The end of an era?

Norway’s election on Sunday and Monday could herald a change in the country’s climate policy, as current polls indicate growing support for calls to end oil and gas exploration. 

Listen to a discussion on the implications for Norway’s oil and gas sector, as well as what the Nordic country’s green transition could mean for others looking to wean themselves off fossil fuels.

Guest: 

• Stig Schjolset, Head of Policy, Zero

Transcript

0:01

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Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:30

Hello listeners and welcome to the Montel Weekly podcast, bring Energy Matters in an informal setting. In this week's pod, we look ahead to Monday's general election in Norway, and the implications both for the oil and gas rich Nordic country, as well as what it might mean as a potential blueprint for countries looking to wean themselves off a dependency on fossil fuels. Joining me, Richard Sverrisson is Stig Schjolset of Oslo based Zero and environmental NGO warm welcome to you Stig.

Stig Schjolset, Head of Policy, Zero: 1:00

Thank you. And good morning.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:01

We're gonna focus mainly all in the first part anyway, talking about the Norwegian election. Now, current polls indicate. The center right government will be replaced by a center left coalition after eight years in office. Now, what's your verdict of their eight years in office?

Stig Schjolset, Head of Policy, Zero: 1:17

That's a tough one. I think looking at what they've done on climate, we still have this extremely stubborn emissions in Norway, so it's been hard for any government to actually reduce emissions in Norway. And this has also been the case with this government. If you look at, are we actually reducing emissions? The would be pretty harsh. If you look at what they've done to build a greenery economy, it's much better. I think we have now gone a long way to establish carbon capture and storage in Norway, a full infrastructure for that, which is probably the first country in the world to do it in a proper way. And we are also moving ahead on issues like hydrogen production of batteries and also offshore wind. So I would say it's a pretty mixed picture.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:02

But you say they haven't really succeeded in bringing emissions down. What's at the core there? What's The reason behind that?

Stig Schjolset, Head of Policy, Zero: 2:08

We have this major oil and gas sector, right? Where emissions have been quite stable or even, if you look over the last 10, 15 years, it's been going up quite steadily. If you look at the transport sector, emissions are actually coming down now, mainly because Norway. Has this pretty good policy for electric vehicles. So essentially we're subsidizing electric wheels, we electric vehicles to the point where it becomes profitable at the point of purchase. So that is now starting to kick in. I think we have about 10% of the fleet now being electric. And obviously you see that on the transport emissions. So transport is coming down. Otherwise it's quite flat.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:53

In terms of, oh, you mustn't be forgotten, I think of what's happening internally to, to domestic emissions, but also, Norway, a massive oil and gas exporter, so a lot of these fossil fuels are being exported and emissions to other countries.

Stig Schjolset, Head of Policy, Zero: 3:05

Oh yeah, for sure. If you include sort of the emissions, we export you, you would I think you have a tenfold increase of the Norwegian emissions. So that's if you include what we refer to as Scope three the emissions we export the impact is obviously much, much greater.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:21

We'll come back to that a little bit I think, Steve, but let's go into, so what's coming next? If you get a left-leaning government coalition of the parties on the sort of center left, if that comes into government, what do you think will change? It's not a huge

Stig Schjolset, Head of Policy, Zero: 3:34

difference. I would say if we have a central right or central left government, you might say that sort of the ambitions on reducing emissions would be slightly higher if we have a change to government. But then again, both the current government and a new one would have to probably would need support from more. Would you say climate skeptic parties or not climate skeptic in the traditional sense, skeptic. More reluctant to a much tougher climate policy than we have today. I don't see a huge change immediately, and that's the same for the regime around the oil and gas production. It's basically pretty much the same. If you look at what's going on in the campaign at the moment,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:20

as far as I can tell, I'm I live in Oslo. I can see that the climate issue has come to the forefront amongst certain types of voters. How do the parties compare here?

