Chapter 2: The booming Noughties

Statoil had got its own listing on the Oslo and New York bourses following a government decision to sell 17.5 per cent of the shares to external investors. After a long phase of sometimes acrimonious negotiations, the Norwegian market was finally opening up to the European mainstream. The state also began offloading chunks of acreage it controlled through the SDFI, its direct financial interest in petroleum assets.

The stage was set for the remarkable boom of the “Noughties”. In fact, the quest for oil and all that it represents had been an undercurrent running through the history of the last century as well. Through boom and bust, shortage and glut, through war and its moral equivalent, oil and natural gas had coursed through the veins of developed economies and provided hope to countries on the rise.

With the unexpected emergence of North Sea oil in the 1970s, global producers and consumers alike welcomed an alternative to what many had feared would become overdependence on volatile Middle Eastern supplies. As luck would have it, the Norwegian continental shelf overlay the lion’s share of the newly discovered North Sea oil and gas reserves. Unassuming Norway, a country of fewer than 4 million people at the time (and just over 4.7 million today), seemed to have won the lottery. But it also felt the burden of immense new responsibilities and challenges. The other new North Sea oil power was Great Britain, with more than ten times Norway’s population. Drilling for oil and gas in local waters would give British industry a welcome boost; but in general the British took their good fortune in stride. Britain had been an oil pioneer in remote and dangerous lands. It had been an empire. By contrast, much of the world thought Norway was still part of Sweden.

The great game
Norway is the second most sparsely populated country in Europe after Iceland. At the time of the first oil discoveries, many Norwegians still lived in tiny, widely scattered communities, and the major industry was fishing. But now Norway was to become an untested new player in the largest and most important industry in the world  the great game, as John D. Rockefeller had called it. Norway would prove itself soon enough. It would learn from the masters, bulk up on technology and help carry the industry into a new era of global energy security.

We have seen how the NCS is still going strong today, some 40 years since the discovery of oil and gas on Ekofisk turned Norway into a petroleum superpower. Given that Norway a century ago was one of Europe’s poorest countries, saved from national destitution only by its maritime traditions  fishing, whaling and then shipping  it came as something of a shock that the sea should provide so much more.

The transformation from rustic seafaring nation to energy powerhouse was never going to be easy. But Norway rose to the occasion with a phenomenal burst of industrial and technological expansion. It constructed scores of the largest and most advanced offshore production facilities yet seen, bobbing industrial cities built to withstand hurricanes and 30-metre waves. As time went on, the platforms and production ships evolved into super-efficient machines, manned by a dwindling number of technicians and a growing number of robots.

	Forty years on: Ekofisk

Innovation and inspiration
By the turn of the century, the total cost of infrastructure was around Chapter 2: The booming Noughties00 billion, or 3,000 per living Norwegian inhabitant. As in British waters, international expertise and capital were important in developing the fields, especially in the early years. But from the 1980s on, Norwegian companies were credited with lifting both the technology and the spirit of the global petroleum industry. Operating profitably in some of the harshest waters on earth, the Norwegian success inspired countries as diverse as China, Australia, Angola and Brazil to develop their own offshore reserves, leading to an oil boom that eased at least some global concerns over energy security.  

The payoff to Norway, of course, has been substantial: in addition to its massive exports of crude oil, the Norwegian continental shelf will be a major source of natural gas for the next 100 years. Invested wisely, petroleum proceeds will be a long-term pillar of support for the Norwegian people and the many developing countries to which they contribute aid.

Success has meant that Norwegian petroleum producers and offshore supply companies now circle the globe marketing their hard-won skills and technologies. As the sector has expanded to become the country’s most important source of income and employment, oil and gas have, naturally enough, come to permeate Norwegian politics and many of the country’s relationships abroad.

Simply the best
Oil wealth has, of course, brought great changes to Norwegian society. Today’s population is 100 per cent literate, with probably the highest percentage of university graduates in Europe. Mobile telephone ownership is one of the highest in the world, and most homes have at least one personal computer. Progressive taxation and well conceived subsidy programmes have lifted all levels of society and regions of the country, and Norway regularly tops the international league tables in per capita income and most other indices of national and personal prosperity.

