Oil Producers Warn on Future Supply as Norway Elections Loom

  • Statoil says Lofoten ban must be lifted to avoid output drop
  • Drilling blocked by political bargains until 2017 election

Elections are approaching in Norway, accompanied by the familiar sound of oil executives and politicians arguing over the environmentally sensitive Lofoten islands in the Arctic.

Oil prices may have plunged in a global economy awash with oversupply, but producers in Norway say they’re thinking much longer term.

Statoil ASA, which has been lobbying for years to open the waters off Lofoten and Vesteraalen in Norway’s north, argues that failure to include the area in exploration plans will create supply issues in the future. With general elections looming, Statoil this week warned that oil and gas production and industrial activity would drop a decade from now if the current ban on drilling is maintained.

“My responsibility is to point out that time is running,” Chief Executive Officer Eldar Saetre said in an interview in Bergen on Tuesday. Even new blocks soon to be awarded in the Barents Sea aren’t “enough to compensate for the big fields that decline.”

Political Bargains

Explorers keen to enter an area that could hold as much as 2.3 billion barrels of oil equivalent have been stopped by political bargains over the past five years. Norway’s two biggest parties, Labor and the Conservatives, support starting an impact study of oil exploration and production outside the Lofoten islands but have agreed to maintain the drilling ban in exchange for the support of smaller parties needed to govern.

Even though oil has fallen more than 60 percent since 2014, Norway will still need to renew resources as fields are depleted, Saetre said during a conference on Tuesday. New discoveries take 10 to 15 years to develop, and the unopened areas outside Lofoten are “attractive,” he said.

“It’s not surprising that the oil industry wants access to these areas, and it’s not surprising that they would point it out at a time with low oil prices and less activity,” said Tina Bru, a Conservative lawmaker. While her party wishes to open the area, it’s bound by an agreement with the smaller Liberal Party and Christian Democrats to keep the issue off the agenda until 2017, she said.

Offshore investments are expected to fall 23 percent from a 2014 peak to 164 billion kroner this year, according to the latest survey from Statistics Norway. The industry has lost about 40,000 jobs in less than two years, leading to a decade-high unemployment rate of 4.8 percent in January.

Statoil has everything to gain from restarting the debate about Lofoten and the activity boost it could represent for western Europe’s biggest crude producer, according to Frank Aarebrot, a professor of political science at the University of Bergen.

“Unemployment will trump the environment in a Norwegian election campaign,” Aarebrot said. “In Norway, 5 percent unemployment is a catastrophe.”

The slump in oil prices has directly impacted public finances with the government forced to tap its $850 billion sovereign wealth fund for the first time. Norway’s crude production has already been halved since 2000 as North Sea fields decline, pinning hopes on the Arctic to maintain output in the future.

While Norway plans to award licenses in an entirely new area of the Barents Sea this year, Lofoten and Vesteraalen remain shut. The area hosts the world’s biggest cold-water coral reef as well as mainland Europe’s largest seabird colony, according to the WWF. It’s also a breeding ground for 70 percent of all fish caught in the Norwegian and Barents Seas, as well as sperm whales and seals.

Norway’s Petroleum and Energy Minister Tord Lien, a member of the ruling coalition Progress Party, said he hoped elections next year would re-shuffle the political board and break the stalemate. But the Liberals will keep up the fight against drilling off Lofoten, regardless of the current crisis in the oil industry, lawmaker Ola Elvestuen said.

“The crisis in the oceans and for the international fish stocks is much more important,” he said by phone. “There’s more than enough oil to go by, and there’s no reason to go into the most vulnerable and important nature areas that we have.”

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