Apr. 2002 Vol. 223 No. 4  European Technology Round Up
Norway
Norway plans to reduce costs, improve recovery

Hans Peter Christophersen is the Technology Attache at the Norwegian Trade and Technology office in London. In this interview, he discusses Norway’s OTC presentation, tax and environmental revisions and major challenges that lie ahead for the North Sea, as well as Norway’s investment plans for both government and oil companies.

Q. Mr. Christophersen, how does the Norwegian Trade Council (NTC) work with Norway’s upstream oil/gas industry? What are its scope and goals?

A. We work on a quite broad basis, although we have a strong focus on small and medium enterprises. At the NTC London office, the oil and gas sector is particularly important. Together with the Embassy, we provide information and network support to government bodies, research institutes and industry. We provide guidance and help to a large number of companies via telephone requests and Emails, and we also provide information on our web pages. We report to the Ministry of Petroleum and Energy on activity and investment forecasts. We work closely with INTSOK (Norwegian Oil and Gas Partner), setting up network meetings with the UK industry, and we report on upcoming field developments.

Also, we work individually with suppliers doing market and partner searches. Together with the State Regional Development Fund, we facilitate technology development contracts between Norwegian oil and gas technology companies and larger global engineering companies. Although Norway is the world’s third largest exporter of petroleum products, it has not taken the same share in export of oil and gas hardware and services.

Q. Where does NTC maintain offices, and do these locations represent Norwegian company participation in geographical areas? Internationally, where are Norwegian oil companies and the contracting / servicing industry active?

A. NTC maintains offices in 43 locations in 34 countries. In the U.S., NTC is represented at six locations. The offices in Houston, Rio de Janeiro, Teheran, Singapore and London all have a strong oil-industry focus. Some locations support Norwegian companies with a "virtual" office. In London, we are now looking into a scheme involving support for Norwegian technology companies by integration with UK technology parks to gain better access to larger technology networks and global customer companies.

The core international areas for Statoil are West Europe, West Africa, Venezuela and the Caspian Sea. They also have a particular focus on Mexico, Brazil, Iran and Russia. Statoil has made it clear that gaining operatorship is its overall goal; however, Norsk Hydro does not regard operatorship internationally as important, although the company has a strong presence in countries like Canada, Angola, Iran, Libya and Russia.

Q. NTC said last year that 2000 was a year of recovery for the North SeA. How was 2001’s activity, with the surge and fall of crude prices? With a great deal of the North Sea emphasizing natural gas, do you see some stability in that market, vs. oil?

A. CAPEX investment in 2001–02 was around 50 billion NOK (US$5.6 billion) on the Norwegian Shelf. On the UK shelf, being more vulnerable to short term changes with larger number of smaller developments, investments in 2000 reached rock bottom, at £2.9 billion (4.2 billion) and were up to £4 billion ($5.7 billion) in 2001.

Demand for Norwegian gas is increasing. One reason is environmental. In 2000, Norway exported close to 50 billion m³ gas (1.8 Tcf), a 7% increase from 1999. This represents 2% of world gas consumption. About 10% of Western Europe’s gas supply comes from Norway. The UK will be a net importer of gas from 2005, and Norwegian gas can be an important part in that equation.

Q. How does NTC and the Norwegian industry see 2002? Do oil-company budgets and plans support an active contracting / construction contribution this year?

A. According to some contractors, prospects for 2002 look quite bright. One problem, however, is that the recent down-manning in the oil industry has resulted in a lack of qualified human resources. The average workload for Norwegian yards in the second half of 2001 was more than 60%. For 2002, the estimate is close to 80%. Development at Kristin is going ahead with total investments of 12–14 billion NOK. EPCI contract for the semi was recently awarded to Aker.

Following Kristin will be the more complex and controversial Snøhvit LNG field development, with total investments of 40-45 billion NOK ($4.5 billion). LNG production opens new markets much further away. Snøhvit gas has, in part, been sold to American El Paso Global LNG. This, Norway’s first major LNG project, is scheduled onstream by fall 2006. This will be the first development in the Barents Sea. The Plan for Development and Operation is now with Parliament.

