With the departure of Russia, Norway becomes Europe’s energy champion

The new frontline for Europe’s energy security is a modest office building overlooking a fjord in Stavanger, Norway. Inside, a company called Petoro oversees three dozen of the largest oil and natural gas fields in Europe, on Norway’s petroleum-rich continental shelf.

These operations – in Norwegian waters characterized by huge offshore platforms and wells that snake thousands of feet below the surface – have helped Europe heat its homes and generate electricity since the outbreak of the Russian war in Ukraine.

While Russia put a brake on natural gas exports last year, Norway called them on and is now Europe’s main supplier of the fuel. Norway is also supplying larger volumes of oil to its neighbors, replacing embargoed Russian oil.

“The war and the whole energy situation have shown that Norwegian energy is extremely important to Europe,” said Kristin Fejerskov Kragseth, the CEO of Petoro, a state-owned company that manages Norway’s petroleum holdings. “We were always important,” she added, “but maybe we didn’t realize it.”

The importance of this elevated status has not gone unnoticed by Norway, a country of 5.5 million inhabitants, where energy accounts for about a third of economic output and where, as in Saudi Arabia, the government not only owns the oil and gas fields, but also of major interests. in companies that extract them. By increasing demand for this energy, the war in Ukraine helped add about $100 billion to Norway’s oil and gas revenues.

Many in Norway have mixed feelings about this dependence on fossil fuels, and tensions over climate change and further petroleum research dominated the last national election, in 2021. But the sudden importance of energy supply seems to have sparked a consensus that the country should continue, at least for a few years, to produce large quantities of petroleum.

The war “changed political sentiment,” said Ulf Sverdrup, the director of the Norwegian Institute of International Affairs, a research organization. “Basically, Europe said, ‘Hey! We need your energy.’”

Norway, a small country with a border with Russia, is not a member of the European Union, but listens carefully to its neighbours. After the outbreak of war, Brussels and European countries, especially Germany, which were heavily dependent on Russian gas, turned to Oslo for help.

“Norway’s contribution to Europe has been to maintain and increase gas exports,” Norway’s Prime Minister Jonas Gahr Store said in an interview.

Norway was already producing a large amount of gas and shipping it to northern Europe via submarine pipelines, but the government authorized additional production. Energy companies made adjustments that increased gas production at the expense of oil. The result was an 8 percent increase in gas production last year, making Norway the source of about a third of the gas consumed in Europe.

“We have really stepped up our game to turn over every stone,” said Anders Opedal, the CEO of Equinor, Norway’s state-controlled energy producer.

Norway has received handsome financial rewards for its assistance to Europe. Just as energy companies like Shell and BP posted record profits last year, Petoro earned about $50 billion in 2022, nearly triple what it did in 2021, and Equinor reported record adjusted earnings of $75 billion. Income from oil and gas contributed $125 billion to the Norwegian state in 2022, according to government estimates – about $100 billion more than in 2021.

That money flows into a $1.3 trillion sovereign wealth fund, formally called the Government Pension Fund Global, but known to many as the Oil Fund. It owns an average of 1.5 percent of 9,000 publicly traded companies worldwide, and the government can tap projected annual revenues to fund nearly 20 percent of the state budget. This arrangement helps protect the Norwegian economy, which grew by 3.3 percent in 2022, from the ups and downs of oil and gas prices.

But whether the Norwegian industry’s bumper profits will continue is another question. European gas prices have been falling for months and are now around an eighth of the peak they reached last summer. And the war may even accelerate the continent’s shift from gas to renewables that was underway before the invasion.

The riches made since the fighting began have angered some Norwegians. “We consider those gains as war gains,” said Rasmus Hansson, a Green Party MP. He suggested investing the money in a fund to help Ukraine and other war-affected countries.

Oil and gas production, as well as large amounts of hydropower, did not shield Norwegians from the skyrocketing electricity costs that hit most Europeans last year, as the markets are closely linked to those of neighboring countries.

“It was four times the cost of a normal year,” said Svein W. Kristiansen, owner of Smed T. Kristiansen, a Stavanger-based family business that makes parts for oil rigs and offshore wind farms.

Norway should be able to maintain its high gas flows to Europe in the coming years. In 2020, the government made temporary tax changes to ensure that the pandemic did not halt investment in the sector. These incentives have led to a burst of new drilling and development, worth an estimated $43 billion.

Aker BP, an oil and gas company based outside Oslo, plans to invest $19 billion to increase production by a third by 2028. “We drill exploratory wells all the time,” says Karl Johnny Hersvik, the CEO.

According to Mathias Schildborg, an analyst at Rystad Energy, a Norwegian consultancy, the output of these new fields should be enough to offset declines in older fields over the next few years. Scenarios modeled by the government show Norway’s oil and gas production peaking towards the end of this decade, followed by a long decline.

However, it is doubtful whether Norway can supply significantly more gas to Europe. The network of pipelines that carry Norwegian gas to the continent has little additional capacity.

“We run as much as we can and as fast as we can,” said Mr. Hersvik. The case for building additional pipelines to Europe is weak, he said, as it would take about 20 years to recoup the investment costs. “I sincerely hope that we have solved this problem sooner,” he said, referring to the war in Ukraine.

Pressure on Norway to reduce greenhouse gas emissions and curb the oil and gas industry is unlikely to go away. Green Party legislator Mr Hansson said he believed Norway should phase out fossil fuels around 2035 to protect the climate.

Environmental groups admit that natural gas production is necessary because of the war, but they argue that the government should not use the energy crisis as leverage to develop new oil and gas fields that would produce fossil fuels for years to come.

“Norway locks Europe into what is really a climate problem,” said Frode Pleym, head of Greenpeace in Norway.

Like most European countries, Norway has started the transition to cleaner energy. The oil and gas industry is investing in offshore wind farms and trying to reduce emissions from oil and gas production by powering pumps and other equipment with electricity instead of gas or diesel.

But this transition is worrying some in the industry, who suspect renewable technologies won’t create enough high-paying jobs to support the roughly 6 percent of the workforce now employed in the oil and gas sector.

Hilde-Marit Rysst, the leader of SAFE, a union representing 12,000 energy workers, said working on petroleum platforms is more stimulating and rewarding than the work available in the renewable energy industry.

“You use your brain, your education and your experience,” she said. “It doesn’t look like you’re going to get that from wind turbines.”

Stavanger, a pretty town with old wooden houses built around the fjord, has been Norway’s oil and gas hub for 50 years. It’s been hit by job losses over the past decade — first from the 2014 oil price collapse and then the pandemic — but new investment has revitalized the city.

The mayor, Kari Nessa Nordtun, seems ready to embrace it all. “I’m a proud oil kid,” Ms. Nordtun said, but she also praised companies that once focused on the oil business for “putting money and people into renewable energy.”

Still, in the Stavanger region, there are nearly 50,000 jobs related to oil and gas compared to about 1,000 in green energy.

Analysts say the Norwegian government is pragmatic and likely to shape the country’s energy industry so that it remains in line with European Union energy policy and demand from European neighbors such as Germany.

“For Norway to have a future,” said Mr Sverdrup, the director of the Norwegian Institute for International Affairs, “we need to be aligned with the future energy system in Europe.”

Henrik Pryser Libell contributed reporting from Oslo, and Eric Solomon from Berlin.