Winds of change

Oil has long been the mainstay of Norway’s energy market and has provided the country with considerable wealth. However, its oil reserves have passed their peak and today Norway prepares for a different future.

Since the Ecofisk discovery of oil in the Norwegian maritime territory in 1969 and the subsequent production start two years later, the country has benefited largely from its “newly”-found riches. Today, 57 fields are in production on the Norwegian Continental Shelf, which produced 2.6mbd of oil and 90bnm³ of natural gas.

However, the country passed its “peak oil” moment some years ago and is now facing declining oil volumes, its revenues cushioned only by the current high prices for crude oil. Despite this, the mood in the industry remains upbeat. StatoilHydro sees great potential in the area around the Gullfaks field and plans 50 drilling prospects in a bid for a 70 per cent extraction rate before the field is closed.

Although Norway has passed its peak oil moment some years ago, oil (and gas) remain an important source of revenue for the country.

On the other hand, natural gas is the new rising star of the hydrocarbon sector. Gas production has tripled since the 1990s, reaching 90bnm³ in 2007 and is forecast to surpass oil output by 2013. Norway is an important contributor to Europe’s gas supply, exporting around 86bnm³ or 16 per cent of European consumption in 2007.

Its gas is transported from the Norwegian Continental Shelf through an extensive offshore gas pipeline network, totalling around 7800km of pipelines and making it the world’s most extensive link of its type. With the development of the 1200km Langeled pipeline, which runs from the Ormen Lange field via Sleipner to Easington, the capacity of the transportation system increased by more than 20bcm³ by late-2007.

At the Kårstø and Kollsnes processing facilities, natural gas liquids (NGL) are separated from dry gas with the former transported in ships and the latter via pipelines to the continent and the UK.

Oil and gas in the future

Despite declining oil volumes, petroleum wealth has not been completely confined to the past and the country is expected to reap ongoing benefits in the near- to medium-term future. For 2008, the government expects petroleum activities to be in the region of NOK356bn (US$66.02bn).

Only 36 per cent of the estimated resources have been produced and continued technological advances enable companies to drill wells and develop fields in ways that were not technically and economically viable before, increasing recovery rates. During this year, around NOK106bn (US$19.65bn) is earmarked for investment (excluding exploration costs) into the recovery of oil in existing fields as well as in the development of new fields with around 35-40 exploration wells scheduled for drilling. The sector’s prosperity seems assured for some time to come. “Oil production in Norway peaked six-seven years ago, while gas production continues to rise. It is expected to increase from the current level of approximately 90 billion scm per year to 116 billion scm in 2011. Although the Norwegian Petroleum Directorate’s (NPD) forecasts show a continued decline in oil production, we expect the decline over the next five-year period to be lower than for the previous five-year period because new oil fields are coming onstream. The forecasts confirm that Norway will remain a significant producer of oil and gas for many decades to come,” according to Bente Nyland, director general of the Norwegian Petroleum Directorate. With Europe’s increasing hunger for gas in the face of its own declining production, a suitable market for Norwegian gas is not far away, particularly as Europe is seeking to reduce its dependence on Russian gas.

The CO₂ challenge

However, petroleum production offers Norway a major challenge, particularly pertinent in today’s world where global warming is a hot issue: CO₂ emissions.

“Due to the stringent requirements the authorities have set from the beginning, the country can now boast the lowest emissions per produced unit of oil and gas than any other petroleum-producing country,” Bente Nyland continues. Important measures include the prohibition against flaring (except for safety-related considerations) and the CO₂ tax, but further measures are required to achieve additional emissions reductions. One such solution is depositing large volumes of CO₂ in suitable reservoirs. Since 1996, the country has separated 1Mta of CO₂ from gas production on the Sleipner Vest field in the North Sea and stored it in the Utsira, a saline aquifer of unconsolidated sandstone and thin horizontal shale layers 1000m below the seabed. Further investigations are under way and the Johansen formation in the northern part of the North Sea will be subject to drilling in the next year to provide more information about its suitability as a CO₂ storage reservoir.

In addition, the country is looking to reduce its CO₂ emissions by carbon capture and storage (CCS) projects, which focus largely on CO₂ generated by gas-fired power plants. While the technology for capturing and storing CO₂ is still in its early stages of development and, where available, is highly expensive, the UN Intergovernmental Panel on Climate Change concludes that such an option could account for as much as one-half of emission reductions in this century, but major challenges remain before this potential can be realised. In Norway, the government plans to construct a full-scale CCS facility for the gas-fired power plant at Kårstø on its western coast. The units will be designed to capture 1Mta of CO₂ from the power plant’s exhaust and subsequently transport the CO₂ by pipeline to safe storage in geological formations under the seabed – a project for which the state-owned entity Gassnova carries the responsibility. The company will submit the economical and technical basis for the yet to be made investment decision to the Ministry of Petroleum in September 2009. According to the Norwegian Water Resource and Energy Directorate (NVE) this investment would amount to around NOK5bn (US$928m), excluding planning and operational costs, and abatement costs would be in the region of NOK700 (US$130)/t CO₂.

