Norway Election Loss May Spark Arctic Victory for Shell, Exxon

Bloomberg

By Marianne Stigset and Josiane Kremer

Sept. 11 (Bloomberg) — A defeat for Norway’s Labor-led coalition in next week’s election may pave the way for oil companies such as Royal Dutch Shell Plc, Exxon Mobil Corp. and StatoilHydro ASA to explore more of the country’s Arctic waters.

The Labor Party, split between promoting jobs and protecting the environment, is undecided on opening more areas, while its partners oppose new drilling. The coalition trails in polls, suggesting the next government may be a more exploration- friendly, center-right group or a Labor minority administration.

“There will be a grand majority in parliament for opening up” if the government falls, said Siv Jensen, leader of the Progress Party. Her grouping favors more exploration and is the largest opposition faction in the 169-seat assembly. “Any other coalition but the existing one will make that happen.”

Norway has amassed an oil wealth fund of 2.5 trillion kroner ($420 billion) to spend on future generations and tapped a record amount of oil revenue this year to combat recession. The country discovered oil 40 years ago and many existing fields are being depleted, leading to pressure now to extend drilling.

The disputed Arctic areas may hold 3.5 billion barrels of oil equivalent, according to industry and unions, worth as much as $252 billion at current crude prices, which producers say will be crucial in maintaining output, investments and jobs in the world’s fifth-largest oil-exporter.

Cod Spawning

Proposals to open more of the Arctic, including off the picturesque and environmentally sensitive Lofoten islands, are making unlikely allies in the run-up to the Sept. 14 general election. Labor unions lobbying for employment find themselves allied with Jensen, the 40-year-old Progress leader who says she sees Britain’s Margaret Thatcher as a role model.

Labor and its partners have 45.9 percent support among the electorate, compared with 50.4 percent for a splintered four- party opposition, according to an average of five polls this month by Norstat, Respons, Synovate, TNS Gallup and Infact. The Progress Party and the second-largest opposition group, the Conservative Party, favor more exploration, while the two smallest, the Liberals and Christian Democrats, are opposed.

Those fighting Arctic drilling, including Socialist Left leader and Finance Minister Kristin Halvorsen and Jensen’s own sister Nina, a World Wildlife Fund marine biologist, say the targeted areas are too sensitive for oil and gas production.

Killer Whales

The Lofoten archipelago harbors unique cold water reefs, killer whales, sperm whales and 28 different species of seabirds. It’s also the spawning ground for the Northeast Arctic cod, the largest remaining cod stock in the world, according to WWF International’s Norwegian chapter. A vote in parliament would be needed before any drilling licenses could be awarded.

“An increasingly desperate oil industry is pushing its way into the most vulnerable and valuable areas,” Nina Jensen said in an interview. “Lofoten and Vesteraalen are in the process of becoming UNESCO world heritage sites. To start planting oil platforms and pipelines in the middle of this and increase the risk of an oil spill is completely unacceptable.”

An August poll by Synovate, a six-year-old research company operating in 62 countries, showed 40 percent of Labor voters opposed allowing exploration outside Lofoten and Vesteraalen, with 32 percent undecided and 28 percent in favor. Some 58 percent of Progress Party voters were in favor, while 16 percent were opposed and 26 percent undecided.

Labor, Norway’s biggest party, has said it will take a stance on the issue once it has more more information on the effect seismic surveys, drilling and eventual pollution may have on the environment and the fishing industry.

Keeping Output

“The most important message we can give the oil and gas sector is that our policy will be based on knowledge,” Robin Martin Kaass, deputy oil minister and a Labor Party member, said on Aug. 25. “The biggest enemies of the oil industry are those that think we should cut corners.”

Tommy Skar, a spokesman for the Confederation of Trade Unions, said the group will also wait for an assessment report. “In principle we’re not against it, but we will make a decision once we have the facts.”

Proponents say the resources are needed to keep up oil and gas production and maintain Norway’s position as the world’s second-richest nation per capita. Norway’s Oil Industry Association estimates new areas will create as many as 2,000 jobs and help maintain 250,000 jobs across the country.

Output peaked between 2000 and 2001 and is forecast to drop 9.7 percent this year, according to the Norwegian Petroleum Directorate. Even so, supporters of drilling face a political battle to win approval.

Snohvit, Goliat

“The Norwegian government has a lot of money from oil exports which over time will decline,” increasing pressure for exploration, said Morten Anker, an energy consultant at Econ Poeyry in Oslo. “But it’s not going to be easy to get support for developing the Lofoten area over the next four-year parliamentary period.”

The country has opened up parts of the Arctic, including StatoilHydro’s Snohvit gas field and the Goliat oil concession in the Barents Sea, for which Eni SpA, Italy’s biggest energy company, and StatoilHydro won government approval in May.

Shell, Exxon Mobil, Chevron Corp. and ConocoPhillips, as well as StatoilHydro, Norway’s largest oil explorer, were among 34 companies awarded blocks for oil and gas drilling in the Norwegian Sea close to the Arctic Circle in the country’s 20th licensing round in April.

“It’s important for the industry and for long-term planning that we gain access to new areas, otherwise the very nature of our business in Norway will change,” Helge Lund, Statoil’s chief executive officer, said in an interview in Oslo Sept. 2.

‘New Opportunities’

“We would have to focus more on operations and do the best we can with the areas we have.”

The industry warns that without access, investments may move out of the country instead, according to the Norwegian Oil Industry Association.

Big oil companies “are waiting for more interesting acreage to be awarded in new areas before they invest fully on the Norwegian continental shelf,” Lars Arne Ryssdal, head of industry and environment at the Oil Industry Association, said by telephone from Oslo Sept. 8.

State-controlled StatoilHydro, which has operating rights on about 80 percent of Norway’s oil and gas output, has said it will focus on Russia in its push to exploit undiscovered hydrocarbons in the Arctic and is looking for opportunities abroad. It’s seeking to buoy its reserve replacement ratio, which fell to 34 percent last year from 86 percent in 2007.

“The debate is driven by emotions instead of driven by facts,” the Progress Party’s Jensen said. “People are leaving because they are not finding suitable jobs anymore and if they don’t have jobs they cannot remain living there, which means that it will end up as an empty museum.”

To contact the reporter on this story: Marianne Stigset in Oslo at [email protected]; Josiane Kremer in Oslo at [email protected]

Last Updated: September 10, 2009 18:00 EDT