Norway – part one:

Published October 23rd, 2000 - 02:00 GMT

Norway is the second larges oil producer in the world, second only the Saudi-Arabia. With formidable oil as well as gas reserves, it is in position to adapt or not decisions made by OPEC. In light of it’s unique position among oil producing countries, we bring this DOE paper on Norway. It should be mentioned that Norwegian natural gas exports to Europe are expected to rise quickly in coming years. 

Note: Information contained in this report is the best available as of May 2000 and is subject to change.  

 

BACKGROUND: 

 

On March 17, 2000, Jens Stoltenberg was sworn in as Norway's prime minister in the wake of an energy and environment controversy that prompted the preceding prime minister's resignation.  

 

Former Prime Minister Kjell Magne Bondevik stepped down after losing a parliamentary vote of confidence over his attempt to prevent the construction of two natural gas power plants.(Norway is now 99 percent reliant on hydropower for domestic electricity generation.) 

 

Norway, one of the world's largest oil exporters, is enjoying very healthy economic conditions, partly as a consequence of higher world oil prices. The country has a small industrial base apart from its oil and gas, shipping, and fishing industries. It therefore is concerned about its economic welfare once its oil runs out, as is predicted for the first half of the 21st century.  

 

Norway makes annual contributions to its petroleum fund, a financial safety net for the time when oil revenues decline. The government is expected to add about $9 billion (NKr 71.8 billion) to the fund in 2000, bringing the fund's total to almost $38 billion (NKr 300 billion). 

 

Norwegians have voted in two referenda against joining the European Union, but Norway is part of the European Economic Area. Norway has a history of state control over major industry. The state currently dominates the oil, banking, and telecommunications industries.  

 

Norway's reliance on oil revenues has resulted in a government preference for keeping Norwegian businesses under Norwegian control. However, the current global trend toward privatization and consolidation is having an effect in Norway.  

 

There are plans for limited (at least) privatizations in the oil and telecommunications sectors in the near future. The new Stoltenberg government has criticized the preceding government for not moving quickly enough with plans to privatize Statoil, the state oil company.  

 

North Sea Oil and Gas: 

North Sea oil and gas were first discovered in the 1960s. The North Sea did not emerge immediately as a key non-OPEC oil producing area. North Sea production grew as major discoveries continued throughout the 1980s and into the 1990s.  

 

Although the region is a relatively high cost producer, its political stability and proximity to major European consumer markets have allowed it to play a major role in world oil and gas markets. 

 

Many of the world's major crude oil prices are linked to the price of the North Sea's Brent crude oil. (Brent crude is a blend of North Sea crude oils and does not come exclusively from the Brent field.)  

 

Because Brent crude is traded on the International Petroleum Exchange in London, fluctuations in the market are reflected in the price of Brent. Therefore, all other crude oils linked to Brent can be priced according to the latest market conditions. 

 

The late 1997-1998 oil price collapse had an adverse effect on North Sea production. In 1997 and 1998, North Sea oil production remained stable, whereas previous years had shown increases of 400,000 bbl/d.  

 

The North Sea is considered a "mature" area, with few large discoveries likely to be made. Only a few frontier areas hold the possibility of further discoveries of large oil and gas fields. Of 130 known deposits of oil and gas on the Norwegian continental shelf, about 40 are estimated to be economically viable for development in the next decade.  

 

Some predict that the North Sea will reach peak production of about 7 million barrels per day (bbl/d) in the early 2000s, although technology developments are enabling production beyond what many analysts had predicted for the area. Because the region is believed to be nearing its peak production, in both of the major North Sea producing nations, Norway and the United Kingdom (UK), government and industry are taking steps to restructure their oil and gas sectors to make them more internationally competitive. 

 

OIL: 

Norway has proven oil reserves of 10.8 billion barrels. In 1999, Norway was the world's third largest oil exporter. Norway consumes very little of the oil it produces, and its oil exports are the country's greatest source of revenue. Norway's oil reserves are located exclusively offshore and mostly in the North Sea, with smaller deposits in the Norwegian Sea.  

 

Norway's key position in world oil markets was underscored recently by its cooperation with OPEC members to restrict oil production, in order to maintain higher world oil prices.  

 

Norway agreed to cut production by 100,000 bbl/d in April 1998 and in April 1999. After OPEC's March 2000 decision to increase oil production, Norway followed suit and decided to increase its production by over 3 percent for the second quarter of 2000, releasing an additional 100,000 bbl/d into world oil markets.  

 

In early May 2000, Norway's six-day strike resulted in the suspension of about 1 million bbl/d in tanker loadings. Although oil company employees were not involved directly in the strike, tankers were unable to berth at key oil terminals because tugboat operators were participating in the strike.  

 

Oil Sector Restructuring: 

Norway's oil sector currently is undergoing a period of major policy change and reorganization. In the 1970s, the Norwegian government established a policy whereby three major Norwegian companies -- Statoil, Norsk Hydro, and Saga Petroleum -- would be the preferred recipients of production licenses for the Norwegian continental shelf. Statoil and Norsk Hydro remain the key producers of Norwegian oil and gas. 

