Summary of KonKraft report 6 Oil and gas activities in northern Norway Svolvær, Lofoten 3

Oil and gas activities in northern Norway

KonKraft report 6 deals with oil and gas operations on the Norwegian continental shelf (NCS) from Nordland county and northwards. It aims to contribute to a broad factual base for decision processes related to opening new exploration areas in these waters.

The Norwegian petroleum sector employs about 250 000 people directly and indirectly. It accounts for a third of government revenues, and 90 per cent of its profits accrue to the state. NOK 119 billion of the central government budget in 2009 comes directly from oil and gas revenues. These funds finance roads, nursery schools, hospitals and the Norwegian welfare state. In addition, they safeguard future pensions.

This industry is at a crossroads today. Oil production has dropped by 30 per cent since 2000. Recent forecasts from the Norwegian Petroleum Directorate show that it may be reduced by 50 per cent from its peak by 2013. Overall oil and gas output is expected to begin falling from the middle of the next decade.

To slow this decline in output and revenues, the oil companies need access to new and attractive exploration acreage. Half the production expected by the government in 2030 relates to resources which have yet to be proven.

Opening further areas of the NCS to petroleum activities would contribute to maintaining substantial investment and revenues for the community, and to continuing the development of industry in the northernmost parts of the country.

The report reviews unopened areas along the Norwegian coast from the Helgeland region and north-eastwards to the Russian border. Nordland VI and VII plus Troms II are regarded by the petroleum industry as the most promising regions for big discoveries which could slow the production decline. The KonKraft 2 report concerning production development on the NCS estimates remaining resources in these three areas at 3.4 billion barrels of oil equivalent (boe).

Svolvær, Lofoten Possible developments off Nordland and southern Troms

Troms II Tromsø 55

Senja 3 Nordland VII Harstad Narvik . Sortland . Stokmarknes 4 . Svolvær

. Leknes Nordland VI

2 Bodø 11

The oil and gas companies have ranked the areas regarded as the most promising:

Nordland VI 1 Ribban Basin 2 Utrøst Ridge – northern Træna Basin Nordland VII 3 Central/northern part 4 Southern part 5 Troms II

The following areas are not considered equally interesting in terms of petroleum geology: • Egga Edge • Along the coast of Helgeland • Along the coast of Finnmark 5

Possible developments off Nordland and southern Troms Nordland VI The basic assumption in Nordland VI is that one large oil discovery will be made, together with a medium-sized oil and gas find and some smaller strikes which could eventually be tied back to the first two.

A discovery in the Ribban Basin (location 1 in the map opposite) would lie 100 kilometres from the mainland and about 100 kilometres off the main Lofoten islands. One made on the Utrøst Ridge (location 2) would be 200 kilometres from the mainland and about 100 kilometres off Lofoten.

Nordland VII The assumption for Nordland VII is that the interesting areas lie respectively 60 kilometres from Lofoten and 20-40 kilometres off Andøya (locations 3 and 4). As an example, the report suggests a large gas discovery as well as a medium-sized oil and gas find.

Troms II Location 5 in Troms II lies 20-40 kilometres off Senja. The report assumes that a medium-sized oil field could be discovered.

Field sizes

Large oil discovery: 600-700 million boe (on a par with Norne) Large gas discovery: 100 billion scm (on a par with Frigg) Medium-sized oil/gas discovery: 200-300 million boe (on a par with Njord or Mikkel)

Development solutions Viewed overall, subsea development with wellstreams piped to land is seen as a good option for these areas. A solution of this kind could create substantial local spin-offs, including jobs. Subsea installations are also overtrawlable and thereby have no impact on fishing. The cost of different solutions has not been analysed in the report. The most important factors for comparison with an offshore solution are field size and distance to land.

Gas can be piped today over longer distances than oil. Technology development will concentrate on ensuring that crude from Nordland VI could be landed. A subsea solution with wellstream transport to shore would require a relatively substantial resource base to be profitable. Nordland VI is basically very promising in resource terms.

For smaller fields, offshore solutions are likely to be the most appropriate. Technological progress up to the time of a possible development decision could mature a landfall option, and it is accordingly assumed that local expectations of this can be met.

It takes an average of 18 years from the award of a production licence on the NCS until a field comes on stream. Should large discoveries be made, that time could be shortened to 10-15 years. Big finds provide a basis for substantial technology development which will extend today’s limits for technical and commercial feasibility. Other unopened areas off northern Norway

A number of areas on the NCS are immature as possible petroleum provinces, with very little data gathered. That applies to the area of overlapping claims between Norway and Russia in the Barents Sea, the northern Barents Sea, Svalbard and Jan Mayen.

