As world leaders prepare to meet for UN climate talks in Bonn, it may come as a surprise that firms are lining up to drill, at great expense, in Europe’s northern waters where output peaked years ago.
Oil production in Europe – concentrated in the offshore waters of the UK and Norway – has fallen sharply since the turn of the 21st century.
UK production last year was just under 48 million tonnes, compared to a peak of 137 million in 1999. Norwegian output peaked two years later with almost 163m tonnes in 2001. Last year, it stood at around 90m tonnes.
There is a notable contrast between the two, however: while UK output fell by 16% in five years, Norwegian production has ticked upward since a low of 87m tonnes in 2012.
Amid apparently robust global demand, the signs are that Oslo has every intention of driving this trend further, despite signs of a possible shift in public opinion and a landmark court case due to be heard this month.
It may come as a surprise that firms are lining up to drill, at great expense, in some of the world’s most inhospitable seas – Europe’s northern waters.
Oil prices have languished stubbornly at around US$50 a barrel since a precipitous drop towards the end of 2014, and various reports have suggested global peak global demand could be reached as early as the next decade, as governments wake up to the reality of undertakings made almost two years ago in Paris.
But it appears it may be too soon to expect a switch to electric cars and a heightened awareness of climate change to drive an immediate shift from oil to cleaner forms of fuel.
“We don’t see a peak in oil demand any time soon. And unless investments globally rebound sharply, a new period of price volatility looms on the horizon,” IEA director Fatih Birol said in March.
The biggest barrier to oil exploration drilling in Europe may not be basic economics, but public opposition.
“The interest there is substantial, which is reflected by the fact that 2017 will be a record-year with regard to exploration wells drilled in the Barents Sea,” said Sissel Eriksen, exploration director at the Norwegian Petroleum Directorate (NPD) at the time. Companies have until the end of November to bid for a concession.
A fortnight before that deadline, however, Norway’s government will be in court to face a challenge by environmentalists, who argue that Oslo breached the Norwegian constitution in disbursing new drilling concessions in the preceding round, which saw licences go to 13 firms including the majority state-owned energy firm Statoil, Austria’s OMV and Russia’s Lukoil.
The case against the state rests on article 112 of the constitution, which calls on the authorities to ensure a safe environment for present and future generations.
The legal challenge comes at a time when public opinion in Norway is starkly divided over the future of an industry that has made the country rich, says Truls Gulowsen, programme manager for Greenpeace Norway, one of the groups that brought the case to court.
A recent Ipsos poll for the newspaper Dagbladet suggested that 44% of Norwegians supported putting the brakes on the oil business in the name of climate action, while 42% said reserves should be exploited to the full – with women far more likely than men to support leaving oil in the ground.
Gulowsen acknowledges that the hearing due to start on 14 November is “completely untested legal territory for the Norwegian courts” and would not be drawn on the possible outcome. In contrast to the legal challenge, which backers hope will set a precedent for environmentalists around the world, and a possible shift in public opinion, Norway’s main political parties remain firmly in favour of opening up new areas for exploration.
Gulowsen argues that the government is in denial over the economic realities facing the oil sector. “If the world manages to reduce oil demand on a scale necessary to achieve the Paris Agreement objectives to limit global warming, there will no longer be a market for its most expensive offshore oil. Further exploration is a direct bet against achieving the Paris goals,” he said.
Oil and gas in a 2°C scenario
For oil producers, however, the argument that the Paris agreement to limit global warming to 2°C means there is no need for further oil exploration does not hold water.
“Looking at IEA numbers, even in a 2°C scenario, oil and gas still make up for around 45% of the energy mix in 2040,” said Nareg Terzian of the International Association of Oil and Gas producers.
“CCS and energy efficiency will play an important role in mitigating emissions. Demand will remain strong, and this is why exploration and production is crucial to make up for the 3-6% depletion rate of fields,” Terzian said.
CCS – or carbon capture and storage – is a nascent technology aimed at sequestering CO2, typically by pumping it into disused gas fields underground. Statoil is Europe’s most active player in the field.
IOGP estimates European oil resources at over 25 billion barrels, not including resources which are yet to be found.
“We are looking at over €50 billion of upstream oil and gas investment over the next ten years,” said Terzian. “The idea that oil and gas and a low-carbon future are incompatible is misleading, because in reality they will both be needed to get us there,” he argues.
According to research commissioned by the IOGP, 65% of oil and gas projects launched today in Europe are expected to break even at an oil price of $60 a barrel. Global oil production hit a record 97.5 million barrels a day in September but the market was nevertheless drawing on stocks accumulated in 2015 and 2016, the lobby group notes.
“There is no evidence of a slowdown in demand – to the contrary,” Terzian said.
Whether or not this proves to be the case over the coming decades, western Europe’s contribution to global oil production – 4,382 million tonnes last year – will remain relatively minor. Moreover, the aforementioned record level of test drilling in the Barents Sea this year appears to have yielded little so far in the way of oil.
“Statoil Petroleum AS, operator of production licence 718, has completed the drilling of wildcat well 7317/9-1. The well is dry,” the NPD reported on 9 October, the latest in series of similar announcements.