Statoil’s total investment for 2002 is 25 billion NOK ($2.8 billion)—a significant increase from 2001’s 17.4 billion NOK. In addition to the 50 billion NOK CAPEX, maintenance and modification expenditure is estimated to reach 60–65 billion NOK ($6.7–$7.3 billion) on the Norwegian shelf. On the UK side, CAPEX investments this year are estimated to be similar to the Norwegian side. Last autumn, the first oil discovery was announced on the Faroe shelf—an exciting development.

Q. Are Norwegian companies working on new technologies and/or capabilities for worldwide challenges, such as: deep water, environmental concerns, maturing oil fields and frontier exploration? Do you expect much of this new technology to be displayed at OTC in Houston, or ONS in Stavanger this year?

A. We see a lot of innovation going on in the Norwegian offshore industry these days. Recent oil prices may actually help boost innovation, as we saw following the 1986 crash. There is, however, a concern in Norway that too little public-financed R&D goes into the oil and gas sector, which is so important to the country. In 2000, only 0.03% of government petroleum revenue was invested in R&D. Recent evaluations suggest that we may gain more than $100 billion over a 10–20 year period by strengthening the oil and gas R&D sector. Norway has developed a highly E&P industry, particularly strong within exploration technology, multiphase flow and process technology. The DEMO 2000 technology development initiative involves a number of interesting projects, including Kvaerner-Eureka’s multiphase pump unit (currently being tested), Framo’s seabed separator and ABB’s seabed power-distribution system.

At the NTC Norway stand in Houston, there will be some 27 companies. Some of these will display advancements in deepwater technology, subsea separation and decommissioning, to mention a few. At the time of this writing, there were four companies nominated for the 2002 ONS Award, two within deepwater technology, one in marine operations (decommissioning) and one in process technology.

Q. Has the Norwegian government made any significant moves recently that will affect the industry, such as frontier-area leasing, tax benefits / penalties or environmental regulations?

A. We have seen some adjustments to taxation regulations over the last year, however, these are not major changes. Taxes on oil companies may seem high in Norway. However, the possibility to deduct financial costs improves the picture compared to many other countries. The latest amendments to oil and gas taxation were approved by the Parliament last November. These include: new rules to prevent certain deductions attributable to activities outside the Norwegian continental shelf; deficit in petroleum income will be carried forward, increased by interest both for the corporate tax and the special tax (this will stimulate participation of new entrants to the continental shelf); and more favorable tax rules for gas fields that require construction of a new, large-scale LNG-facility.

Greenhouse gas emissions have been a key issue in Norway in planning new gas power stations. Norway generates almost all of its electricity from hydropower; therefore, adding new gas power stations will significantly add to greenhouse gas emissions. This is quite contrary to the UK, where building gas power stations makes significant reductions in emissions, as coal- and oil-fired stations are closed. I think Norway will use gas much more in the future. We already have a gas-powered ferry, and I think we will see many more, as well as gas-fueled buses and other industrial uses.

Snøhvit field will be the first field developed in the environmentally sensitive Barents Sea. However, further exploration in the Barents Sea will have to wait a thorough environmental analysis, which may take years. The Norwegian Pollution Control Authority halted exploration activity last year at the Barents Sea Goliat field.

Q. Do you see some other major challenges ahead for the North Sea?

A. A major challenge is to maintain production through development of smaller and marginal fields, and improve recovery from existing fields. If the 44% recovery factor can be improved to 57%, it would represent a total value of NOK 470 billion ($52.8 billion).

Nevertheless, the North Sea activity level will decline in the future and, therefore, a highly qualified offshore industry will focus more on opportunities worldwide. The present North Sea cost level is high ($12–13 per produced barrel); the main challenge is to reduce this. Cost levels in the Gulf of Mexico are reportedly 40% lower on average than in the North Sea, partly due to more standardized engineering and lower operational-regulation requirements.

Much can be gained through closer cooperation on E&P issues between UK and Norway. As an initiative from both governments, a work group has now been set up, where the main aim is to seek creation of additional value through a more integrated treatment of the North Sea basin. The areas under discussion include possible infrastructure projects, savings on operational costs through cross-border working and a single supply chain.