Wednesday , May 23 2018
Home / Energy / Norwegian oil and gas decline is bad news for Britain

Norwegian oil and gas decline is bad news for Britain

Image: Dutch Simba

Supposedly hydrocarbon-rich Norway is not about to run out of oil and gas; far from it.  And that is a major headache for UK energy policymakers, because most of Norway’s remaining oil and gas is in small pockets beneath difficult geology and in inhospitable locations (where much of it is likely to remain).  To put it in plain language, between 1971 and 1999 Norway extracted all of the cheap and easy oil.  Since then it has fallen back on the expensive and difficult oil that remains.  As Viktor Katona at Business Insider explains:

“The demise of the North Sea doesn’t necessarily mean the end of Norway’s petroleum era—far from it. Still, despite significant reserves in the Barents Sea, Norway is about to embark upon a long period of structural decline as its benchmark fields inch closer to depletion and its reserves taper before our very eyes…

“There’s ample evidence to conclude that all the sweet spots of Norway’s continental shelf have been found. The latest shelf licensing round (24) elicited a weak response, with only 11 companies applying for production licenses.”

The question facing the Norwegian oil industry is whether the reserves located beneath the Barents Sea can be produced fast enough to offset the continuing production decline from the cheaper and (originally) larger fields in the North Sea.  Not that this is necessarily a problem for the relatively small Norwegian population.  As Katona notes:

“The nation’s massive external and fiscal net position, as well as its complete energy independence thanks to hydropower, allows for great flexibility regarding future policies.”

Like Saudi Arabia, Norway has invested heavily in alternative energy technologies over the last two decades.  The reason is the same and it is anything but green.  The global reserve of cheap and easy oil has been in decline since 2005.  Since then, production of so-called “unconventional” (i.e. expensive and difficult) oil has made up the difference.  In these circumstances, the choice facing oil states like Saudi Arabia and Norway is either to continue burning a growing proportion of their remaining oil in their domestic economies, or to use alternatives domestically in order to maximise exports.

Why is this a problem for the UK?

Unlike Saudi Arabia and Norway, successive UK governments since the 1970s chose to squander the income from the North Sea on tax breaks for multinational corporations and on pumping up unsustainable housing bubbles.  Crucially, even as UK oil and gas production has plummeted by more than 60 percent since 1999, the British economy remains dependent upon North Sea hydrocarbons.  Unlike Norway, there has been no serious attempt to deploy large scale renewables.  Unlike France, there has been little in the way of new nuclear.  Unlike Germany, there has been no attempt to maintain coal power.  The result is that Britain is dangerously exposed to any disruption in oil and gas supplies from the North Sea.

This was illustrated all too clearly last week when a fracture was discovered in the 42 year old Forties pipeline, which carries 40 percent of the UK’s oil and gas supplies.  In addition to the inevitable increase in fuel prices, the UK government was obliged to bust western sanctions on Russia in order to divert a shipment of liquefied natural gas from the Yamal facility. The one saving grace for the UK was that the Rough storage facility that is currently being decommissioned is still supplying what remains of its stored gas.  Had that buffer not been in place, the UK would have faced power cuts over the Christmas and New Year holidays.

The future is looking bleak for the UK as a result of the Cameron government (2010-15) throwing its remaining eggs in the fracking basket.  Taking the US fracking Ponzi at face value, Cameron and Osborne chose to believe that the UK could produce sufficient shale gas to offset the declines from the North Sea.  It is increasingly apparent, however, that a combination of geographical constraints, geological problems and political opposition will prevent most – if not all – of the UK’s shale gas from being extracted – thus far not a single Btu of profitable shale gas has been produced in Europe.

The dash for shale gas would not have been quite so dangerous had the government opted to pursue energy diversity.  It didn’t.  Instead, it embarked upon a wholesale switch from coal to gas electricity generation while stomping on Britain’s emerging renewables sector.  The result is that more than 40 percent of UK electricity in 2017 was generated by gas power stations for which there is only a dwindling supply of fuels.

Norway is far and away Britain’s biggest supplier of imported oil and gas – largely through North Sea pipelines.  So as the Norwegian North Sea fields deplete, it is the UK not Norway that will suffer higher wholesale prices and less energy security.  In the absence of a diverse domestic energy sector, the UK is facing some difficult decisions in the very near future.  One is to make friends with Mr Putin; since Russia is one of the few countries whose oil and gas fields have yet to peak.  Another is to reopen what remains of Britain’s coal industry and, in Cameron’s words, “ditch the green crap.”  Even less plausibly, the UK could engage in a massive borrowing spree (we are talking trillions of pounds here) to rapidly deploy renewable and storage technologies in the hope of keeping the lights on.

Most likely, however, Britain will become the front runner for a future “tight-energy world” – a world in which secure energy supplies are expensive, cannot be taken for granted, and where random intermittency becomes the norm.  At the bottom of the UK income ladder, that world is already upon us, of course.  Among Britain’s growing precariat every day brings a choice between food and fuel.  Among the middle classes it manifests as a retreat from discretionary consumption.  But ultimately in the absence of a cheap and abundant energy source (that nobody has gotten around to inventing yet) it will engulf the entire economy.

As you made it to the end…

… you might consider supporting The Consciousness of Sheep.  There are three ways in which you could help us continue our work.  First – and easiest by far – please share and like this article on social media.  Second, sign up for our monthly e-mail digest to ensure you do not miss our posts, and to stay up to date with news about Energy, Environment and Economy more broadly.  Third, if you enjoy reading our work and feel able, please leave a tip.

Many thanks.

Check Also

Renewable electricity prices

A question too obvious…

Every now and again someone poses a question so obvious that you wonder why nobody …