Friday, July 20, 2007

Britain and Norway watch North Sea begin to run dry.

The UK and Norway share territory and a common geology under the North Sea that was heavily imbued with deposits of oil and gas. The money earned from the export of these fuel commodities pulled Britain out of the economic hole that remained after a decade of strikes and political instability in the 1970's but sadly that particular jamboree has come to its close. The equivalent bestowal too made Norway a rich country. Britain is now a net importer of energy and the energy industry gave a warning recently that government targets to hold North Sea production of oil and gas at 3 million barrels a day by 2010 are rather optimistic and most likely they will not be met. It is estimated that nearer 2.6 million barrels a day of oil equivalents will be produced by 2010, which needles fears that the UK will become dependent on imports of gas from Russia, and other countries like Norway and Qatar.

The UK managed to average a daily production of 2.9 million barrels in 2006, which represents a fall of 9% on the previous year, notwithstanding an assiduous input of investment of £11.5 billion ($23 billion), of which half was necessary merely to maintain the fields in production at a time of rising costs for equipment, personnel and services. The industry has made the case that falling output from the North Sea fields is compromising tax revenues while changes implemented by Gordon Brown (our new Prime Minister) a year and a half ago have also hit the tax revenue running into the treasury coffers. Britain intends to break its reliance on imported oil, and to some lesser degree gas too, on grounds of cutting greenhouse gas emissions. However it is far from clear how this might be accomplished especially considering a recent government white paper in which it is accepted that demand for fossil based primary energy will increase by around three quarters by the year 2020.

As noted, Norway has also been a fortunate beneficiary from the North Sea since oil was struck on its continental shelf in 1971. Indeed, this relatively small nation (population around 4.5 million, cf. 60 million persons officially living in the UK) has become the world's third largest oil and gas exporter, yielding 20% of its gross domestic product (GDP). However, forecasts suggest that the North Sea riches of oil and gas have begun their inevitable decline. Einar Stensnaes, the oil and energy minister for Norway, has said: "Not only is it essential to look for other energy resources, it is also important to look for other industrial activities to develop alongside the petroleum activity." For example, Norway makes almost all its electricity from hydro-power some of which is used on a large scale to manufacture aluminium by electrolysis of bauxite (Al2O3) dissolved in a mineral called cryolite (Na3AlF6) which has a much lower meting point. Consequently Norway is a major world exporter of aluminium too.

Norway's greatest potential new oil and gas wells are no longer to be found in the North Sea and the country's considerable expertise in exploration for oil and gas looks likely to be brought to bear on "underdeveloped" areas in the Barents Sea, although the director general of the Norwegian Petroleum Directorate, Gunnar Berge, has stressed this will be "more challenging in many ways." The Directorate has advised the Norwegian government that expansion of drilling in the Barents Sea was an important part of the industry's future strategy, and late last year the government announced its permission for drilling to take place there.

Drilling in that Arctic is a highly costly endeavour because of the extreme cold and generally harsh conditions that pertain. On top of this is the unresolved political dilemma that both Norway and Russia are laying claim to area of the Barents Sea, which is actually bigger than the North Sea, and is believed to hold an even greater volume of oil and gas. Oil and gas can be considered as separate resources and the decline of one does not necessarily reflect the abundance of the other, even in the same field: hence, although Norwegian oil production is down, gas output is increasing. According to Statol, Norway's largest company involved in the production of both resources, there is enough gas to last for 100 years, profitably, and in five years time there will be as much gas being produced from the Norwegian continental shelf as oil, and subsequently, gas production will outstrip that of oil. Being self-sufficient in hydro-power, Norway does not have to depend on either oil or gas to meet its own energy needs, although presumably it does require fuel for transportation.

One company, "Hydro", is researching into alternative future energy sources, and plans to set-up a pilot project on a small island to make hydrogen from wind-power. The idea is that when the wind stops blowing, the hydrogen can be used to re-generate electricity so overall providing an almost constant power supply. However, it is not thought than any significant profits will be returned from renewables for the next twenty or thirty years.

Related Reading.
(1) "North Sea is running too dry to meet target," by Terry Macalister, Guardian:
(2) "Norway prepares for dry North sea," by Lars Bevanger, BBC News:

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