Introduction
Maritime activities: natural habitat for Norwegians
Maritime boundary delimitation agreements
International legal regime for maritime space
Electrification of Norway
Norwegian energy transition
European energy transition
Geopolitical upheaval
For some time, the Norwegian authorities have been developing a longer-term strategy for the energy sector and for sustainable economic development in a post-oil-and-gas world. Due to its natural resource advantages, Norway has moved further along the electrification route than most economies. However, this rapid electrification, combined with increased electricity exchange with Europe and natural gas shortages, does not bode well for the Norwegian energy supply. Climate change challenges also means that unabated extraction of subsea oil and gas resources cannot continue as previously planned.
The previous centre-right and the current centre-left minority governments have focused their strategies on one particular Norwegian competitive advantage – namely, the ability to manage and harvest the resources of ocean space. With the advent of climate change and the geopolitical upheaval from yet another Russian invasion of Ukraine, the supply of energy is no longer solely an economic or industrial matter, but one of security, sustainability and welfare protection.
This article is part of a series examining recent energy developments in Norway. In particular, this article explores the history of energy production in Norway and contextualises it against the EU and global developments in this regard. The geopolitical shift following the Ukraine crises demands new solutions. This series of articles examines how Norway is aiming to navigate these new unruly waters.
Maritime activities: natural habitat for Norwegians
Norway is a maritime nation with an extensive coastline that is dotted with towns and hamlets from which its inhabitants, for generations, have ventured into the sea to trade and exploit its natural resources. Today, several hundred thousand Norwegians work in ocean-related industries, including traditional industries (eg, coastal and high sea fisheries and shipping) and newer ones (eg, aquaculture and offshore oil and gas). Other new industries such as offshore renewable energy and deep-sea mining are about to be developed.
In the midst of global nationalisations of oil production and resources in the 1960s and 1970s, coupled with the oil embargo of 1974, the North Sea became an important investment destination for crude oil and natural gas production. This shift in geographical focus by the upstream industry benefitted several North Sea countries, Norway among them. Norway entered its oil and gas era in the mid-1970s, with pipeline exports of natural gas to the United Kingdom from the cross-border Frigg development and natural gas from several Norwegian fields through the Statpipe and Norpipe systems to Germany.(1)
In all, seven large diameter natural gas submarine export pipelines(2) to Europe have been established and Norway has become one of Europe's largest suppliers of natural gas.(3) Norway's oil and gas success has a lot to do with geography, but it also has a history of being in the right place at the right time. Having said that, the success is also a result of wise policy decisions, competent administration, efficient management and tenacity. A core component thereof was the ability early on to make decisions for the long run. Long-term thinking with regard to renewable and non-renewable natural resources has paid handsome dividends. In many ways, the seed was sown in the early 1900s with the introduction of concessionary regimes for watercourse management and electricity generation as imposed by the 1917 legislation.(4) This legislation, later evolved and refined, resulted in the initial legislation for offshore petroleum production in 1963.(5)
Maritime boundary delimitation agreements
The 1963 Continental Shelf Act would have been of limited importance, however, had Norway not secured international law acceptance for its continental shelf sovereign rights and the jurisdictional claims necessary to regulate, among other things, offshore petroleum exploration and exploitation. Acceptance for these claims was successfully formalised through a number of bilateral maritime boundary delimitations agreements. The first such boundary agreement was with the United Kingdom;(6) subsequent agreements followed with Denmark(7) and Sweden.(8)
These agreements, in many ways, set a precedent for maritime continental shelf delineations and transboundary cooperation around the world. This was reflected in the last such delimitation for the Barents Sea and Arctic Ocean into which Norway entered with Russia in 2010.(9) These days, such boundary and jurisdictional delimitation agreements are, together with the development of the public international law concept of exclusive economic zones, relevant for establishing jurisdiction over other marine resources such as offshore renewable energy generation and deep-sea mining. Once public international law arrangements securing sovereign rights and jurisdiction are in place, coastal states may pass adequate municipal legislation(10) to regulate most aspects of offshore(11) energy related activities.