Furthermore, the Ministry of Petroleum and Energy signed an agreement with Statoil in 2006 to establish a full-scale CCS project in conjunction with the CHP plant at Mongstad. In a first stage, the CO₂ technology Test Centre Mongstad will test technological solutions in parallel from 2011 onwards while three years later, in a second stage, the construction of a full-scale carbon capture plant linked to the CHP plant will start operation.

The power of water

Although gas fires a small part of Norway’s power plants, the country’s 4.5m people rely far more on its hydropower resources for the generation of domestic electricity. With the harnessing of the power of its waterfalls dating as far back as the early Middle Ages, Norway is the largest per capita hydropower producer in the world and the sixth largest in absolute terms. In a year with normal precipitation, around 120TWh is generated, meeting some 99 per cent of the country’s total power requirements. The rest of the annual 121TWh of electricity production is generated by thermal power plants and wind parks. Some gas-fired power plants are now under construction, capitalising on the country’s burgeoning gas industry.

Norway continues to expand its hydropower plant facilities. In October 2007, Pålsbu Power Plant was inaugurated. The 6.2MW plant enables the elimination of several existing power transmission masts in the area and will be capable of delivering 22GWh output per year – the electricity consumption of around 1000 households, according to its owner, Statkraft. “Pålsbu Power Plant is a future-oriented project that exemplifies the new, environment-friendly way to utilise hydropower – it protects nature and is more efficient than before,” says Bård Mikkelsen, president and CEO of Statkraft.

Norway continues to expand its hydropower infrastructure, making the most of its lakes and fjords.

“This power plant clearly demonstrates that there is still much to be drawn from our clean and renewable hydropower sources.” He added that Norway’s hydropower capacity could be raised by 35TWh through a series of upgrades and new projects. In an interview with Dow Jones Newswires at the Offshore Northern Seas conference in Stavanger, Mr Mikkelsen said he sees the potential to substantially raise the country’s current hydropower capacity. “The time for large hydropower projects in Norway is said to be over but there’s still potential for upgrading present systems and plants. … If more water is added to existing hydropower systems, for example by including a new lake, this could also give a lift to generation capacity.”

Funding for cleaner energy?

However, Norway is actively seeking to reduce its energy consumption and replace some of its fossil fuels with more environmentally-sound options. For example, oil and gas will always be linked to CO₂ emissions and pose a threat to the Earth’s climate. Therefore, alternative sources of energy will need to become part of the world’s energy mix if global warming is to be averted. Norway has recognised this and is pushing ahead with plans to use part of its US$400bn sovereign wealth fund (Government Pension Fund) to invest in renewable energy development, according to government sources. The country believes it has a moral obligation as an oil and gas producer to mitigate its carbon emissions. “We believe we see a trend developing among large, institutional investors in the direction of setting up smaller funds earmarked for special purposes,” deputy finance minister Henriette Westhrin told a green energy seminar audience. “Environmental issues are one possible option for a special mandate.” Despite the ethical tenets of the plan, it has been criticised by the country’s central bank. Norges Bank said the diversion of funds for environmentally-friendly investment would clash with its efforts to base investment on financial criteria, and the government should look at its own budget for funding such ventures.

Changing winds

One option for cleaner energy is wind power. For Norway, with its long coastline hit by winds blowing off the Atlantic Ocean, wind power offers a unique opportunity to change course from its fossil fuel-based to a more environmentally-friendly yet economically-prosperous energy sector. According to official figures, by the end of 2005, around 280MW of wind power was installed, distributed across 138 turbines. While the country had a production capacity of 0.85TWh, some 507GWh was generated during that year, nearly doubling the previous year’s output.

On the island of Utsira, Norsk Hydro AS is developing a wind/hydrogen demonstration project. In periods of strong wind, surplus electricity is used to produce hydrogen, which can be used in a fuel cell to generate power in periods when winds lie low.

The drive for wind-based power projects has resulted in some interesting projects. In Utsira, Norsk Hydro AS is developing a wind/hydrogen demonstration project, showcasing the ability of wind energy to provide a safe and efficient supply to isolated areas. During periods when winds are strong enough to generate surplus electricity, the excess in power is used to produce hydrogen. Stored hydrogen can then be utilised in a fuel cell to produce electricity in periods when winds are far less plentiful.

As evidenced from above, unlike nearby Denmark, the country has not quite capitalised on this potential with only 0.6 per cent of the continent’s installed windpower capacity located in Norway. But this may soon change. In Report No. 29 (1998-99) of the Norwegian parliament, the Storting, Norway set a target to build wind power plants with a total generating capacity of 3TWh (equivalent to an installed capacity of around 1000MW) by 2010. The plan comes within the country’s overall energy target of achieving 12TWh/year in savings or renewable energy by that date. Furthermore, projects totalling 15-20TWh of annual production have been notified, including a 1400MW (4.5TWh/year) in offshore wind power projects, indicating more development after 2010.

In addition, the government is considering licensing “blocks” for offshore wind generation as currently happens for the oil and gas industry. Offshore turbines can be twice as powerful as their land-based counterparts as there are stronger, more sustained winds at sea. In addition, modified, more efficient turbines can be used because the noise is less of a problem offshore. However, considerably technological issues remain unsolved.