Securing information about the potential for oil and gas exploration in these areas will be very important over the next few years in order to improve the basis for analysis and decision-making by government and industry. Collecting key data would reduce uncertainty about resource estimates, so that priority can be given to those areas which seem to have the biggest potential. This should be done through a collaboration between government and oil companies.

It is also recommended that the government establishes environmental standards for operating in these waters at an early stage.

Barents Sea North The Barents Sea covers 1.4 million square kilometres, but accounts for only seven per cent of total Arctic waters. None of the 72 exploration wells drilled in this part of the NCS lie in its northern section. A total of 80 scientific (shallow) wells have also been drilled in the Barents Sea, both north and south. The results indicate good opportunities for finding petroleum at several different geological levels in Barents Sea North and around Svalbard.

Area of overlapping claims with Russia The part of the Barents Sea disputed between Norway and Russia covers about 176 000 square kilometres, an area 50 per cent larger than the three counties of Nordland, Troms and Finnmark put together. Estimated resources in this region are very uncertain. The Russians have previously indicated expectations of about 7.6 billion scm. The US Energy Information Agency’s estimate is 1.9 billion scm.

Jan Mayen The continental shelf around Jan Mayen is Norwegian, and borders the Icelandic continental shelf. Norway’s sector has not been opened for petroleum activity. Its geological structures are expected to be broadly similar to those found in the western Vøring Basin of the Norwegian Sea.

A first offshore licensing round for oil and gas operations on the Jan Mayen Ridge between Norway and Iceland was announced by the Icelandic government on 22 January 2009. The area concerned lies south of Jan Mayen on the Icelandic continental shelf, and covers some 40 000 square kilometres. 7

How petroleum activities are conducted

Gathering seismic data is the most important instrument for mapping deposits of oil and gas. Research shows that seismic shooting does not harm fish stocks, but has found that it may occasionally scare marine life. To prevent possible conflicts, the times when seismic surveys can be conducted are strictly regulated.

Exploration drilling is the only certain way to prove oil and gas. Norwegian regulations require all such work to be conducted in the safest possible way for people, material assets and the environment. The authorities specify the times of the year when drilling is permitted in order to avoid conflict with fish spawning, fishing and the environment.

Zero physical discharge to the sea is a particular condition for oil company activity on the NCS north of the Lofoten islands. This means that all produced water is injected below ground and that the only discharges permitted are top-hole drill cuttings from exploration wells.

Drilling rigs used in the Norwegian sector of the Barents Sea are among the most modern units available. They are built to be able to drill in deep water and demanding weather conditions. These rigs are environment-friendly, and equipped for zero discharges to the sea as well as low exhaust emissions.

Development and operation of fields can be pursued in many different ways, depending on such factors as the size of the resources, opportunities for coordination with other fields, distance from land and water depth. Every field is different, and no standard solutions exist.

The three main options for oil and gas production are fixed platforms, floating production systems and overtrawlable subsea installations.

Transport solutions for oil and gas include pipelines which tie the field directly into the existing pipeline network, loading of oil into tankers on the field, or possible land-based oil and gas terminals plus gas liquefaction plants. Nyksund in Vesterålen (Photo: Willy Haraldsen/Scanpix)

Economic and employment effects

The report presents possible spin-offs from development examples based on expected discoveries. These estimates build on experience from earlier projects on the NCS, and assume two large, three medium-sized and some smaller discoveries which provide anticipated resources of roughly two billion boe.

Calculations for the production phase show that the employment effect could vary between 1 000-2 000 jobs when spin-offs are included. This is a significant number in a local and regional context, and could in many cases reverse a population decline.

It will normally take time for a region to develop the capacity and expertise which make local players attractive as partners. The extent of the impact also relates to how far the establishment of petroleum operations is reinforced by making the regions more attractive for both commercial activity and settlement. Such effects depend in part on government spending in areas like educational provision and infrastructure. It is also important that the oil companies encourage local companies to develop and qualify for contracts.

At the same time, spin-offs will be reinforced through continuous operation and activity from a series of developments in the region. Kristiansund provides a good case in point. After 30 years of activity, petroleum-related jobs account for 20 per cent of employment in the local authority. The Snøhvit development has become an important business for Hammerfest in terms of both tax revenues and jobs. Almost nine per cent of employment there is petroleum-related today.