Stig Schjolset, Head of Policy, Zero: 4:28

You're definitely right. I think climate started out as a bit or a bit on the back burner in the campaign that, before summer. But then we have the IPCC report coming out. So when the campaign picked up again after the summer break together with a lot of climate coverage in the news with fires and floodings and heat waves across the world. So it was a perfect climate storm when the campaign started again after. After the summer break, and it's been, I think throughout the last few weeks the most important issue. And you've seen a number of different parties changing gears in the way they talk about climate during the campaign. And you also see, a among the voters that the parties that are we, that are typically seen as climate environment parties have really increased over the campaign. So it's definitely, I think, the most important issue. Now, over the last few weeks,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:22

where are the main sort of sticking points? I'm thinking here about oil and gas exploration. And the rollouts of offshore and onshore wind, hydrogen or even electric vehicles. Where do the parties stand here? Is there a clear kind of dividing line?

Stig Schjolset, Head of Policy, Zero: 5:36

You have a dividing line between what we see as the climate friendly parties. So would typically be the greens, the liberals. Sort of the socialist left party. And I think the difference is most obvious when you talk about the future of the oil and gas industry, right? So they want to have a pretty immediate stop on exploration, maybe even a end date for production on Norwegian shelf. So that's the most. Important dividing line. I would say when you talk about building the new industries, everyone agrees that we should have battery factories, we should have hy hydrogen, we should have offshore wind. Take offshore wind as an example. Even though all parties in principle are in favor of it, you see some parties opposing to build cables that would actually, that we would need right, to link up with the continent to export part of that energy, because that's in the end what will make those projects profitable. And there you see a clear divide between some. Parties being born more, in a sense, nationalistic and saying that, we shouldn't produce renewable energy here just to export it to Europe. So there are some key dividing lines also in terms of like building the new green industries that, that we need in the future.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:51

We've seen in the Nordic region and elsewhere, very high power prices at the moment. Ha. Has that affected the election campaign at all? It hasn't really

Stig Schjolset, Head of Policy, Zero: 7:00

been picked up. I would say maybe you would expect it, at least I would expect it to be. More a controversial topic because that's normally what happens when you have power prices at these levels. It has been one element in the discussion around, how do we build the new industry or the, the battery production, the hydrogen and the rest of it that will, that we need in the future. And of course, one of the key advantages in Norway is that we have a hundred percent renewable energy already. Compared to the rest of Europe, we also have relatively low energy prices. So that's been definitely a competitive advantage and to build the new industries. Some parties are really putting a lot of emphasis on that. We have to still keep that in Norway. So that's mainly, I think, where it has popped up so far.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:53

And do you think it's made the public high power prices that is, do you think they've made the public more positive to onshore wind? Not yet.

Stig Schjolset, Head of Policy, Zero: 8:02

Not yet. Not yet. I think we definitely posing that debate for at the moment, and I think you will likely stay that, like that for for still some time. No, it's not coming back. I think we need to see a, some different projects. So far we've essentially been trying to build onshore wind where the wind resources are the best, and that's typically also in areas with more pristine nature. The conflict has been. Quite intense. So I think we need to rethink a bit and look at more, which areas, on which areas is it accept acceptable to build wind and try to identify those. It could be like close to existing industry or other existing infrastructure. So even if, wind resources are. Maybe just 80% is skewed as on the coast. That's where it'll be publicly acceptable, I think. So we're still waiting to, to restart that debate.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:52

You mentioned the old industry and you also talked about noise. Almost a hundred percent renewable in terms of electricity. So in some sense it's best in class yet there's a big contradiction. It's one of the world's biggest exporter of fossil fuels. There's still some form of coal production going on. Isn't there an on swell bud? I'm just thinking there's huge amounts of revenues coming in into the Norwegian Treasury as a result of selling fossil fuels. How do you start and accelerate the energy transition here to wean the country off fossil fuels? Stig?