There certainly has been plenty of interest for developing wind power projects. According to the International Energy Agency, the governmental enterprise Enova had signed contracts with energy utilities for 1.7TWh of wind power output with around 300GWh installed and a further 330GWh under construction by the end of 2004. Moreover, Enova signed four new projects that year to the output value of 570GWh.

StatoilHydro is expected to start work on a floating turbine project near the site of the first North Sea oil discovery. Its Hywind programme will see the construction of a 2.3MW turbine.

StatoilHydro is expected to start work next year on a floating turbine project near the site of the first North Sea oil discovery. Its Hywind programme foresees the construction, with Siemens’ support, of a 2.3MW turbine with a diameter of 107m and jutting nearly 80m above the water with a further 120m of the floating concrete hull submerged. If a success, more such turbines will be put into operation to provide supplementary electricity for some North Sea platforms or coastal towns in Norway. “It also has global potential in places with the proper sea and wind conditions, a suitable market size and the right price incentives,” according to StatoilHydro’s head of wind energy project development, Jan-Fredrik Stadaas.

Anglo-Dutch energy giant Shell is applying for a licence for a 160-180MW 60-turbine wind park in Bjerkreim, Rogaland. The mountains around Moi-Laksesvela – some 50km south of the coastal hub of Stavanger – will provide the stunning backdrop for the company’s first foray into this alternative form of energy. “Shell sees big potential for wind power in Norway,” the company’s local subsidiary Norske Shell said. “We continue to work with the project in Bjerkreim and will consider several projects in the years ahead.” Shell WindEnergy plans to set up an office in Oslo.

In a different project, Shell and StatoilHydro are teaming up with utilities Statkraft and Lyse to develop wind turbines that tilt against the wind to withstand the severe conditions of the North Sea. The full-scale 5MW prototype of the so-called Sway turbine is scheduled to come onstream in 2010.

Meanwhile, Statkraft is teaming up with NLI Innovation and FORCE Technology in a joint venture called WindSea AS in which the three partners own stakes of 49, 25 and 26 per cent respectively. WindSea operates three towers and three turbines, one in each corner of a triangle-shaped, floating platform, making the plant more stable and easy to access for maintenance. Each individual platform will have an installed capacity of 10MW and a wind power plant of 30 platforms will produce over 1200GWha, sufficient for 60,000 households. The project has been under development at FORCE Technology since the autumn of 2006 and WindSea expects that its prototype will be installed some time during 2011.

Using offshore wind power, Norway could access up to 40TWh of renewable energy in 2020-25 as well as cutting CO₂ emissions by 20Mt, taking away a sizeable chunk off its current 55Mt CO₂ output.

However, the Norwegian government came under some criticism at the end of August when Helge Lund, CEO of StatoilHydro called on the government for financial support to encourage the development of offshore projects, saying: “looking to mature a wind power project in the UK, partly because we feel it has a better support mechanism … “I don’t want to be specific, but the Norwegian government needs to look at the primary issues on what is going on outside Norway if it wants to compete for investment.” In a reply, prime minister Jens Stoltenberg said he welcomed new wind power investments in Norway, the UK and other places. “The Norwegian government has doubled its support to renewable energy, including wind power, from NOK700m to NOK1.4bn,” he said.

An international outlook

Its drive for cleaner energy has also led Norway to look beyond its borders. Like its oil and gas industry, wind power could offer considerable overseas energy trading potential. With the European continent looking for cleaner and additional quantities of energy from a variety of sources, Norway seems ideally-placed to supply its excess CO₂-free production to Europe. A recent study looks into the development of sea-based windparks that would enable the environmentally-friendly generation of up to 8000MW of renewable energy at a cost of up to US$44bn, equivalent to about six month’s of national oil output, with part of output that could be earmarked for exports.

For the European Union (EU) it would spell good news as it could help to attain its target of 20 per cent of total energy from renewables. It would also benefit its energy and national security as it would be no longer dependent on Russia, where it contracts a considerable amount of its much-needed gas. The EU has viewed this dependency with some concern, particularly after recent events in Georgia.

^{Wind power deliveries from Norway would then supplement current gas purchases, providing Europe with its much needed and clean energy.}

^{To move wind power forward, Norway has joined the Joint Declaration on Cooperation in the Field of Research on Offshore Wind Energy Deployment, established last year by Denmark, Germany and Sweden to facilitate knowledge sharing regarding technical, legal and R&D issues. “Considering the important role offshore wind power might play in the energy system of the future, this programme is of great interest to Norway. We must ensure a good dialogue with countries that have already made experiences with this technology, as this will help us to learn from each other, and thereby better to reach our shared objectives,” said minister of petroleum and energy Terje Riis-Johansen.}

^{While Norway’s traditional energy sources are slowly dying down, the country is embracing the winds of change that are currently blowing across its landmass and seas to create a new climate.}

^{More information on this topic is available from the following websites:
Norwegian Water Resources and Energy Directorate
Norwegian Petroleum Directorate
Enova SF
Energi 21
Statkraft
StatoilHydroNorske Shell
WindSea}