In 2009, not for the first time, a UN report named Norway the world’s best country to live in. It is hard not to see a connection between such an enviable standard of living and the development of the petroleum industry: there is no denying that this is a hydrocarbon country.
 
Since the discovery of black gold under the sea in 1969, the quest to extract it has been the dominant theme in Norwegian development. What’s good for the oil companies active on the Norwegian shelf, whether Norwegian or international, is good for Norway  at least in the short term. As for what’s good for the rest of the world, not since the Viking era have events in this small northern kingdom had such an impact on distant lands and peoples.

1956 And All That
The North Sea Saga begins in earnest during the post-war decades, when Europe’s growing dependence on Persian Gulf oil concessions started to become all too clear. After the 1956 Suez crisis in particular, when Egypt nationalized the Suez Canal and blocked the normal supply route for three quarters of European oil imports, resentment of the West was rampant throughout much of the Arab world and Iran, prompting the oil companies to intensify their search for hydrocarbons closer to home.

Many years of prior exploration in Europe had produced only minor finds. But in 1959, Royal Dutch/Shell and Esso struck a huge gas field at the Dutch city of Groningen. Gas was not then considered terribly lucrative in its own right as compared with crude oil, but the Groningen field was commercially viable. Geologists also knew that the presence of gas often meant that oil was nearby. Seismic mapping showed promising rock formations to the north of Groningen, in the shallows of the Dutch North Sea, and there was no reason to believe they stopped there.

At this stage the North Sea was considered no more promising than a half dozen other spots on the globe where the oil companies were spudding dry hole after dry hole. But as access to the Middle East became ever more problematic, and demand for oil products soared, the prospect of working in a friendly part of the world caused heads to turn in oil company board rooms as far away as Bartlesville, Oklahoma, the home office of Phillips Petroleum Co. In 1962, Phillips executive Ward W. Dunn wrote a letter to the Norwegian authorities that would come to be regarded as historic.

“We have reasons for believing”, he wrote, “that the geological basin in which large reserves of natural gas have been discovered in Holland may be extended northward into the Norwegian portion of the North Sea. Therefore, Phillips Petroleum Co. is interested in obtaining from the Norwegian government an oil and gas concession covering the lands lying beneath the territorial waters of Norway plus that portion of the continental shelf lying beneath the North Sea which may now or in the future belong to or be under the jurisdiction of Norway.”

	Gullfaks A in rough seas

No concessions
Phillips was pushing its luck in seeking exclusive rights to the entire Norwegian continental shelf. The Norwegians may have been inexperienced, but they knew better than to put all their eggs in one basket. In fact, they weren’t ready to discuss concessions of any kind  at least, not until the hoped-for gas deposits were confirmed in Dutch waters. In 1965, Britain and Norway negotiated a division of North Sea mineral rights that extended each country’s jurisdiction to a line midway between the two countries, where, geologically speaking, the most interesting areas for exploration lay. By the time Norway was ready to make production licenses available, a number of the world’s major oil companies had decided to throw their hats in the ring. In addition to Phillips these included Amoco, Esso, Amerada, Elf, Shell and Total.

The Norwegian industrial firm Norsk Hydro and a Norwegian consortium that later became Saga Petroleum entered the fray under the wing of larger partners. British Petroleum was there, too, though its chief geologist had reportedly vowed to drink any oil found in Norwegian waters.

As befits the Norwegian temperament, enthusiasm in Oslo remained in check: one business leader was reported to have provoked indulgent laughter when he remarked in a meeting that someday the oil business could be as important for Norway as whaling had once been. And when industrialist Georg Hagerup-Larssen asked a wealthy ship owner to invest in the Saga group, the ship owner replied, “Quite honestly, I haven’t the faintest idea what this is all about, but if you want to get involved, Georg, so do I.”

As time went by a stoic attitude seemed more and more appropriate. The Norwegian continental shelf appeared to be no good at all. In the four years that followed the initial licensing round, the winning companies spudded more than 30 promising formations without locating a single commercially viable reservoir.