Stig Schjolset, Head of Policy, Zero: 9:25

I think there you are at the core of the Norwegian debate. To start with a broad picture. I think most political parties realize that we are approaching the end of the oil and gas era and it will play a smaller role of the, in the Norwegian economy over the next decades. We will transition away, either because the oil is now, the world is. We'll succeed in the climate and energy policy and there will be less demand for fossil fuels or production is decreasing anyway. And at some point it will be a moral question whether you start or you continue to export oil and gas in the world where we already found more than we need. And I think say a third of the political landscape already see this as a political issue. Or a moral issue. Even if the world need tobacco or chemical weapons we won't supply it because it's simply not right. And a good chunk of the population and a, at least some of the political parties, I think see the oil and gas exploration in the same way. This discussion will continue for quite some time. You have to build the new industries and at the same time have a reasonable time scale for how you reduce the production. That is the political balance that we're trying to get right at the moment.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:42

Of course, maybe the the Norwegian Sovereign Oil Fund also helps potentially.

Stig Schjolset, Head of Policy, Zero: 10:45

That's definitely a good point because we have moved. We have converted the fossil resources in the ground to financial resources on the world's exchanges, right? So in a sense, Norway is already much less exposed to a transition away from oil and gas than, say 10 years ago. So we have this enormous financial buffer against, that, both against an economic dip when we have less income from the oil and gas, but also we are less exposed in a sense because we have this sovereign wealth fund. So I think there are so many scenarios where this can be done in a good way. We already have, a hundred thousand. Less people employed in the oil and gas industry than we had less than 10 years ago. So this transition is already happening. But I think myself and a lot of people with me would like to see it happening much faster.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:39

But what's the alternative, Steve? You talked about some new industries. Is it, is it, instead of exporting gas to Europe, for example, you export electricity? Is it building up battery factories? Where is the alternative?

Stig Schjolset, Head of Policy, Zero: 11:51

I think if you look at a lot of the things that we know we need in the green future, and that would be, as you say, battery factories, a lot of renewable energy, it's hydrogen. Probably more bioenergy than we have today. I think in, in, in all of those areas, Norway is extremely well positioned to play a huge role. If you look at our immediate markets, that is Europe, right? Most of Norwegian oil and almost all of Norwegian gas is being exported to Europe. And if you take the fit for 55 and the green deal at face value. Europe will be transitioning away from oil and gas extremely fast over the next, even the next decade. And before 50 oil and gas should essentially be phase out, which means that the market for. The current market for Norwegian export of fossil energy will disappear. Europe will be, will need a lot more renewable energy, hydrogen. And I think, it's quite obvious. And when the markets that we export to are changing in the speed that we see and expect for the next years. Of course Norway has to really speed up the transition to a greener economy.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:58

And where does this place, the oil and gas majors such as eor, shell, bp, but EOR is, if we're talking in the Norwegian context, is it gonna be able to rapidly change into a renewables company? It's still, the vast majority of its revenues come from oil and gas.

Stig Schjolset, Head of Policy, Zero: 13:14

True. I think, depends. It depends on how you compare, right? If you compare them to other oil and gas majors, I think they're really, in the forefront in their transition, right? They're moving money, they're moving people to the green projects. So it's definitely a serious transition that's going on. But of course, as long as you have high oil and gas prices, the revenue stream will continue to be there. It'll be the definitely the most profitable part of their business for many years to come. If we see oil and gas prices at these levels. So it makes it hard, by definition to stop doing something that is extremely profitable. And it's debate, right? Should you split the company into single out? Should you have more of an exit and harvest strategy than they have at the moment? I think it's really hard to tell, right? I think companies will choose different strategies and we'll see that over the next few years. In general, if you compare to other oil and gas majors, Norris, I think in a very decent place, but then again, we are not sure if we'll be those companies that will actually you know, to what extent we able to keep their position in a new energy world that remains to be seen.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:26

They've certainly made inroads both in. Acquisitions in the renewable sector as have other big oil and gas majors. So as you say the change is happening. It'd be interesting to see how quick that process is.