International legal regime for maritime space
The economic exploitation of offshore living and non-living resources and associated activities were at the front of discussions leading up the United Nations Law of the Sea Convention (UNCLOS) signed at Montego Bay, Jamaica, in December 1982. UNCLOS enabled coastal states such as Norway to establish exclusive economic zones of up to 200 nautical miles and, in the case of Norway, exercise continental shelf jurisdiction even beyond 200 nautical miles measured from the base lines drawn along points at the outermost islands forming the Norwegian coast.
UNCLOS establishes that coastal states have exclusive right and jurisdiction to explore for and exploit the living and non-living natural resources of their continental shelf, including its subsoil and in the water column of its exclusive economic zone. This covers "the production of energy form the water, currents and the winds".(12) However, in order to carry out such economic activities, the coastal state shall "have due regard to due regard to other states right and obligations"(13) and other lawful uses of the sea.(14) High seas freedoms, such as the freedom of navigation, a customary public international and treaty-based principle, is among the fundamental rights upheld in exclusive economic zones.
For years, Norway has been a net exporter of energy – not only crude oil or natural gas, but also electricity. The electrification of the Norwegian economy started in earnest at the beginning of last century; it was enabled by developing Norway's many waterfalls. The country's energy supply quickly converted from blubber oil to electric lighting for commercial and domestic use, rather than depending on kerosene and natural gas. This made electricity available for industrial purposes, the lighting of public spaces and private consumption. Electricity originating from Norwegian power stations, supplying the Norwegian grid and international interconnectors, does not come from natural gas, fuel oil or coal. The domestic market supply and use of natural gas, even for industrial purposes, has to this day remained insignificant.
In the 1970s, Norway was – primarily for resource conservation purposes, but also environmental concerns – among the first to impose a total ban on flaring associated with oil production. Norwegian natural gas was almost without exception used for oil and gas production purposes, reinjected to maintain reservoir pressure or exported through submarine pipelines to European consumers. Norway stayed the renewable course even when natural gas was available in abundance and at a low price.
In later years, Norway has actively been reducing its dependence on fossil fuel also for road transport, costal shipping and the offshore supply fleet as part of its emissions reduction policy. Most private cars sold in Norway these days no longer have a combustion engine. Of the ones that do, almost all are plug-in hybrids. For several years, taxation and other policy initiatives substantially favour the consumer purchase of electric vehicles – in most cases, reducing the price for the buyer to approximately half of what an equivalent vehicle with a combustion engine would cost.
Recently, the country also initiated a policy of requiring new offshore petroleum production projects to be supplied by power generated from onshore hydropower to replace offshore fossil fuel generators and compressors. These initiatives, in combination with increases in electricity interconnectors, have resulted in supply squeezes and price hikes to levels 10 times those of historic prices in the three(15) southern electricity supply regions in Norway.
The EU energy transition is aimed at weaning Europe of its dependence on fossil fuels and reaching its emissions reduction targets.
Russia's 2014 incursion into Crimea disrupted relationships between the European Union and Russia. Europe's substantial dependence on Russian natural gas transiting through Eastern Europe started to influence policymaking; security of supply was again debated more seriously. The first step was Germany's attempt to secure direct natural gas supplies from Russia through the North Stream pipeline in the Baltic Sea, and this was followed by the construction of North Stream II.
With the climate crisis becoming more apparent, an attempt was made to enact an energy transition from fossil fuels to renewable energy resources, whereby natural gas initially would substitute fuel oil and coal. Germany and Sweden simultaneously decided to shut down nuclear power generation in the face of strong opposition from a growing and loud environmental lobby.
Political decisions in favour of the transition were not matched by sufficiently rapid capacity increases in supply of electricity from renewable sources. Europe, including Norway, suddenly experienced previously unparalleled energy price hikes, and governments scrambled to ease the economic pinch suffered by industry and consumers alike. Most pundits pointed out that the efforts were at best short-term relief and did not address the massive underlying challenge of electricity undersupply. The capacity of facilities for renewable sources for electricity generation were and would be inadequate for some time. The rapid phasing out of fossil fuels to meet climate change targets would result in exorbitant prices for consumers and even rationing for quite some time to come.
