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Oil and gas activities at the Mackenzie Delta 199
9 Going North
The new petroleum province
of Norway
Ove Heitmann Hansen and
Mette Ravn Midtgard
Introduction
The petroleum industry in Norway is a mature industry, but there have been
few discoveries and little activity in the Norwegian Arctic. Some of the reasons
for a late start in the Arctic include the lack of suitable technology, minor
field discoveries and high costs, as well as strong political tension around
the environmental issues of expanding oil and gas activity. Ever since oil and gas
in the Arctic first appeared on the political agenda during the 1970s, it has been
a divisive issue in Norwegian politics. This conflict cuts across the traditional
left–right groups of Norwegian politics.
New technological developments, particularly sub-sea techniques and hor-
izontal drilling, high oil prices and a rapidly increasing, worldwide demand for
energy have brought the Norwegian Arctic into a new focus. There is still an
ongoing ‘political battle of the North’, but the present debate has shifted focus
from whether or not to explore and exploit oil and gas, to ‘where’, ‘when’ and
‘how’. Local politicians demand petroleum land facilities to create new jobs
and new regional businesses. At the same time, environmental organizations,
fishermen and politicians are worried about potential accidents and toxic
waste from the oil industry in a vulnerable area. The discussions about expansion
of the oil and gas activities to the Arctic Norway can be separated into four main
discourses: the environmental; the regional economic; the rights and situation of
the Sámi minority and the international.
Introduction to the Norwegian arena
Norwegian society is a modern, market economy with a centralized system of
governance. Because policies for the utilization of natural resources are adopted
at the national level, Norway’s development of oil and gas activity is, in many
ways, a success story about how Norway ensures its petroleum resources are
managed for the benefit of the Norwegian society as a whole (see Textbox 9.1).
The Norwegian petroleum sector has contributed significantly to the economic
growth and to the Norwegian welfare state.
Going North 201
The political context of oil and gas in the Arctic
The environmental movement in Norway developed during the 1960s and early
1970s, and the discourse has centred on the exploitation of hydroelectric power
and nature conservation. During that time, the fusion of populist and environmen-
tal ideas led to the emergence of a new political split in Norway: economic growth
versus environmental concerns.
Later, the growth versus environmental protection division re-emerged in the
context of the petroleum sector. Whereas the question of state control over oil
Textbox 9.1 A brief overview of Norwegian petroleum history
The first licence round was announced on April 13, 1965, and 22 permis-
sions were assigned for extraction in 78 blocks. The permission for extrac-
tion gave exclusive rights to investigate, drill and extract. The first wildcat
was drilled on the Norwegian Continental Shelf (NCS) in the summer of
1966. It proved to be dry. The oil adventure began in the summer of 1969
when Phillips Petroleum Company Norway completed its last exploratory
well bore at the Ekofisk field. The company was close to giving up after
several futile attempts, and was getting ready to pack up and leave when
they made a massive oil discovery. The oil production started in the North
Sea from the Ekofisk Field in 1971. The first three extraction permissions
north of sixty-second parallel were given in 1980. A number of oil and gas
accumulations have since been discovered. Several pipelines have been
built to marked areas in Europe. Since 1980, 39 extraction permissions
have been given in the Barents Sea.
The Norwegian Government wanted moderate development and, there-
fore, only a limited number of blocks were opened at each announcement.
In the beginning, there was a dominance of foreign companies that carried
out the activity, but key goals for Norwegian oil and gas policies since the
early 1970s have always been national management and control. The White
Paper No. 76 (1970–71) stated the most important premises for a national
petroleum policy, and the Norwegian state moved from being a tax-
collecting organ to an oil producer. The Government wanted to build up the
Norwegian oil industry and state participation. The Norwegian oil company
Statoil was established in 1972 as a state-owned company, and the princi-
ple of 50 per cent state participation in each production licence was estab-
lished. Later, the Storting decided that the level of state participation could
be higher or lower than 50 per cent, depending on circumstances. Statoil
was partially privatized in 2001, and now operates on the same terms as
every other player on the NCS. In 2007, the two Norwegian oil companies,
Statoil and Hydro, merged into one company, named StatoilHydro.
202 Ove Heitmann Hansen and Mette Ravn Midtgard
activities fell along the left–right dimension, questions about the pace of
construction and extraction, as well as the controversy over proposed drilling off
the coast of the Norwegian Arctic, grouped the parties along the same axis as the
growth versus protection issues of the 1970s (Knutsen, 1997). The issue of extrac-
tion rates, however, more or less disappeared from the political agenda in the
1990s: During the 1980s, 1990s and thereafter, the extraction rates proposed in
the 1970s have been dramatically exceeded (Willoch, 1996).
