Norway rejected pleas from the country’s oil industry to help contain wage growth that producers say is hampering competitiveness in western Europe’s largest crude exporter.
A government-appointed commission on oilrigs and drilling concluded last month Norway must cut labor costs and ease regulations to ensure petroleum isn’t left in the ground.
“As a country and as a sector, we should never compete on security, health and environmental standards, or hourly wages for personnel,” Norway Oil Minister Ola Borten Moe, 36, said in a Tuesday interview. “We live in a country with real-wage increases. We have for many, many years, and I hope that continues.”
Norwegian oil professionals have annual pay checks averaging $180,300 — more than double the global average, according to a study published by Hays Oil & Gas. A strike over pay and pensions at the end of June and beginning of July was ended by the government through forced arbitration as a total shutdown loomed. The strike disrupted 15 percent of oil production and 7 percent of gas output, according to Norway’s Oil Industry Association.
Another potential strike looms. Talks have broken down between oil-service workers and drilling companies, with government mediation talks scheduled for Oct. 1 and Oct 2.
Drilling costs in Norway are about 40 percent to 45 percent higher than in the UK, and may reach 80 billion kroner this year, according to the July report. Costs may prevent companies from exploiting harder-to-reach reserves in mature fields, just as Norway is trying to boost falling oil production by increasing recovery rates from aging North Sea fields and expanding into areas in the Barents Sea.
Cost control will need to be achieved through more “efficiency and technological improvements,” Borten Moe said. The government owns 67 percent of Statoil, which controls about 80 percent of the country’s offshore areas.
“We are working a lot on our own operations to make them as efficient as possible, we are working to get new tools, new rigs, we are working with technology development,” said Statoil Chief Executive Helge Lund in a Wednesday interview. “I wouldn’t use the word ‘fear’, but we are trying to bring that into actions on how we can address the bottlenecks that are there. So far, I think we’ve managed that well.”
Companies, including Total SA, Lundin Petroleum AB and Dong Energy A/S have said costs for services and equipment may increase in Norway as recent discoveries like the Johan Sverdrup field in the North Sea, the biggest since the 1970s, have revived exploration interest in the Nordic country. Investments will reach a record 204 billion kroner next year, according to a quarterly survey by the Norwegian statistics agency.
Petoro AS, which manages the Norwegian government’s direct ownership in oil and gas licenses, has warned that time-critical mature deposits could be lost because of reduced capacity.
“In Norway, but also globally, there are capacity challenges that are important to focus on, both for the companies and authorities,” said Borten Moe. “We have a responsibility, together, to make sure we don’t build bubble tendencies in this part of the economy.”
Borten Moe, who represents the Center Party in Jens Stoltenberg’s Labor-led government, said authorities had “regulatory tools” to ensure companies stayed committed to extracting the most from each field, pointing to a 2007 decision by a predecessor to halt a plan to increase gas output from the Troll field because it would compromise oil production.
“We will not simply accept that companies just pick and choose, and that they don’t do their homework on the tasks they already have and shift to a one-sided focus on possible new discoveries,” he said. Most were “doing what is expected of them,” he said.
The minister declined to take a public stand in a dispute over how to develop potential gas finds in the Barents Sea, off Norway’s northern tip. Lundin, Det Norske Oljeselskap and other producers have said new finds could stay in the ground if Statoil and its partners at the Snohvit field decide to expand their liquefied natural gas plant rather than build a south- bound pipeline.
Statoil has said it favors an LNG expansion because there aren’t enough known reserves in the area to justify a pipe, which could cost as much as 25 billion kroner to build according to Gassco AS, Norway’s gas transportation operator.
“Had we known that there were a lot of small gas discoveries waiting to be made, it’s possible they could be right,” Borten Moe said. “But we don’t know.”
The minister said it is still important that companies search for gas in the Barents Sea and that capacity had to be increased in one way or another.
“That can happen through LNG or through a pipe. If we find enough gas, there could be room for both and maybe even more,” he said.
Norway’s government plans to present a plan to open new fields in a formerly disputed area bordering Russian waters in the Barents Sea as well as around the Jan Mayen islands next “spring,” Borten Moe said. If parliament agrees, these areas could be included in the next licensing round in 2013, he said.
Norway’s main opposition party, the Conservative Party, has said it would open areas outside the Lofoten and Vesteraalen islands in northern Norway for exploration as soon as possible, if it wins elections next year. Statoil has also lobbied for the areas to be opened. Stoltenberg’s government decided last year to postpone a planned environment impact study until after the 2013 election.
Borten Moe declined to comment on the issue, saying his own party hadn’t reached a decision. Stoltenberg’s Labor was divided while the third coalition partner, the Socialist Left Party, was opposed. The areas around the islands contain unique cold-water coral reefs and are a key breeding ground for marine life.
The minister sparked controversy last month when, speaking of opening new areas off Norway’s northern tip at a conference, he said that “Norway ends almost at the North Pole.” While technological progress would enable Norway to open areas further north, he said any expansion would be step-by-step.
“We haven’t opened new areas in Norway since 1994,” he said. “This has always been Norwegian tradition: to proceed carefully when ready and when it’s needed.”