On 24 February 2022, the energy supply situation in Europe changed dramatically due to the Russian invasion of Ukraine. The European Union decided, in the following weeks, to massively reduce Russian natural gas imports, which until that point amounted to approximately 155 billion cubic metres a year. Germany ultimately mothballed the Gazprom-controlled Nord Stream 2 pipeline project.
The European Union is planning to compensate the reduction in Russian volumes by reducing consumption, securing new suppliers, switching fuels and accelerating investment in renewables. The European Union and allies of the North Atlantic Treaty Organization have urged Norway and other energy exporters to increase production to mitigate the remaining shortfall.
For further information on this topic please contact Bjørn-Erik Leerberg at Simonsen Vogt Wiig Advokatfirma by telephone (+47 21 95 55 00) or email ([email protected]).The Simonsen Vogt Wiig Advokatfirma website can be accessed at www.svw.no.
Endnotes
(1) In the early days, Norway also established a crude oil pipeline from the Ekofisk Area to Teesside in the United Kingdom. A couple of liquids pipelines followed, but most liquids have been exported over the years by way of offshore loading directly into tankers.
(2) These are the Norpipe, Europipe and Europipe II pipelines with landing terminals in Germany, the Zeepipe with its landing terminal at Zeebrugge, Belgium, the Norfra pipeline to Dunkerque, France, two pipelines to the United Kingdom, which are Vesterled (previously the Norwegian Frigg pipeline) to Scotland and Langeled to northern England.
(3) In 2022, Norwegian natural gas exports are expected to reach a total of 122 billion cubic metres.
(4) This evolved into a comprehensive regime applicable to onshore watercourses, electricity generation, energy transmission, distribution, marketing, sale and use of the energy regulatory framework. The latest newcomer, the new Oceans Energy Act, regulates the generation, transmission and use of energy other than for offshore petroleum resources production and utilisation, which is regulated by the Petroleum Act 1996.
(5) This culminated in the current Petroleum Act 1996 and related regulations and concessionary regime.
(6) Agreement between the government of the United Kingdom of Great Britain and Northern Ireland and the Kingdom of Norway and relating to the delimitation of the continental shelf between the two countries. Signed at London, on 10 March 1965.
(7) Agreement on the delimitation of the continental shelf between Norway and Denmark. Signed at Oslo, on 8 December 1965.
(8) Agreement between Norway and Sweden relating to the delimitation of the continental shelf. Signed at Stockholm, on 24 July 1968.
(9) Treaty between the Kingdom of Norway and the Russian Federation concerning maritime delimitation and cooperation in the Barents Sea and the Arctic Ocean. Signed at Murmansk, on 15 September 2010.
(10) In the case of Norway, "by municipal legislation" means formal acts passed by the Norwegian Parliament and secondary legislation. The latter is passed by the King in Council or a designated ministry pursuant to delegated legislative power by way of provisions in such an act.
(11) "Offshore" refers to activities in areas subject to sovereign rights and the jurisdiction of the coastal state seaward of the outer limit of its territorial waters. In the case of Norway, the outer limit of its territorial sea is 12 nautical miles seaward of baselines established consistent with public international law.
(12) UNCLOS Part V, see article 56(1)(a).
(14) UNCLOS article 297(1)(a).
(15) Norway is divided into five supply regions. The price of electricity is set for each region on a daily basis. Particularly high electricity prices have been the order of the day lately in the three southern regions. This due to four main factors:
- increased electricity consumption in general in the most populated southern regions coupled with the rapid electrification of transport;
- increased onshore sourced power supply to offshore petroleum production;
- Norwegian transmission grid capacity constraints in interconnectors are with the three southern regions; and
- increased reliance on electricity supplied by variable renewable energy generation, such as wind and solar, in the European Union and the United Kingdom.