Stig Schjolset, Head of Policy, Zero: 14:37

Definitely. And I, it interesting to compare a bit with the majors in the power sector in Europe. If you go 10 years back we had Vattenfall E EMBW, quite a few really big companies. And even if they could see the renewable energy revolution, I would say coming. They didn't change fast enough, right? They lost, more or less half of their market value in just a few years time because they had an extremely profitable business model based on nuclear and energy, oil and gas, and not oil and gas, but gas and coal, based low power production based on that. And it changed faster than they thought and they lost a good chunk of their market value in very short. And, over very just a few years. So it's not always incumbents in the sector that are the best to, or, it's always hard for incumbents to see the change and coming and how fast it'll be. And I think now the oil and gas majors are a bit in the same situation.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:37

Be interesting to see how this develops over the coming years. Steve, another interesting area that I'd like to bring up is the electrification of oil and gas platforms in, in, in Norway in particular. Critics say it's expensive and only moves emissions abroad. What do you think?

Stig Schjolset, Head of Policy, Zero: 15:52

I think we have to. Reduce all emissions from all sources and the energy on the electricity, on the platforms. It's essentially gas turbines, inefficient gas turbines that's producing that electricity. And I think climate policy in a way is extremely simple. You have to get rid of all fossil fuel energy use, right? And even if it's used to produce more fossil fuels, it's still fossil fuel energy use. So in my head, this is quite simple. We have to electrify. It's a way, we know those platforms will be there for many years, for decades, for Norway. This is a huge, a good chunk of our domestic emissions. And to meet our obligations on the repairs agreements, to be a serious country, as part of the global efforts to bring emissions down, we have to do our part, which means we have to reduce emissions in all sectors in Norway, also oil and gas production, and I think. The other argument would make sense. If you want to shut down everything within the next year, 10 years, you don't do expensive electrification, that's for sure. But if you take the point that these oil and gas installations will be with us for at least 10, 15, maybe even 20 years and 30 years, then we have to produce as efficient as possible. So that's why, zero and others with us conclude that this is actually something which is reasonable to do. Of course up to a certain point we have to do it to make the analysis case by case to some extent. But in general, yes, we have to reduce all emissions.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:28

What would you say to. The countries that are at a similar crossroads. Maybe Norway's a few steps ahead, as you mentioned, in terms of EVs and renewables development in the country, but countries, in the Middle East or Latin America who find themselves, very dependent on fossil fuels. What would you say to them given. What you've learned from the Norwegian experience?

Stig Schjolset, Head of Policy, Zero: 17:49

Yes. I think if you look at a few of the countries you mentioned, or the, the big oil and gas producers today, they also have good resources of renewable energy, right? They probably produce some of the cheapest some in the world and the transition will happen, right? I think there are. To increasing extent aware of the transition risk and the climate risk. So what can you say? Those countries will struggle in the future if they don't start the transition, and I think at least some of them are starting to realize that, and they have, in many cases, favorable conditions for building the new industries as well. This is a transition that all countries have to do. Either they will be forced to do it or they can start a process themselves.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:34

Of course, it's a very big challenge when you have, in some countries, they're dependent on the oil price being at a certain level to balance their books and it's very hard to cut off that sort of revenue stream, isn't it?

Stig Schjolset, Head of Policy, Zero: 18:44

AK moment has been referred to so many times, right? If we have a business model that's profitable, it is so hard to change, and we see that over and over in so many different sectors and industries. And the oil and gas industry will definitely have their Kodak moments and a lot of countries and companies will be caught on the wrong foot. I think that is quite obvious. And this is happening in all industries. The incumbents with the most profitable business bubbles it's really hard to change, but change will come.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:11

On that note, STIG, on that very optimistic note it'll be interesting to, to see what happens on Sunday and what the next four years will bring in Norway. But thank you very much for explaining the ins and outs of Norwegian domestic politics and also giving us more of a global view. Thank you once again, Stig. Thank you. So listeners, you can now follow the podcast on our own Twitter account. Aply named the Montel Weekly podcast. Please direct message. Any suggestions, questions, or let us know if you think you have a good idea for a guest on the show, you can also send us an email to podcast@montenews.com. Lastly, remember to keep up to date with all that's happening in energy markets on Montel News. You can subscribe on Apple Podcasts and Spotify or wherever you get your podcasts from. Thank you and goodbye.