[NGW Magazine] Norway's Gassier Future

NGW met Tor Martin Anfinnsen, Statoil’s marketing and trading chief, during the IP Week 2018 conference in London in February, where he spoke about the importance of gas to Norway and Statoil.

Norway reached record gas sales in 2017, despite the fact that past forecasts predicted decline. How was this achieved and what was Statoil's contribution?

Several factors contribute to these figures. First, the production permit for Troll has been increased in two steps, from 30 to 33bn m³ for gas year 2016 and then to 36bn m³ for gas year 2017. Second, some volumes from new fields add to the total volume. And third, the regularity both at both producing platforms in the pipeline system and at the three processing plants – Karsto, Kollsnes and Nyhamna – has been very high. 

According to the Norwegian Petroleum Directorate (NPD) the future looks even brighter. How is this going to be achieved and is it sustainable?

The NPD recently published its revised outlook regarding reserves and production and their report shows there is a potential for the NCS to maintain a high production level in the medium term, ie into the next decade. As one would assume, there is more uncertainty regarding the longer term.

By the mid-2030s, the NPD projects that one third of the production is from fields not yet discovered. In other words, exploration and new discoveries will be key in the longer term.In addition, geography and size of discoveries will be important. In the mature areas of the North Sea and the Norwegian Sea we can develop smaller discoveries because they can be easily tied into the existing infrastructure.

In the Barents Sea, which the NPD believes contains most of the undiscovered resources, discoveries will need to be larger to support construction of new pipeline infrastructure or new LNG trains.

There is also potential in improving the recovery rate and from depleting oil reservoirs that will be phased out, hence no longer needing gas for reinjection to support oil recovery.

Europe depends on Norwegian gas supplies into the future as a balance to the ever-growing Russian gas supplies. And yet Europe is not giving consistent signals about what these needs will be in future, to ensure certainty so that oil and gas companies can invest in long term projects. How is this affecting Statoil?

Any company needs to be certain that there is a market for its products before making large investments. This is especially important for the gas industry because of the long lead time from investment decision to start-up of production. It is very important that framework conditions are in place in the EU that encourage both exploration and investments in new production

What are the key drivers in Statoil's gas strategy? 

The NCS naturally remains our main engine and key source of supply, with the EU, especially northwest Europe and UK, being the key markets for our pipeline gas. Our fields are literally at the EU’s doorstep and our production is for all practical purposes part of the EU’s indigenous supply.

Put simply, we produce what we can and react to price signals so that we sell as much as possible where we get the best return. We have a lot of flexibility in transportation, with five different delivery points in the key markets. 

When it comes to LNG, we have Europe’s only large liquefaction plant. We sell our LNG partly on long term contracts and partly on a spot basis.

Where the spot volumes end up will depend on price signals and arbitrage opportunities. On top of our equity production we add third party volumes to our portfolio and utilise the flexibility that we have in shipping and contracts to maximise value. We also have significant gas production in the US, and our model is to reach premium markets such as Manhattan and Toronto 

Statoil coined the phrase 'high value – low carbon'. What do you mean by this and how do you reconcile the two with your natural gas plans?

We believe natural gas is an enabler for both. It is the fossil fuel with the smallest carbon footprint and contributes to reducing carbon emissions, especially when replacing coal. Natural gas is also flexible in power generation and can solve the intermittency challenge that still comes with renewables. 

We believe that gas remains a destination fuel and not only a transition fuel. It is difficult to foresee that electrification will be the solution for all segments, especially if it is supposed to be 100% based on renewables. There will be a need for gas.

There are also ways to remove CO2 emissions from gas altogether. We are looking into models where we make hydrogen from natural gas by removing CO2 and reinjecting it into the seabed to be safely stored there. 

This pre-combustion technology is proven and tested, so the job is to do it at scale and in a way that is sustainable also from a commercial perspective. This is exciting, and we are optimistic. 

Statoil is proud of its Climate Roadmap. Can you explain this and what you are doing to ensure that Statoil continues to be a serious player in the hydrocarbons industry while driving this?

Our low-carbon efforts take three main directions. The first one is constantly reducing emissions from our own production. We have come a long way with our existing production, and in Norway we have developed both technological and operational measures that make the NCS stand out.

The government has played a crucial role in this, both with a stick in terms of CO2 taxation and with carrots in terms of incentives. 

Statoil-operated installations on the NCS have an average CO2 intensity of 9 kg/barrel of produced oil. The global average is 17 kg of CO2/barrel. Statoil’s target for 2030 is a carbon intensity of 8 kg/produced barrel for our global operations.

When it comes to new production, from exploration or acquisitions, we target prospects that are low on carbon footprint and high in value. We believe this position will be a competitive edge in the long term. 

