and gas in Europe. It covers 10 per cent of Europe's gas consumption and within a few years will increase gas exports dramatically and account for 30 per cent of European gas imports.

    Norwegian gas pipelines go from the North Sea and the Norwegian Sea to England, Germany, Belgium and France. Norway is the world's biggest operator of submarine gas pipelines and is now preparing to meet the challenge that the liberalisation of the gas markets in Europe will present.

    Long-term commitment is what characterises Norway as a gas supplier to Europe. The new century has been dubbed the Gas Century. In 2020, gas will outstrip oil as the major money-maker in the Norwegian oil and gas industry.

    Norway is now preparing the development of the Ormen Lange field, a major gas field situated at a depth of 1,200 metres in the North Sea.This extends the gas perspective northwards on the Norwegian continental shelf. An even more extended perspective includes the Barents Sea, the arctic part of the Norwegian shelf.

    Exploratory drilling is scheduled to be resumed in the Barents Sea in the summer of 2001, after a six year halt in operations.

    Plans are also in hand to develop the Snøhvit field on the Tromsøflaket off north Norway, bringing the arctic petroleum perspective even closer.

    For 30 years Norway and Russia have been negotiating the issue of the so-called delimitation line in the Barents Sea. When president Boris Yeltsin visited Norway in 1996, he linked the delimitation line negotiations to the possibility of a petroleum cooperation between the two countries in the Barents Sea, a possibility for which both countries have already found a practical basis.

    What the extent of such a cooperation will be remains to be seen. But there is no doubt that significant finds of gas have already been discovered on the Russian side of the Barents Sea, while Norway again pushes forward on what can be termed the front line of the Norwegian shelf.

    The North Sea became a third major oil producer in the world almost exactly two years after the huge Prudhoe Bay reserves were found in Alaska. These formed a significant counterweight to the dominance of the Middle East on an oil market that was in dramatic growth on account of the enormous increase in motoring and aviation in the 50s and 60s.

    The development of the petrochemicals industry, which converted the oil molecule in ever shifting combinations into clothes, food and fertilisers, added to the value of oil as a raw material of importance for energy and trade strategies. Oil became a global force in itself. E.F. Schumacher, the author of "Small is beautiful" wrote that there is no substitute for oil. Though energy can be bought and sold like any other type of goods, it is not a commodity like any other but a fundamental requirement for other goods, a basic ingredient on a par with air, soil and water.

The hydrocarbon age

    Oil is first and foremost the raw material of the age of mobility, an essential condition for the internal combustion engine.

    A few simple facts underline this fact. From 1949 to 1972, the demand for oil increased by five and a half times in the USA, by 15 times in Western Europe and by 137 times in Japan.

    The hydrocarbon society was born and developed through the 50s, 60s and 70s.

    At the same time, the world's oil industry was given a national "prefix". The countries which owned the oil took over production and the entire oil economy. National oil companies were established both in the Middle East and in Europe. It is an interesting historical fact that it was at this time that Norway started to look around for "oil political solutions." The Ekofisk field was discovered in December 1969. Norway was an owner on the shelf. How were oil operations to be run?

A lack of expertise

    When major natural resources were to be exploited in Norway from hydroelectric power to fisheries and the smelting industry, the state had traditionally been involved.

    But oil activities? This was a major challenge. It required enormous amounts of money and technical know-how, which Norway did not have. It had no geologists, petroleum economists, or lawyers specializing in petroleum issues. It had only transported huge amounts of oil across the world's oceans. But within oil prospecting, production and refining Norway had virtually no knowledge to build on.

    In the rest of the world the oil producing countries were showing more and more muscle. In 1971, the Organization of Petroleum Exporting Countries. Opec, was established.

    Two years later, came the world's first oil boycott, as a part of the so-called Yom-Kippur war between Israel and Egypt in October 1973.

    The signal to the world was a clear one. Oil was cast into power politics and it is still there as a global power in itself.

    The oil crisis in 1973 sent prices soaring and was the start of Norway's oil adventure.

    And an adventure it was. Norway, the new member of the exclusive international club of oil producing countries. set up a Norwegian management model for its petroleum reserves. A ministry for the formulation of oil policies was established and oil legislation was formulated in the national assembly. A national oil company was built up and a Petroleum Directorate whose job was to procure the necessary professional competence was established.

    Norway took the helm in the development of its oil industry. Not everyone liked what they saw. Many of them reminded Norway of an Arab saying " Oil means trouble."

    And Norway's neighbours in Europe expressed the following view remember to play the game of oil -patience with European cards.

    Norway had doubtless reason to believe that it had entered a higher industrial division. Suddenly, through the 70s and 80s, enormous new finds of oil and gas were made one after the other, finds that were among the biggest in the world.

    Oilfields were developed with the aid of a sophisticated technology made possible by the high oil prices of the 70s. And this continued, right up to the collapse in 1986.

    But though Norway through its national management model took control of its own oil and gas operations, it has always encouraged participation from overseas oil and gas companies. The world's biggest oil companies operate today on the Norwegian shelf. In this way Norway procures the widest possible professional basis for the extraction of its oil reserves.

    One can therefore say that the development of Norway's oil and gas fields has consisted of a grand-scale clubbing together between the owner country and the world's biggest oil companies.

    Today, the situation on the Norwegian shelf has entered a new phase, a ripening phase one might say. The era of the gigantic oil finds is over. Norway's petroleum bank consists today of a number of small and medium-sized finds which must be developed with the aid of new, simple and environment-friendly technology. Around one hundred oil and gas finds are awaiting development during the next 25 years and the expected investments during this period will be as great as those that have been made so far.

    The Storting has decided that the oil and gas are to be extracted on a long-term perspective. The oil and gas riches are to be converted into financial riches in the shape of an oil fund to ensure the welfare of future generations.

    Norway also has ambitious environmental policy goals for the development of its energy. Its goal is to be a major producer of energy but a front-line country in environmental issues. The authorities and the oil industry are working together on the development of new, environment- friendly technology for petroleum activities.

    But as is the case for most industrial enterprises, market and price are the determining factors in the management of resources.

    Norway has a clearly defined goal: to continually simplify technology so that Norwegian oil and gas are competitive even when oil prices are low. Norway is a member of the International Energy Agency (IEA) but not of the Organization of Petroleum Exporting Countries, Opec. The Norwegian economy and its petroleum exports face westwards towards the OECD area. Nevertheless, Norway, as the world's second biggest exporter of oil, has a pragmatic relationship with Opec. Through reductions in its oil production it contributes towards keeping oil prices on what is termed a reasonable level, in recognition of the energy strategic and national strategic value of oil for both the rich and the poor countries of the world.

This article was produced by Nytt fra Norge for the Norwegian Ministry of Foreign Affairs in April 2000,and is reprinted here with permission.