The oil industry is knowledge-intensive, with relatively high levels of education and pay. Growth in petroleum operations could thereby boost general productivity in industry and expand tax revenues for the local authorities concerned. A future development of oil and gas activity off northern Norway must be pursued in co-existence and a spirit of mutual understanding with important local industries such as fishing and tourism. 9

Fishing and tourism The fisheries sector has historically been an important cornerstone for jobs and settlement in northern Norway. Since 1990, the number of people in the region with fishing as their main occupation has almost halved. Figures for recruitment to the industry look even more dramatic, with a steadily declining proportion of young people choosing to work on fishing vessels. However, fewer jobs in fishing have been offset to a great extent by the strong national growth in public sector employment. This has also benefited the three northernmost counties.

The tourism sector has become an increasingly important contributor to value creation, employment and settlement in northern Norway. This trend could continue, but will remain affected by a tourist season which lasts for only three- four months of the year. An overview of guest nights at north Norwegian hotels and hostels since 2000 also shows that vocationally-related demand has been at least as important for industrial value creation as revenues from tourism. Nyksund in Vesterålen (Photo: Willy Haraldsen/Scanpix) Again, the petroleum sector could play an important role for northern Norway in this area.

Possible effect on population in Vesterålen: Possible effect on population in Lofoten: Assuming that discoveries are made, the petroleum The corresponding employment effect in Lofoten is sector could lay the basis for the creation of 200-450 estimated at 150-900 jobs. lasting jobs in Vesterålen.

Population Population 34 000 27000

32 000 23000

30 000 19000

28 000 15000 2008 2020 2030 2008 2020 2030

Statistics Norway projections Statistics Norway projections Petroleum-related immigration Petroleum-related immigration

For Helgeland and Salten in Nordland county, petroleum activities could contribute in the order of 150-600 new jobs. The Senja region in Troms county could experience an employment effect of 150-220. In every region, these effects will occur in different industries but primarily in the private sector.

Sources: Statistics Norway and Econ Pöyry’s calculations. Environmental debate and co-existence

Challenges related to declining petroleum production are paralleled by an environmental debate characterised by imprecise and inaccurate use of terminology (see page 12). Achieving good, well- informed political decisions calls for a clear refinement of the debate and a strengthening of the factual base.

It has been claimed that Norway must cease producing oil and gas as a response to climate challenges. The fact is that the world needs more energy to combat poverty and develop prosperity. Substantial volumes of oil and gas are required, not least to replace polluting coal. KonKraft report 1 on energy nation Norway, published in 2008, notes that Norwegian oil and gas production contributes to reducing global greenhouse gas emissions.

Opening new areas for exploration off northern Norway is presented as a threat to fish and the environment. It has been alleged that even a moderate acute oil spill could not only harm an annual class but also destroy much of the entire stock of cod or herring. Both species spawn over a large geographic range from Møre to Senja, with eggs, larvae and fry spread over correspondingly extensive sea areas. Even in the worst conceivable case, it is unrealistic that more than a limited area would be exposed to an oil spill. The choice is not between petroleum operations on the one hand and fishing and the environment on the other. That has been contradicted by 40 years of Norwegian petroleum history.

The NCS has a long tradition of co-existence between fishing and petroleum activities. Oil companies and the authorities choose solutions which help to reduce the risk of conflict with other industries and the environment – by restricting operations during certain periods, for instance. Both industries administer valuable resources on behalf of the community. Co-existence is the key to value creation.

Special conditions have been imposed on petroleum activities off northern Norway to prevent discharges to the sea. Even with the requirements posed for the North and Norwegian Seas, however, no significant environmental harm from drifting spills has been documented. Nor have the acute discharges experienced during four decades of petroleum operations on the NCS caused demonstrable damage to the environment. A clear focus on health, safety and the environment, constant improvements to technology and an enhanced emergency oil spill response will ensure that the same applies in the future.

Nordland VI and VII plus Troms II represent no new challenges for exploration and production. Reservoir pressures and temperatures are not expected to be high. Nor do wind and weather pose significant additional challenges. 11

Oil spill response

Establishing an oil industry in northern Norway will Constant attention is paid by the petroleum industry to significantly improve emergency response to oil improving oil spill response, and a number of measures spills in the region, partly in the form of equipment, have been implemented to enhance its quality and expertise and resources. The ability to combat the capacity. consequences of acute spills from all sources will be greatly strengthened and help to reduce the risk of • The oil industry has invested some NOK 300 million environmental harm. in new clean-up equipment in recent years.

