High costs emerge in oil drilling debate

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If Norway went along with calls from climate experts and its own Greens Party to halt all new oil exploration, the country would likely still be able to maintain its welfare state but at a “dramatically” higher cost to its citizens. That’s the conclusion of new research, presented just as protesters temporarily stopped some oil drilling in the Barents Sea this week and ended up being arrested. Both the environmental and economic risks of ongoing oil exploration and production remain a hot topic of lively discussion, with Norway caught in conflicting roles.

Oil drilling in the Arctic was met with more protests from environmental activists in the Norwegian Arctic this week. The Greenpeace ship Arctic Sunrise was arrested and under tow to Tromsø on Friday, charged with violating the safety zone around the drilling rig Songa Enabler, which Statoil is using in its exploration operations this summer. PHOTO: Greenpeace

The debate over drilling has been heating up during the run-up to September’s parliamentary election, not least after new public opinion polls showed a leap for the Greens Party and its unwaivering opposition to more oil exploration and production. The Greens want to halt all new oil exploration, and ultimately phase out Norway’s oil and gas industry. They have declared they won’t support any new government that still wants to open new oil fields. Given the Greens’ rise in voter support and speculation they may be able to influence formation of a new government, their declaration can no longer be viewed as an empty threat.

Debate, meanwhile, rages over whether a halt to new drilling is realistic, with speculation still swirling over what could replace the oil and gas that have fueled Norway’s economy for the past five decades. Researchers at the Norwegian firm Samfunnsøkonomiske analyse AS were thus commissioned by an umbrella organization made up of both labour unions and environmental groups to answer two main questions: What would the consequences be of halting all oil exploration today, and is it possible to offset the resulting lack of oil revenues and job losses that would occur?

Possible, but pricey
News bureau ANB reported Friday that the organization, called Broen til framtiden (Bridge to the Future), has now concluded that if Norway were to halt all oil exploration and stop issuing licenses for new oil fields, around 63,000 people would lose their jobs. In order to offset the costs of that and the lack of new oil revnues, and keep the welfare state going, the state would need to either tap Norway’s huge sovereign wealth fund known as the Oil Fund or raise taxes and fees considerably.

The researchers estimate the price will be nearly NOK 100 billion (USD 12.6 billion) a year. That’s based on the current oil price of around USD 50 per barrel, and the loss of revenues from every drop of oil in all existing fields and explorations wells being pumped up.

“Is it possible to finance that? Yes, but it won’t be easy,” said Rolf Røtnes, author of Samfunnsøkonomisk analyse’s report when it was presented and debated in Arendal, where political meetings have been held all week. He said the state would need to either raise its 25 percent VAT and other taxes dramatically, and/or tap into the Oil Fund that’s supposed to finance Norwegians’ pensions over the years to come.

Kayak activists (left to right ) Hanna Jauhiainen of Finland, Miriam Friedrich of Austria, Andreas Widlund of Sweden, and Dalia Kellou of Austria were among those from the Greenpeace ship protesting Statoil’s latest drilling project in the Barents Sea, this one close to the Russian border in previously unexplored geological formations on the seafloor. PHOTO: Greenpeace

Karl Eirik Schjøtt-Pedersen, the former top Labour Party politician who now heads Norway’s main oil industry lobbying group Norske olje og gass, claimed that his group’s own calculations have put the cost of shutting down Norway’s oil and gas production at around NOK 70 billion a year “for eternity.” He told ANB that the state would also have to reduce public sector employees by around 100,000.

“This illustrates to me that it will be dramatic for the Norwegian economy, and will lead to much worse social welfare in the future than we otherwise could have,” Schjøtt-Pedersen said, adding that the climate effect would be minimal as long as there’s still demand for oil and gas. It would simply be produced elsewhere.

He of course has a vested interest in keeping the oil industry pumping, and is a leading advocate of opening new areas of Norway’s offshore waters to oil and gas exploration. “We know that the world needs more oil ang gas,” Schjøtt-Pedersen told ANB, and he wants Norway to remain a major producer. “If we shut down our production, it would simply be moved to another country, for example Russia. “That won’t help the climate.”

‘Norway can adapt’
Others had a different view. Even faced with the job losses caused by an oil industry shutdown, the head of one of the labour union federations that ordered the new research claimed it would still be possible to maintain the welfare state. “Welfare is also a question of creating new jobs in a restructured economy, and sharing our wealth,” Jan Olav Andersen, leader of the labour federation El og it-forbundet, told ANB. “The Norwegian society has adapted to a changing economy time and again, and can continue to develop over many years. We’re not in any different situation now than earlier.” That’s what the Greens have argued as well, claiming that investment in renewable energy, new seafood and other maritime ventures and a host of other ventures can offset the loss of oil revnues.

“It’s not a question of whether we can choose to restructure the economy away from oil, but rather whether we will do it gradually and in a controlled manner or take the huge hit all at once later,” Andersen said.

As the protesters got even closer to the drilling rig, they were charged with violating its safety zone and arrested along with the Greenpeace ship. Statoil could thus resume its drilling operations at the Korpfjell field, not far from where Norway and Russia share a border in the Barents. PHOTO: Greenpeace

A group of Greenpeace activists managed to halt a Statoil-led drilling operation in the Barents Sea on Thursday, but it didn’t last long. As reported by the Barents Observer (external link), the Greenpeace vessel Arctic Sunrise and its crew of 35 were arrested and under tow to Tromsø on Friday. They were charged with violating the security zone around the Korpfjell oil field in the Barents, where the large drilling rig Songa Enabler is searching for more oil and gas.

Greenpeace says its ship has been in the Norwegian Arctic this summer to “document, expose and challenge the Norwegian government and Statoil’s aggressive search for new oil in the Barents Sea.” The vessel is carrying activists from all over the world, described by Greenpeace as “ambassadors for the ‘People Versus Arctic Oil’ movement.”

Statoil defended its Barents drilling projects last week, ahead of the latest protests, noting that in its 50 years of oil exploration off Norway, there has never been a blowout from an exploration well. Statoil spokesman Bård Glad Pedersen, a former state secretary in Norway’s foreign ministry, wrote in a commentary in newspaper Dagsavisen that 130 wells have been drilled in the Barents without any serious incidents.

Drilling projects not meeting profit expectations
Statoil’s Arctic drilling projects this summer, however, haven’t produced the discoveries expected and have even been disappointing. Newspaper Dagens Næringsliv (DN) reported earlier this month that the third of Statoil’s five exploration wells, the Gemini Nord, resulted in a combined volume of less than 10 million barrels of oil and gas, not enough to make it commercially viable.

Statoil’s Blåmann and Kayak wells didn’t meet expectations either, even though Kayak’s estimated 50 million barrels may be enough to justify production costs. Analysts weren’t impressed. “Two of three of Statoil’s exploration wells were under par this summer,” Anders Holte of Danske Bank told DN, adding that Kayak only has commercial potential because it lies near the bigger Castberg field.

That’s what makes the drilling now underway at Korpfjell important for Statoil and its partners. It’s the farthest east in the Norwegian sector of the Barents Sea, near the Russian border, and believed to be the last major geologic structure that hasn’t been examined. “It’s the biggest and most interesting prospect,” Holte told DN, but it also has the highest risk.” He said it represents “challenging geography” to work with, with the quality of the well unsure, risks that also attracted the Greenpeace protesters’ attention.

Economic risks from the exploration, too
Others also point to both the environmental and economic risks of Norway’s Arctic drilling prospects. The Oil Change International organization recently claimed what skeptics have said for years, that Norway’s oil and gas production plans collide with its commitments cut carbon emissions. Longtime Norwegian business leader and columnist Terje Osmundsen called it extremely risky earlier this month to be drilling in the Arctic, not least because the state covers 88 percent of the investment costs tied to the exploration itself. When a well doesn’t show potental, most all the money that went into drilling it represents a loss to the state.

Thina Saltvedt, an oil analyst at Nordea, also questions future demand for oil and gas,  claiming it will top out within 2030. “Consumers are becoming more environmentally conscious and will make demands,” Saltvedt told Dagsavisen. “At the same time more electric vehicles are being produced. There will be less need for oil in the world.”

Saltvedt also questions not just the environmental risk of Norway’s oil exploration, but its economic risk: “Shall we throw away money by pumping up lots of oil that no one will buy?”

newsinenglish.no/Nina Berglund