The concept of sustainable development broadened the environmental agenda
in the late 1980s. Many of the issues and problems addressed by the World
Commission, however, touched upon existing debates and conflicts within
Norway, and sustainable development was to some degree adapted to already
existing political ideologies (Aardal, 1993). While the follow-up to the World
Commission reduced the tension concerning economic growth to some extent,
the energy split continued to play out on the issues of oil and gas in the Barents
Sea, energy consumption and CO
2
emissions. The importance of this split is
illustrated by the political dispute over the domestic use of natural gas and by
the building of gas-fired power plants in Norway. In 2000, the Bondevik I
Government resigned from Office on the issue of two proposed gas-fired power
plants that would increase Norway’s CO
2
emissions by approximately 6 per cent
per year. This is probably the only government in the world that has left office on
the issue of climate change.
The political split over energy cuts across the traditional political divisions in
Norway, especially along the left–right axis. The Progress Party have most consis-
tently argued for domestic use of natural gas and the opening of the Barents Sea for
oil and gas production. The Conservative Party and the Labour Party are also in
favour of development. The Centre Party occupies the middle ground, followed by
the Christian People’s Party, Liberal Party and Socialist Left Party, who are at the
opposite end of the spectrum.
1
The Centre party and the Christian People’s party
support oil and gas activities, so long as the activity is within the Integrated
Management Plan (IMP) and its principles. So does the Liberal party, but they also
insist on petroleum-free zones, both in the Barents Sea and outside Nordland. The
Socialist Left are against any petroleum activity in principle, but so long as they are
part of the coalition government, they are engaging in compromises.
The current resource management model
The Petroleum Act of November 29, 1996, No. 72, provides the general legal basis
for the licensing system that regulates Norwegian petroleum activities (see also
Textbox 9.2). This act determined that the Norwegian government owns the sub-sea
petroleum deposits on the Norwegian Continental Shelf (NCS). The government
announces a fixed number of blocks for which the oil companies can apply. The
companies must carry out an impact assessment, covering aspects, such as the
environmental, economic and social effects of such activities on other industries
and adjacent regions. Exploration permission gives rights to perform geological,
geophysical, geochemical and geotechnical examinations, including small drillings.
Although competition is desirable, cooperation between the players in the
petroleum industry is also beneficial. Therefore, the authorities award production
licences to a group of companies rather than to just one company. In each group,
one company is responsible for the management of the operation. This management
company is responsible for ensuring the procedure complies with the regulations.
The authorities judging who is eligible to receive the award must assess the geology
of the area proposed for development, along with the technical expertise, financial
strength and the experience of the oil company. Based on the applications, the
Ministry of Petroleum and Energy establishes a licence group. Within this group,
the oil companies exchange ideas and experience, and share the costs and revenues
associated with the production licence. The companies compete but must also coop-
erate to maximize the value of the production licence they have been awarded.
The production licence is awarded for an initial exploration period. A specified
work obligation must be met during this period, including seismic surveys and/or
exploration drilling. An area fee is charged per square kilometre, according to
detailed rules. Provided that all the licensees agree, a licence can be relinquished
once the work obligation has been fulfilled. The main rule is that, once petroleum
activity ceases, everything must be cleared and removed. To date, the Ministry of
Petroleum and Energy has approved more than ten decommissioning plans. In most
cases, it decided that abandoned facilities were to be removed and taken ashore.
Textbox 9.2 National organization of the petroleum sector
Norway has a hierarchical structure. At the top we find the Storting
(Parliament) and the government. The government has a number of differ-
ent ministries with different responsibilities in relation to oil and gas activ-
ities, and the ministries have directorates for management and control.
The Storting
The Storting, the Norwegian parliament, creates the framework for
Norwegian petroleum activities. The methods used include passing legisla-
tion and adopting propositions, as well as discussing and responding to
white papers concerning the petroleum activities. Major development proj-
ects or matters of great public importance must be discussed and approved
by the Storting. The Storting also supervises the government and the public
administration.
The government
The government holds the executive power over petroleum policy and is
responsible vis-à-vis with the Storting for this policy. In applying the
Going North 203
204 Ove Heitmann Hansen and Mette Ravn Midtgard
policy, the government is supported by the ministries and subordinate
directorates and agencies. The responsibility for executing the various roles
within the petroleum policy is shared as follows: the Ministry of Petroleum
and Energy is responsible for resource management and the sector as a
whole; the Ministry of Labour and Social Inclusion is responsible for
health, the working environment and safety; the Ministry of Finance is
responsible for state revenues; the Ministry of Fisheries and Coastal Affairs
is responsible for oil-spill contingency measures and The Ministry of the
Environment is responsible for the external environment.