Exploring for and producing oil and gas must • Oil-detecting radar and infra-red sensors allow be approved by the Norwegian authorities. The clean-ups to be pursued in darkness or with poor environmental risk and oil spill response for each visibility. operation are assessed on a case-by-case basis. Risk and response analyses are based in part on detailed surveys • A substantial new commitment has been made of environmental resources such as seabirds, marine to developing collection technology though an mammals, fish and the shore zone. international collaboration in partnership with the Norwegian Coastal Administration. The oil industry’s spill collection booms can function in waves more than six metres high. Their efficiency • Landing craft are being used to transport clean-up declines in stormy seas and high, breaking waves, resources. but such conditions also ensure a natural breakdown and dilution of oil particles. Without breaking waves, • Increased expertise and expanded training of the booms can function in higher seas. During the personnel involved in oil company and public- Prestige clean-up off Spain in 2002-03, equipment from sector response organisations. the Norwegian Clean Seas Association for Operating Companies (Nofo) worked effectively in wave heights up • Detailed mapping of the coastal zone to improve to nine metres. local response in the coastal and shore zones.

• Use of fishing vessels in clean-up operations. FINNESTAD AS

Terminology

Several terms frequently deployed in the Norwegian debate differ The precautionary principle does not preclude activity, from their original definition and are not applied in a relevant but implies that efforts must be made to ensure that the context. knowledge base for decisions is satisfactory, and that negative consequences can be prevented and risk reduced. During Vulnerability can be measured by “how liable a species or habitat preparatory work for the integrated management plan for is to be negatively affected by external, often anthropogenic, the Barents Sea (HFB), knowledge gaps were identified by pressures” (Report no 8 to the Storting, 2005-2006). The ability to a broad group of scientists, environmental organisations, resist such pressures is high in the resource-rich northern sea areas, industry representatives, civil servants and other stakeholders. often because the environment anyway presents great natural A number of major programmes are currently under way variation. According to the International Council for the Exploration to close these gaps. The decision base for 2010 is therefore of the Sea (ICES), evaluating the likelihood that an influence will in accordance with the conclusions of Unesco’s Comest occur is crucial when assessing vulnerability. commission, which conducted a broad review of the precautionary principle in 2005. Its report emphasised that Valuable is a term often used together with vulnerability. It may the intentions of the principle are that knowledge be used to be applied, for instance, to species with limited numbers which achieve wiser decisions. The concept accordingly cannot be are concentrated in the area under discussion. Examples include used uncritically to argue against new activity. several types of seabirds, where Norway has an international responsibility to care for certain stocks. “Valuable” is also used Sustainable development was defined by the World about a geographical area which embraces great biological Commission on Environment and Development (WCED) as diversity and productivity. “development which meets the needs of the present without compromising the ability of future generations to meet their Untouched. Areas which arouse great expectations are often own needs”. In practice, a number of considerations must be characterised as untouched or virgin. Parts of the seabed off taken into account to achieve sustainability. From a human northern Norway have been mapped through the Mareano perspective, the primary concern must be to maintain the programme. This has revealed that 30-40 per cent of all known living renewable resources which determine what represents coral reefs have been damaged by activities which have been and sustainable use or development. still are pursued in these waters. The criteria for using the term “untouched” are accordingly absent. Petroleum operations have The possibility of co-existence between various industries and entirely insignificant effects on bottom-dweller communities, between commercial interests and the environment must not and have never damaged coral reefs because of the extensive be rejected through faulty assumptions and inappropriate use precautions taken. of terms.

The integrated management plan (HFB) concluded that petroleum activities should not be initiated in Nordland VI and VII or Troms II during the present Storting (parliamentary) period, which ends in 2009. The importance of taking decisions when revising the HFB in 2010 which start a process leading to an opening is highlighted in the report. This is a matter of urgency if the government’s ambitions for Norwegian petroleum production in 2030 are to be met.

KonKraft report 6 notes that opening the NCS off northern Norway to increased petroleum activity will yield more than increased revenues for the government. Experience from earlier developments indicates that such operations could encourage greater optimism and help to reverse a negative population trend in Norway’s northernmost region.

KonKraft is a collaboration arena for: