Download Energy and Environment in the Far North

POLITICS AND LAW –
ENERGY AND ENVIRONMENT IN THE FAR
NORTH
Who needs what, when and how?
150th Anniversary Symposium
Norwegian Academy of Sciences
January 25, 2007
Øystein Noreng
Arctic Energy
• Large petroleum (oil and natural gas) potential,
according to USGS perhaps 25 per cent of
remaining, undiscovered reserves, possibly
more natural gas than oil
• Only five states involved: Canada, Denmark,
Norway, Russia and the United States
• Border disputes: Canada-Denmark, CanadaUSA, Norway-Russia
• Hurdles: high costs, need for new technology,
and high environmental risks affecting fisheries
The Key Stakeholders
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•
•
•
•
•
•
Norway
Russian Federation
European Union
United States of America
Canada
Denmark (Greenland)
Petroleum companies
Fishermen
The Stakes
•
•
•
•
•
•
•
Oil and gas supplies
Revenues
Technology development
Business opportunities
Environment
Fish stocks, food supplies
High risks on all accounts
The International Context
• High oil prices since 2004, largely driven by
political risk in the Middle East
• Due to US dollar depreciation, oil price increase
more moderate in Europe than in the USA
• Oil demand still growing globally, indicates that
prices are not too high for the market
• Significant changes in international financial
balances and economic power relations
• Large financial surpluses in OPEC, Norway and
Russia, large US trade deficit
Relative shares of world total 2005
35 %
30 %
25 %
20 %
15 %
10 %
5%
0%
USA
Russia
Energy
EU
Oil
China
GDP
Pop
Japan
9,00
8,00
7,00
6,00
5,00
4,00
3,00
2,00
1,00
0,00
45 000
40 000
35 000
30 000
25 000
20 000
15 000
10 000
5 000
0
USA
Russia
EU
En/cap
Oil/cap
China
Japan
GDP/cap
USD/cap
toe/cap
Energy use and GDP per capita 2005
toe
Energy use per unit of GDP 2005
1,00
0,90
0,80
0,70
0,60
0,50
0,40
0,30
0,20
0,10
0,00
USA
Russia
EU
EN/GDP
China
Japan
Petroleum Balance
Million tonnes of oil equivalent 2005
2 000
1 500
1 000
500
-1 000
Consumption
Production
Balance
EU
Ja
pa
n
na
Ch
i
a
Ru
ss
i
No
rw
ay
Ca
na
da
De
nm
ar
k
-500
US
A
0
Oil Prices and Exchange Rates
70,00
1,20
60,00
50,00
1,00
0,80
40,00
0,60
30,00
0,40
20,00
10,00
0,20
0,00
0,00
2001
2002
USD/fat
2003
2004
Euro/fat
2005
2006
USD/Euro
Exchange rate
Oil prices
Brent spot
Current Account Balances
Billion USD
400
200
Ja
pa
n
No
rw
ay
Ru
ss
Un
ia
it e
d
St
at
es
an
y
er
m
ar
k
nc
e
G
-600
Fr
a
-400
De
nm
Ca
na
da
-200
Ch
in
a
0
-800
-1000
-1200
1998
2007
Current Account Balances
Per cent of GDP
25
20
15
10
5
2007
te
d
St
at
es
a
No
rw
ay
Ru
ss
i
Un
i
1998
Ja
pa
n
an
y
G
er
m
Fr
an
ce
ar
k
De
nm
-10
na
-5
Ch
i
Ca
na
da
0
US Petroleum Issues
• High oil consumption, little political support for
efficiency measures and taxes
• Declining Canadian natural gas output promotes
overseas imports
• Petroleum key item on large and rising trade deficit,
weakening the position of the US dollar
• High household indebtedness limit potential for
interest rate rises
• Need for rising oil and gas supplies to the world
markets to lower prices, offsetting demand increase
• Need for continued oil pricing and trading in US dollars
an
G
Al ulf
ge
ria
Ira
Sa Ni q
ud g e
i A ria
Ve ra
ne bia
zu
e
A n la
g
Ca ola
na
M da
ex
No ico
U
rw
Vi n i
rg ted Ru a y
in
s
I s K in s ia
la g
nd d o
s
m
(U
.S
.)
Pe
rs
i
1000 bbls/day
2500
2000
1500
1000
500
0
18
16
14
12
10
8
6
4
2
0
Per cent
US Oil Imports 2005
4000000
90
3500000
80
3000000
70
60
2500000
50
2000000
40
1500000
30
1000000
20
500000
10
0
0
Canada
Algeria
Trinidad
Per cent
Million cubic feet
US Natural Gas Imports 2005
Russian Petroleum Issues
• Huge potential, known and unexplored areas
• Objective to be a great power through energy
and capital
• Inefficient use of energy, conservation potential
• Inefficient energy industry, volume potential
• Relations between investors and government
unsettled, no petroleum property law, no
petroleum tax law
• Huge financial surplus weakens need for
reforms and investment
• Interest in euro oil pricing and trading
EU Petroleum Issues
• Large and rising petroleum importer exposed to
market supply and price risks
• Difficult balancing between secure supplies and
moderate prices
• Does not want higher dependence on Russian
supplies, but alternatives are risky
• Competition with the USA (and China) over oil,
natural gas and markets in the Middle East, and
North and West Africa
• Norway a key supplier and partner
• Interest in euro oil pricing and trading
EU-25 Oil Imports 2005
40
35
200
30
25
150
20
100
15
10
50
5
0
0
Former Norway Saudi
USSR
Arabia
Libya
Iran
Middle Other
East origin
not
spec.
Per cent
Million tonnes
250
120000
40,0
100000
35,0
30,0
80000
25,0
60000
20,0
40000
15,0
10,0
20000
5,0
0
0,0
Russia Norway Algeria
non Nigeria Qatar Other
spec.
origins
origin
Per cent
Billion cubic metres
EU-25 Natural Gas Imports 2005
The Needs
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Norway: activity to offset decline further south
Russia: no activity for several years
Canada: some activity
Denmark: activity to offset decline
EU: activity to open area
USA: volumes to stabilise the oil market and
reduce dependence on the Middle East
• Oil companies: equity oil and gas
• Fishermen: controlled activity
The Time Horizons
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•
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Norway: gradual development
Russia: development later
Canada: gradual development
Denmark: gradual development
EU: gradual development
USA: quick development
Oil companies: gradual investment and
technology development
• Fishermen: safeguarding fish stocks for ever
The Methods
• Norway: cautious allocation of licenses, national
companies
• Russia: deferring decisions
• Canada: limited opening
• Denmark: limited opening
• EU: encouraging cooperation
• USA: encouraging development
• Oil companies: preparing technology
• Fishermen: awaiting decisions
Summing Up
• Key stakeholders, including Norway and Russia, have
no need to rush Arctic petroleum development
• Canada and Denmark may have more interest in an
early start
• EU needs new import sources over time
• USA may need new import sources quickly
• Petroleum industry interest is to access a new
province, but technological and economic risks are
high
• The fishermen’s interest is strict environmental
protection and a modest pace; their livelihood and our
food supplies are at risk
Norway and the Far North
• Developing the Arctic to a new petroleum province will
require lasting high prices (>$50/bl.)
• Technology development and infrastructure
investment will take many years
• Technical, commercial and environmental risks are
high
• By active involvement, Norway can set technical and
environmental standards
• Arctic petroleum activities potentially a large market
for the Norwegian supply industry
• In the Arctic, Norway needs good relations with the
EU, Russia and the USA, and between them!