Norway’s oil and gas industry now stands at a crossroads. The national government is eager to cut emissions by 55% by 2030 yet is mindful of the fact that the sector accounts for 40% of total exports and around 14% of national GDP. As a result, the Norwegian Ministry of Petroleum and Energy’s recently-announced 2022 oil and gas licensing round could well define the future direction of Norwegian offshore developments.
The application deadline for interested companies is 12 September, and will award permits for projects in predefined areas where oil companies can access to attractive exploration areas on the Norwegian shelf. The aim is to grant new production licenses in the announced areas at the beginning of 2023.
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All the licensees on the Norwegian shelf are responsible for selling the oil and gas they produce – save for Equinor, which is also responsible for selling the government share of its oil and gas production – placing much of the burden for delivering on the area’s economic potential directly on the companies.
Norwegian offshore to continue its key role
Yet this framework has benefitted the sector in particular, and the Norwegian economy in general, for many years. The oil and gas industry is Norway’s largest and most important industry for value creation, government revenue, exports and investments. But in order to maintain oil and gas productivity over the long term, exploration work needs to be at least maintained, and if not ramped up.
New discoveries in mature areas are growing in importance, clearly showing the extent to which oil and gas is expected to play a role in the Norwegian economy in the coming years. Norwegian Minister of Petroleum and Energy Terje Aasland commented: “Further exploration is important to ensure that Norway remains a safe and predictable supplier of oil and gas to Europe.”
As an oil and gas exporter Norway has punched well above its weight in terms of its actual production for many years. Norwegian oil production covers a mere 2% of global demand and natural gas production covers approximately 3%. However, it is the world’s third largest exporter of natural gas, behind Russia and Qatar.
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By GlobalDataLast year, the total export value of Norway’s crude oil, natural gas, natural gas liquids and condensate was about US$82.6bn, or 60% of the total value of all Norwegian exports. This is the most valuable the industry’s petroleum production has ever been, and gas production in particular drove this accomplishment, accounting for the largest share of total export value compared to oil liquids (crude, natural gas liquids and condensate).
Exports rising again
About 95% of Norwegian gas is transported via a network of subsea pipelines to other European countries, while about 5 % is exported as liquefied natural gas. This is transported by ship from the Melkøya facility in Hammerfest. Meanwhile, oil from the Norwegian continental shelf is either transported by ship or through pipelines to a final delivery point on land.
Pipelines are used to transport it from the Norwegian shelf to four onshore terminals: Sture, Mongstad and Kårstø in Norway, and Teesside in the UK. Although Norwegian oil production peaked as far back as 2001 – when total liquid production, including natural gas liquids and condensate was 3.4 million barrels of oil equivalents a day – since 2014 oil production on the Norwegian shelf has been increasing again.
Last year, production of oil liquids was around two million barrels per day, and Norway exported about 1.2 million barrels per day of crude oil directly to other countries in Europe. These trading relations have been of great benefit to the Norwegian economy, but could also create a reliance on these deals that is incompatible with phasing out oil and gas development for the sake of meeting climate targets. Oil and gas may not be a viable industry in the long-term, but a significant portion of Europe now has an interest in ensuring Norway keeps production high.
International uncertainties
Indeed, this reliance on European trade has weakened the Norwegian oil and gas industry at times. Recent events have shown that the sector is vulnerable to industrial strife as well as global events.
In early July, the Norwegian Government was forced to intervene to end a strike in the petroleum sector that had cut oil and gas output that could have worsened Europe’s energy supply crunch. The strike over pay threatened to cut the country’s gas exports by almost 60%. “Norway plays a vital role in supplying gas to Europe, and the planned escalation (of the strike) would have had serious consequences, for Britain, Germany and other nations,” labour minister Marte Mjoes Persen told Reuters.
Alongside the daily gas exports of 1.1 million barrels of oil equivalent that could have been lost, 341,000 of barrels of oil would also have been written off, the Norwegian Oil and Gas employers’ lobby said.
Climate change activists concerned
Meanwhile, Russia’s invasion of Ukraine has gifted Norway a once-in-a-lifetime opportunity to replace Russian gas with its own supply. In June, the EU and Norway agreed to cooperate to increase the supply of Norwegian gas into the EU27. In a statement, both parties said they will “step up cooperation in order to ensure additional short-term and long-term gas supplies from Norway. There is strong potential for increased sales to Europe in 2022, bringing close to 100 TWh of extra energy to the European market.”
The EU imports roughly a fifth of its gas from Norway, compared with the 40% it got from Russia before Moscow’s 24 February invasion of Ukraine.
But there are concerns voiced by environmental lobbyists that a renewed focus on gas could derail UN climate commitments that are already in danger. António Guterres, secretary general of the United Nation has called more fossil fuel investment “delusional,” warning that the world has “gambled on fossil fuels and lost.”
“The energy crisis exacerbated by the war in Ukraine has seen a perilous doubling down on fossil fuels by the major economies,” continued Guterres. “The war has reinforced an abject lesson: our energy mix is broken.” Even more critical was Romain Ioualalen, global policy manager at Oil Change International, who accused the EU-Norway agreement of being a “moral failure”.
However, the Norwegian Petroleum Directorate is adamant that environmental and climate considerations, “are an integral part of Norway’s policy for the petroleum industry”, with emissions tightly regulated through several acts. The International Energy Agency (IEA) has also commended Norway on its efforts, saying it “has key opportunities to advance its transition and help lead the world on clean energy technologies.”
It describes Norway as a global pillar of energy security while also, “leading efforts to reduce greenhouse gas emissions from oil and gas production, especially through the electrification of offshore platforms.”
Norway has updated its already ambitious climate targets with plans to reduce greenhouse gas emissions by 90%-95% from 1990 levels by 2050, excluding carbon sinks, the IEA noted. While Norway can bast these ambitious targets, it still has considerable work ahead to meet them.
