Photo of Karl Eirik Schjøtt-Pedersen

Oil optimist



The industry may be hit by cost cuts, falling oil prices and rising unemployment. But the new director general of the Norwegian Oil and Gas Association takes a positive view of its future.

Karl Eirik Schjøtt-Pedersen is travelling the length and breadth of Norway to explain how crucial the petroleum sector is for the country – and doing so with great enthusiasm.

“The Norwegian welfare state rests entirely on revenues from the oil and gas industry,” he explains. “It accounts for a fifth of total national value creation.

“And it provides a quarter of the government budget, corresponding to all spending on higher education, hospitals, roads, railways, the police and defence put together.

“Add the fact that roughly 300 000 people in Norway work directly or indirectly for the petroleum sector, and it becomes clear that challenges here have a direct impact on the economy.”

But Schjøtt-Pedersen emphasises that many participants in the public debate are wrong to think that the industry’s current retrenchment was sparked by declining oil prices.

“Statoil and the other companies took action to cut costs before that drop. Although it’s been reinforced by the price fall, what’s happening now is an active effort to make the industry competitive for the future and thereby avoid being a passive victim of prices.”

He believes that the present position is a wholly necessary restructuring to secure control over a level of prices which had become too high.

“Investment on the NCS quadrupled from 2000 to 2013, with a record number of parallel projects. That created sharp competition over labour, equipment and materials, and drove prices up.

“Everyone, including the unions, agreed that this couldn’t continue. So I feel there was a unanimous feeling in the industry that costs had to be reduced.

“The companies are very unhappy that many people are losing their jobs, but I nevertheless haven’t heard a single one of the big oil players say they regard the outlook as negative.”

Visiting

Since taking over as director general in the spring, Schjøtt-Pedersen has devoted considerable time to visiting the association’s member companies nationwide.

He has registered great enthusiasm in the industry over the forthcoming 23rd licensing round, and says the companies are now preparing intensively to compete for exploration acreage in the Norwegian Sea and the newly opened Barents Sea South-East area.

The optimism he sees in the far north is gratifying for somebody who hails from the small town of Vardø near the Russian frontier.

“People in Finnmark county have changed their self-image from a feeling of being an outpost to a realisation that they’re in the centre of events,” he says.

“Huge hopes are being expressed along this far northern coast over the arrival of oil operations which can contribute to jobs and help young people to remain.

“So our concern at Norwegian Oil and Gas is to facilitate expertise enhancement which allows youngsters to win such work. It’s also important to develop the supplies industry to create a strong industrial base.”

Advantage

Schjøtt-Pedersen highlights safety as an important competitive advantage, particularly as oil operations move even further north.

“The industry wants to be as well prepared as possible, so we initiated a project in 2010 on health, safety and the working environment (HSWE) in the far north.

“This has been a collaboration between the companies, the unions and government authorities, and the results have been presented in a report which provides important input for continued work on safety in these areas.”

At the same time, he maintains that the challenges facing the industry in the far north are not fundamentally different from those it has encountered before.

He also points to the differences between the Norwegian Arctic and the waters off Canada, for example, where the climatic conditions are far tougher.

Restructuring

Schjøtt-Pedersen has no problems accepting that the present position of the industry calls for restructuring. Such action has always characterised Norwegian society in modern times, from shipping and shipbuilding to the oil business.

He now envisages that experience from the petroleum sector can contribute to the development of renewable energy as well as other economic activity.

“We must be open to change, because that’s what creates progress,” he emphasises. “But it’s wrong for certain people to give the impression that we have to restructure because of a need to decide what Norway’s going to do when the oil age is over.

“Petroleum will remain a totally dominant industry in our country for many years to come. So asking what we’re going to do alongside rather than instead of it would be more appropriate.”

He points to the Johan Sverdrup development in the North Sea, which is due to remain on stream until 2069. “So the people who’re going to work on the field in its late life aren’t even born yet.”

Rejected

Claims that the world will no longer want Norwegian petroleum are rejected by Schjøtt-Pedersen, who points to the conclusions of the UN’s intergovernmental panel on climate change (IPCC).

These indicate that oil and gas deliveries from Norway will still be essential even within the two-degree ceiling for global warming.

“People need energy to escape from poverty,” Schjøtt-Pedersen points out. “Although most of us hope that more of this can be renewable, the world will need petroleum for a long time to come.

“That makes it all the more important for oil and gas to be produced in the most environment-friendly way. And we must stop seeing the industry only as a source of climate problems.

“It’s also a contributor to their solution. Don’t forget that emissions are halved every time a unit of coal is replaced by natural gas.”

Politician

Schjøtt-Pedersen has had a long career as a politician in Norway, both as a member of the Storting (parliament) for the Labour Party and in various ministerial posts.

However, Norwegian Oil and Gas was high up his personal list of dream jobs when he opted to retire from politics at the 2013 general election.

And the current downturn has done nothing to dampen his enthusiasm. “It’s easy to be excited about representing an industry of such significance and potential,” he declares.