High price to pay for halting exploration for oil and gas
Illustration of a production facility on the Norwegian Continental Shelf.
11/03/2024 Stopping exploration activity on the Norwegian shelf will accelerate the scale-down of the oil and gas industry.
The Climate Change Committee’s report was broadly covered when it was published last autumn. The deadline for comments regarding the report has now expired, and the Norwegian Offshore Directorate has submitted a comprehensive consultation response in which we point out significant deficiencies in this report. In light of this, Torgeir Stordal, Director General of the Norwegian Offshore Directorate, wrote this article, which was first published on altinget.no on 11 March.
This will be very harmful for the Norwegian economy and will complicate Europe's situation. Is that truly what we want?
Among other things, the Committee has proposed the development of a strategy for the tail-end phase of Norwegian petroleum activities. Until this strategy is in place, the Committee recommends not awarding new licences for exploration, production or installation and operation.
The Norwegian Offshore Directorate just submitted its input on the report. We believe that the Committee's proposals will have a substantial socio-economic impact if they are adopted. The purpose of a tail-end phase strategy is to discontinue profitable activity faster than what would otherwise have been the case.
The Committee has not addressed the major consequences this will have for value creation, employment around the country and state revenues. It could also weaken the EU's security of supply.
A temporary hiatus will immediately result in reduced exploration activity on the Norwegian shelf, and will weaken the basis for new discoveries that can be developed. Time-critical and profitable oil and gas resources could be lost and existing infrastructure will be shut down earlier than planned.
The 2050 Climate Change Committee has bolstered its mandate and is advocating for an amendment to the Climate Act when it proposes to cut emissions from Norwegian territory by 90-95 per cent by 2050 compared with 1990. This means disregarding the possibility of purchasing emission credits - which are among the most effective ways to attempt to reach climate targets. The cost of domestic cuts can be much higher than equivalent cuts in the EU.
163,000 jobs in play
Exploration activity on the Norwegian shelf has provided substantial values to society over the last 20 years. Overall net revenues are estimated at more than NOK 3000 billion.
163,000 people were directly or indirectly employed by the petroleum industry in 2020, which means about 6 per cent of total employment in Norway. The industry creates jobs throughout the country and helps maintain less centralised population patterns.
Production is declining on its own
The Committee presumes that activity in the oil and gas industry on the Norwegian shelf is too high leading up to 2050, which means that measures must be implemented to cut production.
On the other hand, the Norwegian Offshore Directorate expects activity in the industry to naturally decline following a production peak in 2025. The production decline towards 2050 is within what the Intergovernmental Panel on Climate Change and the IEA have projected is in line with successfully following up the Paris Agreement.
Despite the decline in activity, the Norwegian Offshore Directorate expects the industry to continue creating significant values leading up to 2050. The net cash flow in 2030-2050 is expected to amount to 4.5 thousand billion 2024-NOK. While the estimate is uncertain, the State's revenues in the form of taxes and ownership will account for close to 90 per cent of this.
Significant values could be lost
The Committee does not want to build new infrastructure that commits us to emissions toward 2050 and beyond. This means that no new export capacity will be built in the Barents Sea. If so, society will be losing out on substantial values.
The Norwegian Offshore Directorate projects that there are significant resources left to discover in the Barents Sea, but the LNG plant on Melkøya has no available export capacity beyond the gas from Snøhvit. This lack of capacity affects the companies' interest in exploration. Gas discoveries are of little value if the gas cannot be transported to the market. Without increased capacity, all other gas resources in the Barents Sea will remain stranded for a long time, which means that society can lose out on substantial values. At the same time, the energy situation in Europe indicates that there will be a need for gas for a long time to come.
Security for Europe
The energy crisis following Russia's invasion of Ukraine demonstrates the importance of stable gas deliveries from Norway to Europe. In 2022, Norway increased its gas exports by about 100 TWh of energy, the equivalent of about 65 per cent of all Norwegian power generation that year. Without Norwegian gas, it would have been more difficult to cover Europe’s demand for gas, and the price of energy would have been higher for all Europeans. Norway can be a safe and stable supplier to Europe for many years to come, but security of supply and geopolitics are crucial considerations that the 2050 Climate Change Committee does not appear to emphasise in its assessments.
The Norwegian Offshore Directorate would like to see calculations of the cost of these proposed measures for the petroleum industry for the broader society. As no such calculations have been made, the Committee's recommendations are deficient and misleading, given that socio-economically profitable measures are being replaced by more costly measures.
Director Communication, public affairs and emergency response
Updated: 11/03/2024