The Ministry of Petroleum and Energy
The Ministry of Petroleum and Energy holds overall responsibility for
management of petroleum resources on the Norwegian continental shelf.
This includes ensuring that the petroleum activities are carried out in accor-
dance with the guidelines drawn up by the Storting and the government. The
Norwegian Petroleum Directorate is administratively subordinate to the
Ministry of Petroleum and Energy. In addition, the ministry holds a partic-
ular responsibility for monitoring the state-owned corporations, Petoro AS,
Gassco AS and Gassnova, and the partly state-owned Statoil ASA.
The Norwegian Petroleum Directorate
The Norwegian Petroleum Directorate (NPD) plays a major role in the
management of the petroleum resources, and is an important advisory body
for the Ministry of Petroleum and Energy. The Storting established the
NPD in 1972. The main task for the Petroleum directorate is to be an organ
for management and control. The Norwegian Petroleum Directorate exer-
cises management authority in connection with exploration for and
exploitation of petroleum deposits on the Norwegian Continental Shelf
(NCS). This also includes the authority to issue regulations and make deci-
sions according to the rules and regulations for petroleum activities.
The Norwegian government’s participation at the NCS
The participation in petroleum activities is divided between the State’s
Direct Financial Interest (SDFI) and its shareholdings in Statoil ASA,
Norsk Hydro ASA, Petoro AS and Gassco AS. SDFI is an arrangement
whereby the state owns interests in a number of oil and gas fields, pipelines
and onshore facilities. The state’s interest is decided when production
licences are awarded and the size varies from field to field. As one of
several owners, the state pays its share of investments and costs, and
receives a corresponding share of the income from the production licence.
Petoro AS was established in May 2001 as a state-owned limited company
The government receives a large share of the value created through taxes,
charges/fees, direct ownership in the fields (through the State’s Direct Financial
Interest; SDFI), and dividends from ownership in Statoil. The CO
2
tax, introduced
in 1991, is an instrument for reducing CO
2
emissions from the petroleum sector.
According to the Kyoto Protocol, Norway is obliged to ensure that average emis-
sions for the years 2008–2012 do not increase by more than 1 per cent compared
to the level of emissions in 1990.
The Petroleum Tax Act from June 13, 1975 regulates the taxation system.
Petroleum taxation is based upon the rules for ordinary corporation taxes.
However, because the oil business is more profitable, there is an additional tax on
this business sector. The ordinary tax rate is 28 per cent, and the special tax
rate is 50 per cent, for a total tax rate of 78 per cent. All state petroleum revenues
are put into a fund called The Government Pension Fund.
2
The Government
Pension Fund was established in 2006 and consists of two parts: ‘the Government
Pension Fund – Global’, a continuation of the Petroleum Fund; and ‘the
Government Pension Fund – Norway’, which was previously known as the
National Insurance Scheme Fund. The Ministry Finance is responsible for
the management of the Government Pension Fund. The purpose of the
Government Pension Fund is to facilitate government savings, which are neces-
sary to meet the rapid rise in public pension expenditures in the coming years, and
to support the long-term management of petroleum revenues.
Geographical context
Norway has no formal definition of its Arctic areas, but for the purposes of this
chapter, it is defined as the Norwegian Sea and land areas north of the Arctic
Circle (see Map 9.1).
3
The size of this sea area is approximately 1,400,000 km
2
, which is four times
larger than the Norwegian land area. The area is bounded by the Norwegian Sea
in the Southwest, the Arctic Ocean in the North and the Russian part of the
Barents Sea in the East.
The Norwegian Petroleum Directorate has calculated that the Barents Sea and
the area outside Lofoten may hold 35 per cent of the country’s undiscovered oil
and gas (see Textbox 9.3). This is estimated to be 1215 million Sm
3
oil equivalents
to manage the SDFI on behalf of the government, while Gassco AS oper-
ates the integrated gas transport system on the NCS. As the majority share-
holder, the state owns 70.9 per cent of Statoil. The remaining 29.1 per cent
of the shares are divided between private investors in Norway and abroad.
About 44 per cent of the shares in Norsk Hydro are owned by the state.
Source: Norwegian Petroleum Directorate.
Going North 205