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Since 1970 it's been clear that vast oil and gas riches lay under the ocean floor off the Norwegian coast. In the year 2000, we'll still be determining the size of these resources. We know that at the turn of the millennium Norway will be one of the world's major oil exporting countries and a main source of natural gas for Europe. Following a sharp increase in oil production in the 1970s, 80s and 90s, oil extraction will level off and decline in the next decade, while gas production will double from 1995 to 2005. The Petroleum sector will remain one of the most important spheres of the Norwegian economy for a long time to come.
By Egil Helle
Geological experts grew interested in the North Sea as a possible petroleum province after the discovery of gas in Groeningen in the Netherlands in 1959. A few years later, in the autumn of 1962, the American oil company Phillips, with other oil companies following close behind, applied for the right to prospect in Norwegian waters.
After the legal problems were clarified and boundary treaties signed with Great Britain and Denmark, drilling on the Norwegian Continental Shelf got started in 1966. To begin with, the results were disappointing. Hopes had nearly been given up when workers on the drilling rig "Ocean Viking" surprisingly smelled oil on 23 December, 1969. Further drilling led the president of Phillips to say in the beginning of June, 1970: "It looks like we've discovered a giant oil field". The field lay directly north of the boundary to Denmark, at the southernmost point of the Norwegian Continental Shelf. It was called Ekofisk.
Throughout the 1970s came one glowing report after the other of new oil or gas finds in the North Sea. Several fields in the Ekofisk area were declared commercially viable for both oil and gas development. The French oil company Elf discovered the gas field Frigg, and America's Mobil found the world's largest offshore oil field, Statfjord. Before the decade was over, Shell was able to confirm that northwest of Bergen lay a gigantic gas field which was later named Troll. Norwegian oil companies joined in as prospecting operators. Statoil explored the "golden block" in the vicinity of Statfjord. The field was called Gullfaks. Norsk Hydro became the operator of the "silver block", Oseberg.
The 1970s was the decade of the big oil and gas finds. Production of oil on Ekofisk began modestly from a floating rig in the summer of 1971. Permanent installations and an oil pipeline to Teesside in England were in place four years later. Starting in 1975, Norway began to produce more oil than it used. 1977 saw the start-up of gas production from both Ekofisk and Frigg. From Ekofisk, the gas was piped to Emden in West Germany and from Frigg to St. Fergus in Scotland. At the end of the 1970s, on 24 November 1979, the first platform on the Statfjord field came on stream. Oil from both this platform and the Statfjord B and C platforms is loaded out in the field. Natural gas is transported via pipeline to Kårstø north of Stavanger. The wet gas is separated out and used in the petrochemical industry, while the dry gas is sent south to the Continent.
In accordance with the terms of the original contract with Mobil, Statoil has taken over as the operator of the Statfjord field. Statoil's first big development project was Gullfaks, which started operating in 1986 with the same transport solutions as for Statfjord. Hydro carried out its development plans for Oseberg and started production at the turn of the year 1988-89. The first oil pipeline to the Norwegian mainland was laid between Oseberg and Stura in Øygarden municipality, a little north of Bergen.
In the mid-1990s, the four fields Ekofisk, Statfjord, Gullfaks and Oseberg were producing 80% of Norway's oil. The country's oil output expanded beyond the expectations of earlier prognoses, mainly because better understanding of the reservoirs was obtained and technological breakthroughs facilitated their exploitation.
In addition to the four major fields, there are over 20 small and medium-sized oil and gas fields in operation off the coast of South Norway. Foreign companies still play an important role in exploration, development and production on the Norwegian Continental Shelf. Norway has three strong companies due to the development of Statoil, Hydro and Saga. Saga developed and operates the Snorre field which came on stream in August 1992.
Activities were for some time restricted to areas south of the 62nd parallel. on the basis of the wish to "hasten slowly" and maintain a moderate tempo. Not until 1980 was strictly regulated exploration permitted offshore Mid- and North Norway. It did not take long to confirm that these areas also contained petroleum reserves. Both oil and gas were found on the Haltenbanken offshore Trøndelag county. The date for developing the gas fields Midgard and Smørbukk depends on a market solution. Draugen, which is operated by Shell, is an oilfield with little associated gas and production started in 1993. Further north in Haltenbanken, the Heidrun field is to be ready for production from August 1995. The operator for its development was the American Conoco, while Statoil will operate it during the production phase. Gas from Heidrun will be piped ashore and used in a new methanol factory at Tjeldbergodden on the Møre og Romsdal side of the border with South Trøndelag county.
Production from an oil field offshore Nordland county will begin in 1997. The field operator will be Statoil and oil will be extracted by a production ship and a subsurface well system. It's name is Norne.
