Norway Or The U.S. – Which Approach To Oil?

Posted on Wed 05/07/2008 by

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Oil wealth causes angst for Norway

Norwegian oil rig Statfjord A – Photo by
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The Saudi Arabia of the north is struggling to work out what to do with the $1.7 billion it earns each week. Should new reserves be left untapped or its citizens made even richer? Norway’s prime minister, Jens Stoltenberg, looks as though he has just stepped out of a Bond movie. Tanned and fit from regular cycling and skiing, you can see why he is known as Norway’s pin-up. It has fabulous oil wealth, with more than $400 billion (£210 billion) earned from petroleum reserves. With oil at $120 a barrel, Norway is earning $1.7 billion a week. At this rate the government’s pension fund, the world’s second-biggest investment pool, will be worth $510 billion by the end of the decade. If this is tricky to manage, Stoltenberg has an even bigger question: how much richer should he let his country become? Recent new oil and gas discoveries in the Arctic, suggesting Norway has only just started to tap its hidden wealth.

The US Geological Survey estimates that a quarter of the world’s undiscovered oil reserves lie below the Barents Sea, around the Lofoten Islands and along the coastline to its border with Russia – it is already being dubbed the northern Persian Gulf. Geologists say Norway has dipped into only a third of its potential liquid gold and a tenth of its gas deposits. To date Norway has had only 1% of the world’s reserves. But it has been able to sell 90% of all the oil it finds because its production methods are so efficient. Now it is the world’s No 3 oil exporter – only Saudi Arabia and Russia are bigger. Norway ships 2.9m barrels a day – half of China’s daily consumption – and is the fifth-biggest gas exporter, providing 30% of Europe’s needs. Since oil was discovered 35 years ago, Norwegians have enjoyed one of the highest standards of living and a social welfare system whose generosity makes you gasp. At current oil prices, Norway’s statistics show that it is the country with the world’s wealthiest citizens – per capita income is $68,000 – although the International Monetary Fund’s ranking puts it a close second to Luxembourg. Current gasoline prices in Norway are $5.07 per gallon.

Norway is the country with the highest income per head in the world. Government: Prime minister Jens Stoltenberg leads the Labor party, which governs in coalition with the Socialist Left and Centre party The population is 4.6 million, making Norway the least densely populated country in Europe Gross Domestic Product is $194 billion. The estimate for non-oil GDP growth for 2008: 2.7%-3% Core inflation (without energy) is 0.7%. Unemployment is 3.7%.

Contrast this with the campaigns in the United States to prevent drilling in the Arctic National Wildlife Refuge (ANWR) and drilling offshore in the Gulf of Mexico, off the West coast in the Pacific, and off the East coast in the Atlantic. The environmental activists want exploration of new oil fields to be off limits forever, and Democrat politicians want to develop alternative energies, force Americans to change their lifestyles with conservation, and punish the oil companies with windfall profit taxes. The drilling in ANWR would only cover an area the size of an average U.S. major airport and would provide all the oil required for 10 years. A new black gold rush is under way, this time in North Dakota. The potential payoff is huge — up to 100 billion barrels of oil. That’s twice the size of Alaska’s reserves and potentially enough to meet all U.S. oil needs for two decades. Until now, the obstacles to production seemed overwhelming. The crude oil is locked away in rocks that are buried miles underground in the Bakken Play, a field that stretches into Montana and Saskatchewan, Canada.

But times have changed. High oil prices and new technology make it worth the effort. Computer analysis and remote sensing systems, plus smart drills that can probe horizontally or snake left and right, vastly improve the odds of locating new pools and putting them into production. And though oil is unlikely to remain priced at current stratospheric levels, prices won’t drop to much lower levels, which happened several times since the 1970s, and cause new exploration to dry up. Even if prices fell by half, many barrels of oil could still be produced — profitably — from the region. An official government survey of the Bakken region’s oil treasure trove is due out next month. The report is expected to play it very conservatively, because it will confine estimates to the amount of oil that likely can be produced profitably based on last year’s oil prices. It will also not take into account any further technological advances that might make it even easier to extract more oil. “The Bakken is much like the enormous natural gas field that sat for many years under and around Dallas until people figured out the geology and how to drill it out economically,” says Lucian Pugliaresi, president of the Energy Policy Research Foundation. There’s at least a smell of the “Old West” as petroleum companies rush to stake their claims in the Bakken Play. Marathon Oil recently acquired about 200,000 acres in the area and will drill about 300 oil wells within five years. Brigham Exploration and Crescent Point Energy Trust are also interested in some of the action. EOG Resources alone figures it can produce 80 million barrels of oil from its Bakken field. Figure on at least five years before the oil starts flowing in large volumes. A lot of work will need to be done first. In addition to installing drilling gear, firms must build supporting infrastructure, including roads, pipelines as well as new water, sewage and sanitation systems to meet the needs of workers and other area residents. Note that the Bakken Play region is not an environmentally sensitive area similar to Alaskan tundra that has stymied much oil field development because of concerns about damage to the fragile environment. Still, some environmental protests are sure to emerge and may gum up development for a while, but they’re unlikely to stop oil production from the Bakken fields.

There has not been one petroleum refinery built in the U.S. in the last 25 years. In the same period, 82 ethanol plants have been built with a capacity to produce nearly 3.7 billion gallons annually, and producing 4.4 billion gallons in 2007. There are also 16 ethanol plants and two major expansions under construction with a combined annual capacity of 740 million gallons. U.S. ethanol plants are expected to produce 6 billion gallons in 2008, while federal legislation only calls for 8 billion gallons of renewable fuel use by 2012. Even with this capacity, the United States imported a record 300 million gallons of fuel ethanol in 2007 from the traditional Caribbean Initiative (CBI) countries, with Brazil furnishing 90 million gallons, according to final data from the U.S. International Trade Commission. With crude oil prices topping $120 per barrel and gasoline prices across the country at or near $3.60 per gallon, consumers are seeking use of domestic renewable fuels as a means of adding to supply and lowering prices.

Will the Democrats and the environmentalist radicals kill all this potential for U.S. energy independence, trying to find another porcupine caribou to save? Or will we take Norway’s approach by drilling and ignore the groups trying to create obstacles?

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