Our second main direction is our own renewables business. We have a separate business area, New Energy Solutions (NES), which is building a significant portfolio of assets. 

So far offshore wind has had priority, as this is an area where we can utilise our expertise from offshore development and operations. But we are also working on solar projects.

The third direction is making natural gas green, with CCS as a key element.

While doing this, and in order to meet the world’s energy demand, we will continue investing in exploration for oil and gas, and we will invest in projects that can bring more barrels and more gas to our portfolio. We firmly believe that the world will need both oil and gas as well as renewables also towards 2050.

What is your technology strategy and how does this contribute to achieving cost competitiveness in a low gas price environment?

On production and transmission, we focus on technology that strengthens safety and reliability as those are the two most important issues for our people and for consumers. We have also taken large steps on automation and digitalisation of our offshore activities, and we are reaping effects from implementing the LEAN methodology.

When it comes to marketing and trading we have modernized our contracts and made them simpler to follow up, reducing costs for both seller and buyer. 

We are also moving forward on digitalisation, where we have started with algorithmic trading and we are part of an industry initiative in blockchain technology for post-transaction deal handling, which we believe will make completion of trades more secure and quicker while also reducing costs.

NPD says Norway's future gas reserves depend greatly on developing the Barents Sea and Arctic regions. Yet there is increasing resistance within the country against this. How is Statoil pursuing this? 

We understand that there are concerns. Our job is to demonstrate every day that we can develop and operate installations without harm to the environment, people or communities. We do not deny the fact that there is risk involved in our industry. But we believe our track record shows that we are able to manage risk in a good way. We have a dialogue with relevant authorities, political parties, local communities and organisations to find solutions that can work for all parties.

Public opposition to oil and gas drilling is increasing. For the first time, an opinion poll last year showed a majority of Norwegians favouring leaving some oil in the ground. Is this a threat to future gas production in Norway?

Any oil and gas company needs a licence to operate and ultimately it is the public, though governments, that decide the terms. Again, we as an industry need to demonstrate that environmental risks can be managed. At the same time, we need to show what the oil and gas industry means to society and local communities in terms of welfare and jobs, directly and through ripple effects. Our CEO (Eldar Saetre) has also stated that some oil will have to be left in the ground. But we believe that this is not a threat to our gas production.

There is also the apparent contradiction of the Norwegian Sovereign Wealth Fund that was on the back of Norway's oil and gas industry, but now it is about to divest of its fossil fuel stocks. What is your view on this and on the risk that it may lead to wider divestments by international institutions?

I think most will agree that it is best not to keep too many eggs in one basket. The fund’s suggestion to divest from fossil fuel stocks is based on risk management considerations and nothing else. Since its main revenue stream comes from the State’s income from oil and gas, it makes perfect sense to reduce that exposure by not investing the fund’s money in oil and gas companies. Other funds do not have the same risk management concern to consider.

In your presentation at the IP Week conference you talked about LNG. How do you see the future of LNG? Could this be a way to monetise north Barents Sea gas discoveries?

We see a strong market for LNG with Asia, especially China as a main engine. The market is becoming increasingly commoditised and we see that the LNG market also has an effect on European gas prices. We already have cargoes going into Asia Pacific. If we make further discoveries in the Barents Sea, LNG is clearly an attractive alternative.

Many of the Energy Outlooks, including Statoil's Energy Perspectives, forecast a bright future for natural gas well into the future and identify the need for continued investments in new production. Do you share this and how sustainable is this in a competitive low gas price and climate change environment?

Yes, we share this view. It is easy to get the wrong perspective if you look at the world through a pair of European lenses. Gas has been under pressure from policy makers in Europe for a period but now we see that gas has had a comeback the last years and that there seems to be increasing recognition for what gas brings to the table also in a low carbon future.

Economic growth and a growing population, particularly in Asia, means that the world will need more energy. Gas will be a key enabler both to ensure energy security but also to reduce carbon emissions and to improve air quality in major cities. We already see that gas is called upon as a solution to health problems caused by particles and soot in major cities in Asia. Asia will need a lot of imports and will remain the number one destination for LNG in the foreseeable future.

Statoil plans to change its name to Equinor. What has led to this and what is the message in this. Why Equinor?

“‘Equi’ is the starting point for words like equal, equality and equilibrium. ‘Nor’ signals a company proud of its origin. Together, Equinor is a powerful expression of who we are, where we come from and what we aspire to be. We are a values-based company, and the name describes how we want to approach people and the societies where we operate.

Credit: Statoil

We will by no means stop being an oil and gas company, but we want to be more than that. As a major player we want to take part in shaping the future of energy. There is no doubt that output from renewables will grow tremendously in the coming years. We want to take part in this growing business, utilizing our experience from offshore development and operations, and from marketing and trading of energy commodities, to create value for shareholders and societies. 

Charles Ellinas