Both Norwegian authorities and the oil companies hope for new finds off the Nordland county coast. Expectations are particularly great regarding the Vøring Basin. Oil companies have been invited to apply for permits to explore and exploit blocks in this area. Rights will be granted in the fourth quarter of 1995. Production, if any, is unlikely to start until 2010.
Furthest north, in the Barents Sea, some 50 wells have been drilled. But so far, oil prospecting has been without result. Gas fields have been found, but these fields are too far away from the European markets to be commercial. Negotiations on the sale of LNG (Liquefied Natural Gas) from the Snøhvit field, just north of Tromsø, to the USA or Southern Europe have not led to agreements. But the Barents Sea seabed is far from being forsaken as a source of natural gas. Geological experts think that it is just a matter of time before they find the key to commercial petroleum strikes.
There is still no agreement between Norway and Russia on a delimitation line between the Norwegian and Russian Continental Shelves. Norway and the former Soviet Union started negotiations in 1974. Norway sees no reason why a median line principle cannot be followed, but has agreed to discuss a compromise. The Soviet Union proposed the so-called sector-line, which runs farther west than the median line, and during the Brezhnev period the Soviets stood firm by this. Just before the dissolution of the USSR the Soviets relaxed their view. A Soviet proposal on a zone for joint exploitation of resources was rejected by Norway, which feels that good relations are best served by drawing up a clear border between the continental shelves. However, it would be natural to reach agreements to cooperate on the exploitation of oil and gas which lies on both sides of the boundary, as Norway and the UK did in connection with the Statfjord, Frigg and Murchison fields in the North Sea. Negotiations on the Barents Sea delimitation line will continue between Russia and Norway.
Another unresolved issue in the north is the application of the Svalbard Treaty. In Norway's opinion the document only applies to the island group and the four nautical miles surrounding it, as stated in the treaty. The Soviet Union contested Norway's view and claimed that the treaty must also be applied to the continental shelf around Svalbard. The major western countries have not taken any standpoint in the dispute, which is decisive for the exercise of Norwegian authority in the far north.
On the largest island in the archipelago, Spitsbergen, drilling for hydrocarbons has been permitted under the terms of the Svalbard Treaty, but so far no commercial finds have been made.
Norway has strong ties with the western, industrialized world. It was a modern industrial country before the oil was discovered. Norway is a member of the International Energy Agency (IEA) which is an energy organization for advanced industrial nations. Norway has a special agreement as the only net exporter of oil among the IEA countries. It is based on Norwegian sovereignty and willingness to act in solidarity with the oil consuming countries in times of crisis. Although for decades to come, Norway will be among the oil exporting countries, the development of the mainland economy and lesser reliance on petroleum revenues is an explicit national goal.
Norway shares a common interest with the OPEC countries in a stable and reasonably high oil price.
In the 1970s and 80s the price of oil fluctuated wildly. The price quadrupled in 1973-74 and it doubled from 1979 to 1980. The price at the beginning of the 1980s was USD 40 a barrel. A dramatic drop followed in 1986, when North Sea oil sold for less than ten dollars a barrel. As a result, Norway announced its intention of supporting OPEC's efforts to bring prices up again. From 1987 to 1980 Norway limited production increases, though it had no formal agreement with OPEC. However it had the same goals - regulating production was in the national interest. As an oil producing nation, Norway seeks a stable and predictable oil price that both oil producers and consumers can live with.
The development of oil and gas fields under the deep sea off the Norwegian coast requires huge investments. The profitability of a field depends in part upon the technology that is used. The sharp price drop in 1986 spurred technological innovations. This is one of the reasons why small fields have become commercially exploitable. In the North Sea, an obvious advantage has been that small fields could be connected to the infrastructure of the big fields.
The Norwegian state has three sources of revenue from its offshore petroleum activities. The major one is taxes and duties which it levies on the oil companies. In 1995, these are expected to total NOK 24.3 billion (about USD 3.85 billion). The state's direct economic involvement will net it about USD 950 million, while stock dividends from the 100 per cent state-owned oil company Statoil will amount to about USD 2.14 billion. This adds up to nearly USD 7 billion in revenues this year.
With stable oil prices, state revenues will rise sharply in the course of the next decade, in part because the cost of investments in new
fields will decrease. The reserves in productive oil fields could also be upgraded in the future, but without considerable new discoveries, oil production will gradually decline in the next century. As an exporter of gas, Norway can count on a longer perspective. Deliveries to Europe from the big Troll field will begin in 1996. The demand for natural gas is rising, and Norway already has proven reserves which will last 50 years, even if the production rate of the 1990s is doubled.
The author of the article, Egil Helle, is former Head of Information at the Ministry of Petroleum and Energy.