Exploiting oil and gas in the High North. Why, where and how.

By Johan Petter Barlindhaug, Chairman of the Board, North Energy ASA

The viewpoints expressed in this article are solely those of the author and cannot be attributed to the Norwegian Scientific Academy for Polar Research. The Academy hopes that our Newsletter can stimulate debates among our members and partners, which may be edited and posted on our web-site.

The driving forces in Norway’s petroleum industry are dominated by the national interest:

  • Increased domestic income and prosperity
  • Greater industrial value creation and international competiveness
  • Territorial interests in the far North

The international importance and relevance of Norwegian petroleum operations are now attracting greater interest, both at home and in the rest of Europe. So far, the main issue in Norway’s political debate on the petroleum sector has focused on whether to boost or curb offshore activities rather than on how the country and its fossil resources can contribute to reduction of global carbon emissions. Reducing Norway’s petroleum operations has symbolic value. Lower Norwegian oil exports can easily be compensated by other sources, while its gas resources may be very important in a global perspective as a contribution to Europe’s efforts to achieve its lower carbon-emission goals. The domestic debate on petroleum should therefore be devoting more attention to ways of developing a long-term Norwegian gas strategy. Coal is currently causing about 45 per cent of carbon emissions from fossil fuels. According to analyses by the International Energy Agency (IEA), cutting this proportion to less than 27 per cent by replacing coal with gas in electricity generation would be enough to stay within the two-degree ceiling for global warming up to 2050. But increase in European coal imports from the USA, and German support for higher domestic production of brown coal, pull in the opposite direction. This dilemma is at the heart of Norway’s potential to play a positive role through its petroleum industry in dealing with global climate change. Bridging the gap to a future where fossil energy resources can be replaced by green energy sources in Europe, and in Germany in particular, require major gas supplies at moderate prices. This means stable deliveries of pipeline gas or increased imports of liquefied natural gas (LNG). Under such circumstances, increased shale gas production has been regarded as a threat to Norwegian gas exports. But the opposite may actually be the case. The outlook for the volume and prices of pipeline gas supplies to Europe is too uncertain today to provide a solid basis for achieving a significant reduction in European coal consumption. A stable and significant supply of shale gas is likely to be a prerequisite for replacing coal in Europe with more environment-friendly energy sources and for the the implementation of Germany’s Energiwende turnaround. But because of high energy prices in Asia, LNG is likely to be a more unpredictable resource supply for Europe than pipeline gas. As a result, the latter must provide the basis for European energy security over many years to come. The question is then what this means for Norway’s petroleum industry.

  • Europe faces difficult challenges on gas supplies after 2022. Norwegian deliveries are set to decline drastically and will probably be down to a third of their present volume by the late 2020s. Over the same period, major gas contracts with Russia will also end.
  • No other nation can compete with Norway on price for delivering pipeline gas to northern Europe. However, if Norway is to maintain its role as a long-term gas supplier to Europe, additional resources must be brought on stream. According to the Norwegian Petroleum Directorate, the Barents Sea is the only part of the Norwegian continental shelf (NCS) likely to contain the volumes required.
  • Russia has larger offshore gas resources in these waters than Norway, but the country lacks short-term plans for bringing them to the European market. Its priority is LNG production from Yamal.
  • Over the next 20 years, Norway is the most likely guarantor of long-term pipeline gas deliveries to Europe – and the Barents Sea is the key to that position.
  • A long-term strategy for the Barents Sea must take account of the possibility that these waters and the continental shelf around Svalbard also contain commercial resources.
  • In Norwegian politics, the Barents Sea and the continental shelf around Svalbard have been regarded primarily as an issue for fishery and as a fishery protection area. But they are now likely to become a more important part of Norwegian – and European – petroleum and energy policies.

Norway issued licences in its 22nd licensing round for areas which lie above 74°N, which is included in areas covered by the Svalbard Treaty. These are located in the Hoop area, which is regarded as a very prospective part of the Barents Sea. If discoveries are made there, Norway must expect increased pressure for international agreements on management of the continental shelf around Svalbard. It will therefore be crucial that evaluations in Norway and in other countries are based on the realities faced above the 74th parallel for utilising possible resources. Solutions used for development of oil and gas further south on the NCS, with floaters and offshore loading, are unthinkable in the high North, and it will be necessary to have alternative development concepts at hand for the future. This fact, combined with the expected importance of gas resources for European energy demands, indicates that the Barents Sea North/ Svalbard continental shelf can no longer be regarded as a conservation area. Norway has to be proactive in defining criteria for industrial utilisation, not only of fish resources, but also of fossil fuels. The next revision of the Barents Sea management plan should therefore include the northern waters and Norway must set out clear conditions and requirements for possible development. Because an opening process should aim to safeguard Norwegian territorial interests and set requirements for sustainable development, the technical part of the processes should begin as soon as possible and take a broad approach. The challenges are huge, and the time has come for Norway to realise that its four strongest geopolitical advantages must be strengthened and highlighted:

  • State-of-the-art expertise
  • Confidence in the international community
  • Leading-edge technology
  • The most relevant infrastructure.

Given these realities, it is not in Norway’s interest to interpret the precautionary principle with conservation and passivity only. The country must recognise that sustainable development also means resource utilisation. In that context, the overall goals should be to:

  • Increase national and regional value creation in Norway
  • Ensure that Norway has full control of operations
  • Establish Svalbard as a centre for search and rescue in the Arctic
  • Request and prepare for area coordination of offshore development
  • Establish all process and export facilities for oil and gas on the mainland
  • Build a gas pipeline from the Barents Sea to the Norwegian export network in the south.

All issues listed above have already been adopted as Norwegian policy by the government, and will serve as important strategic guidelines for the oil industry in the Barents Sea. In addition, significant efforts must be devoted to research and development to meet the challenges of the “Arctic” Barents Sea.

Future oil and gas development of Barents Sea North must begin with relevant projects in the northernmost area of Barents Sea South. Moving towards the Hoop area represents a shift from “coastal” to “Arctic” waters. Norway must define the overall development concepts, which can prepare for projects in Barents Sea North. In that context, safe design and realistic operational criteria for installations will be key issues. The crucial challenges are the combination of long distances, polar lows, arctic storms, icing, icebergs and growlers which cannot be seen when it is dark. This calls for a real-time communication system and significantly improved equipment andvessels for maritime search and rescue operations. In addition to this, new knowledge is needed when the next generation of subsea processing facilities are to be installed and operated. And over and above all the technological challenges, there are important geopolitical and international aspects which also must be addressed. Such challenges requires a significant change from Norway’s current focus and priority of research activities in the high North, which primarily has been on environmental issues and which only to a limited extent has been concerned with technology and political issues. Seeking to provide knowledge to back policies attuned to national interests represents a challenge to the Norwegian government and to research institutions.