OSLON Sep 12, 2005 (Dow Jones Commodities News Select via Comtex) By Ian Talley OF DOW JONES NEWSWIRES LONDON (Dow Jones)
This summer's world oil crunch adds new significance to Monday's national elections in Norway, where most last-minute polls show the sitting government trailing a leftist coalition looking to curb oil and gas exploration.
At stake is whether Norway, the world's third-largest crude exporter, can replenish its dwindling oil reserves with fresh exploration in the frigid Barents Sea and around the Lofoten Islands in the Norwegian Sea, Norway's most sought-after acreage.
The U.S. Geological Survey says Norway has the eighth-largest undiscovered resources in the world, the equivalent of roughly 53 billion barrels of oil. Industry experts say that, while not crippling, a halt in developments could upset the world demand-and-supply balance in 15 to 20 years.
The USGS estimates 25% of the world's undiscovered resources lie in the Arctic, a last frontier for exploration because of the harsh environment.
"It's another possible shortfall of production outside of the (Organization of Petroleum Exporting Countries)," said Colin Birch, senior principle at London-based energy consultancy Purvin & Gertz.
"That would increase reliance on OPEC, and the bigger the market share they have, the more control they have," Birch said.
Norwegian oil companies Statoil ASA (STO) and Norsk Hydro ASA (NHY), along with a raft of Norwegian supply and technology firms, were aiming to use Barents Sea development to build upon their world-class expertise in deep-water, harsh-environment drilling.
Norway's center-right government hoped oil companies would use the proceeds from higher oil prices to pay for searching for oil in remote areas.
Halting exploration "will harm the future of the oil industry of this country because the Barents Sea is one of the most prosperous areas left," Norwegian Finance Minister Per Kristian Foss told Dow Jones Newswires Thursday. "The future levels of investment in the oil and gas area will to a large extent depend on the activity in the Barents Sea."
Norway's sprawling oil industry would be first to feel that loss.
Norsk Hydro Chief Executive Eivind Reiten worries that a change of government will slow or halt development in the Barents Sea and other areas on the Norwegian Continental Shelf currently closed to exploration and development.
"From what we have heard from some of (Labor's) coalition members, there is some concern," Reiten said.
Reiten - who served as both Norway's Oil & Energy Minister in 1989-1990 - said that with crude production dropping 15% in the past few years, the maturity of the Norwegian Continental Shelf is an indisputable fact. "Politicians must support continued activity, rather than tell us what we're not allowed to do," he said.
As the North Sea - long the cash cow for the Norwegian economy - matures, oil companies have increasingly had to turn to Norway's frontier provinces for new resources.
The Norwegian side of the Barents Sea reopened for development in the 19th licensing round this year, and the area around the Lofoten Islands holds almost 10 billion barrels of oil equivalent, roughly the size of Algeria's oil reserves.
The northern Barents Sea - still closed for development, and a disputed zone between Norway and Russia - is estimated to hold even more oil and gas.
Two of the three parties in the left coalition are opposed to development in the Barents Sea and in the areas around the Lofoten Islands for environmental reasons. Environmentalists say both regions are extremely fragile ecosystems, some of the last pristine waters in Europe.
"The Barents Sea is Europe's food chamber for fish, and you don't want to gamble on that," said Hallgeir Langeland, Socialist Left, or SV, energy spokesman and vice chairman of Parliament's environment and energy committee.
Langeland said SV, the member of the leftist coalition most opposed to exploration, doesn't want any more activity in the Barents, and will even negotiate to prevent the 19th licensing round - already announced and expected to be awarded in early 2006 - from going forward.
SV has voted against every major petroleum project in Norway, including Norsk Hydro's 400 billion cubic meter Ormen Lange natural gas project and Statoil's 200 BCM Snoehvit gas project in the Barents. The two projects, currently under construction, are said to be largely responsible for the record 89 billion Norwegian kroner in investments in the sector this year.
Industry experts say at the very least, the Labor-led coalition may be able to create tougher regulations - in a regulatory environment the industry already considers prohibitively strict and costly - for drilling in the Barents Sea and other closed areas.
But even this would be enough to have the industry grinding its teeth.
Gunnar Myrvang, a special political advisor for 71% state-owned Statoil, said Norway can't afford delays: "As a nation, we would only restrict our potential by restricting growth in that area...and we need to get as much information as possible out of the next few licensing rounds."
Meanwhile, the government is sticking to its open-seas policies as the campaign winds down.
"The most important thing the authorities can do is to focus on new acreage both in the Norwegian Sea and in the Barents Sea," Norwegian oil Minister Thorhild Widvey told Dow Jones.
"We must not lay back and relax, as we have everything to lose if we pause," she said. "What we don't need is policy that stops activity."
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