Saturday, January 16, 2010

Norway says "Yes" to Arctic Drilling.

According to a recent survey, the majority of Norwegians are in favour of an exploration study in a region of pristine Arctic wilderness, and which moreover is home to the largest spawning ground for cod in the world. Norway is not quite in the same straits as Britain in terms of the depletion of its North Sea fields, and yet its mature holdings of oil and gas are in decline. If Norway is to maintain its position as a major exporter of hydrocarbons, it needs to strike new resources and the oil industry believes that the waters near the Lofoten and Vesteraalen islands in the Arctic must be drilled down through to offset the decline in its existing fields.

Environmental groups fear that any spillage of oil would cause ecological mayhem. Indeed, the region has a complex ecology, with cold water reefs, pods of whales, some of Europe's largest seabird colonies and the spawning grounds of the world's largest population of cod. It is not expected that the government will decide firmly until 2013 whether to open up the area or not, but if some estimates of the timing and impact of peak oil are correct, the emphasis will have shifted acute by then, and all areas where oil is believed to lie will be up for grabs.

85% of Norwegians are of the view that the oil and gas industry will be highly significant to the economy of northern Norway, which also has appreciable fishing and tourism industries. Norwegian friends of mine applaud the oil industry for providing enormous wealth to the country and a very good standard of living for its citizens. Norway is seen by some as an ideal target for immigration, in view of its generous welfare system, although it is probably not as lenient as ours in Britain which we can no longer afford to prop-up on loans from the EU and elsewhere.

Norway invests much of the revenues from its oil and gas profits in an offshore wealth fund, although along with most other investments this was hit hard by the financial crash at the end of 2008. Nonetheless it still stands at $450 billion. It is through this pot of cash that Norway intends to provide pensions and other state benefits, and so maintaining its oil and gas income is crucial to the social welfare of the country.

Norway produced 3.5 million barrels of oil a day about ten years ago, and output has fallen to around 2 million bpd now. Britain produced around 3 million bpd at the end of the 1970s and early 1980s and now that has fallen to 1 million bpd and is declining fast. I heard the other day that there are deposits of oil off the Falkland islands around 60 billion barrels worth which presumably Britain will be entitled to some share of. At the time of the Falkand war in 1982, I recall there was some talk of "mineral rights" including oil and maybe that's why Britain really went to so much effort to defend a couple of small islands against Argentine invasion.

It is clear enough that environmental concerns will not prove sufficiently robust defences against a need to compensate for a dearth of oil production from established fields and we can expect drilling to occur in many currently sacrosanct regions of the world, maybe including the region of Lake Baikal and even Antarctica. The writing is on the wall, nonetheless for a world that gets 40% of its entire energy from oil.

Related Reading.
"Most Norwegians want Arctic drilling study: survey." By Wojclech Moskwa.

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