 

Statoil, the largest Norwegian oil company, is 100 percent state owned, but is slated to be privatized. A need for investment capital to face increased competition in the global market is behind the privatization plan, which is still in the planning stages. The new government's Oil and Energy Minister has promised to make public a restructuring plan for Statoil by June 2000.  

 

In preparation for privatization, Statoil recently decided to sell its non-core Norwegian assets. Its focus will be on the Halten Bank and Nordland areas of the Norwegian Sea, and the Statfjord, Gullfaks and Troll/Sleipner areas of the North Sea. Offer letters for Statoil's other assets were sent to potential buyers in April 2000. 

 

The government is planning to sell its State Direct Financial Interest (SDFI), a state entity that owns 40 percent of Norway's offshore oil resources and is managed by Statoil. A final decision remains forthcoming, but it appears likely that SDFI shares will be transferred to Statoil before a public offering for the first stage of privatization of Statoil.  

 

Saga Petroleum, the only 100 percent privately held Norwegian oil company, was performing poorly and was ripe for a take-over. After a competition with France's Elf Aquitaine (now merged into TotalFinaElf), Norsk Hydro became the new owner of Saga in 1999.  

 

Norsk Hydro's acquisition of Saga reduces its public ownership, originally 51 percent, to less than 50 percent. Norsk Hydro plans to sell many of Saga's assets, including those in the British North Sea. 

 

Oil Production: 

Major Norwegian North Sea production areas include: Ekofisk, Sleipner, Frigg, Statfjord, and Oseberg and Troll. There are also four production areas in the Norwegian Sea, which produce more natural gas than oil. (The 62nd line of latitude separates the North Sea and the Norwegian Sea.)  

 

Oil investment reached a record high in 1998 of almost NKr 80 billion (about $10 billion) and was expected to drop to about NKr 70 billion (about $9 billion) for 1999, with an increase of up to 12 percent expected in 2000. The large number of fields currently under development explains the surge in investment.  

 

Norwegian oil projects under development include: Balder, Visgund, Jotun, Snorre 2, Oseberg South and East and Gullfaks South. Producing fields account for an estimated 66 percent of total Norwegian oil investment. In 1999, the Norwegian Oil and Energy Ministry awarded exploration licenses in 19 North Sea blocks to 14 different oil companies.  

 

Norsk Hydro, Agip, BP Amoco, Esso, Statoil, and Shell received licenses to explore new areas. Participation licenses were awarded to Agip, BP Amoco, Enterprise, Esso, Norsk Hydro, Mobil, RWE-DEA, Saga (now part of Norsk Hydro), and Statoil.  

 

Ekofisk was the first North Sea oil field to be discovered, in the late 1960s, and developed, with production beginning in 1971. Since 1975, oil has been piped from Ekofisk to the UK (Teesside, England).  

 

There are currently 29 platforms installed in the area, some of which are in the British North Sea. The most recent phase of development began in 1994, when the Phillips group (the U.S. company that leads the Ekofisk operating consortium, which includes TotalFinaElf, Norsk Agip, Norsk Hydro, and Statoil) installed two new platforms at "Ekofisk II".  

 

Ekofisk II came onstream in August 1998. The Phillips license runs through 2028. Phillips plans to remove 14 of the 29 Ekofisk platforms between 2003 and 2018, at an estimated cost of $1 billion (NKr 8 billion).  

 

About 10 percent of the removal cost will be paid by Phillips, 72 percent by the Norwegian government, and the remainder will be paid by the other members of the consortium. In late October 1999, Phillips submitted a proposal to the Norwegian government for removal of the platforms.  

 

Phillips plans to bring the steel structures ashore for recycling, to leave a concrete tank and barrier wall in place, and also to leave about 150 miles of pipelines buried. A final decision is not expected from the Norwegian parliament (the Storting) until the latter half of 2001. 

 

Statfjord was discovered by Mobil in 1974. It is the largest oil field in the North Sea, and it extends into the British North Sea. Production began from Statfjord A in 1979, from Statfjord B in 1982, and from Statfjord C in 1985. 

 

Statoil took over the operations from Mobil in 1987. Three large concrete platforms with storage cells have been installed on Statfjord. The Norwegian share of gas from the field is piped through the Statpipe/Norpipe system to Emden in Germany via Kårstø, north of Stavanger.  

 

Britain's 15 percent share goes by pipeline via the Brent field to Scotland. Statfjord's production has exceeded the most optimistic expectations. Its recoverable reserves have been upgraded several times. Statfjord should continue producing until 2020. 

 

In March 2000, the Norwegian Oil and Energy Ministry decided to grant tax relief to oil producing fields developed before 1986. Four fields will no longer have to pay an 8 percent to 16 percent tax on production.  

 

The cuts will be phased in on four additional fields, including Statfjord and Gullfaks. As Norwegian fields mature, the Norwegian government has become involved in finding new resources for its companies to develop outside the North Sea region.  

 

In the summer of 1999, Intsok, a government initiative launched for that purpose, announced its interest in projects in Iran and Nigeria. Intsok also has shown interest in projects in the Gulf of Mexico and offshore Brazil. 

Source: United States Energy Information Administration. 

© 2000 Mena Report (www.menareport.com)

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