Many of the rigs brought to Norway for wildcatting proved unstable in the rough seas. One group tried converting an old factory whaling ship into a drilling rig, but the vessel lost its anchors in hurricane-strength storms. Back in Oklahoma, Phillips Petroleum’s executives had had about enough. In late 1969 they authorized one final bore by the rig they had leased, the Ocean Viking, after which the crew was to pack up and leave.

Lucky strike!
It turned out to be a classic case of “last time lucky”. In the middle of the North Sea, just inside the Norwegian sector in an area called Ekofisk, the Ocean Viking struck golden-hued oil in a chalk reservoir more than 1600 metres under the seabed. After additional appraisal drilling, Phillips announced in the summer of 1970 that it had made a “giant discovery” and estimated its size at more than a billion barrels. In fact, Ekofisk would turn out to be more than twice that size. Developing it would entail both the most rewarding and the most harrowing episodes in the Norwegian oil adventure.

Suddenly the North Sea came alive. In 1971, on the British side of the median line, British Petroleum announced the discovery of oil in the Forties field. Then the large Brent field came in. In Norway, Amoco found oil in the Valhall field and Elf struck a huge gas deposit in the Frigg field. Phillips hurriedly converted the jack-up drilling rig Gulftide into a production platform for Ekofisk. With great fanfare, Prime Minister Trygve Bratteli opened the valve to let Norwegian oil flow commercially for the first time. The newspaper Aftenposten called it “a historic event”.

One impressed observer was the American oil analyst and Pulitzer Prize-winning historian Daniel Yergin. “The whole venture was risky and dangerous both physically and economically”, he wrote in his history of oil, The Prize. “Drilling rigs had to be able to work through water depths much greater than anything tried heretofore, and then still drill another four miles under the seabed. And all the equipment and workers had to cope with a nasty and vicious sea and some of the worst weather in the world.”

Ekofisk challenges
In early Ekofisk production, Phillips used tank ships to transport oil from small, floating storage buoys near the reservoir to a terminal on land. For production to remain steady, the buoys had to be offloaded continuously. The practice was common enough in other offshore provinces, but the North Sea was not just any body of water. Gale force winds and swollen seas all too frequently made offloading impossible, forcing production to cease for a time.

Phillips found the solution by daring to think big. It put its trust in new construction technologies and built a floating concrete storage tank capable of holding a million barrels of oil. Towing the vast structure from the onshore construction site to its permanent home in the Ekofisk field was the largest maritime operation ever to that date, requiring six powerful tugboats. Later, Phillips added a 352 km oil pipeline from Ekofisk to Teeside, England, and a 441 km gas pipeline to Emden, West Germany. At the time, they were the longest subsea pipelines on earth.

“Altogether, the development of the North Sea was one of the greatest investment projects in the world, made all the more expensive by rapidly inflating costs”, Yergin wrote. “It was also a technological marvel of the first order. And it was carried out in an amazingly expeditious manner.” There was indeed a sense of urgency. The entire western hemisphere was gripped by an unquenchable thirst for oil as the internal combustion engine took centre stage in daily life, not just for pleasure and convenience, but for work. Economists began to notice that whenever a country’s gross national product rose or fell a percentage point, oil consumption tended to hew the same line. In other words, oil had become the developed world’s most important feedstock.

OPEC militancy
At the same time, and just as ominously, the governments and peoples of the Arab world, Venezuela and Iran were growing restless and bitter about earlier deals they had made with western oil companies, primarily those from the United States and Britain. The exporting countries wanted a bigger share of the oil profits as global demand grew. It was the new leader of Libya, Muammar al-Qaddafi, who did the most to stir militancy in members of the Organization of Petroleum Exporting Countries. By threatening to nationalize western interests in Libya, Qaddafi won a far better royalty deal for his country in 1971. The American and European oil companies scrambled to hold the line elsewhere, but eventually had to give in to OPEC’s demand that exporting countries receive at least 55 per cent of the profits from the sale of their oil.

The tables were turning. Increasingly, oil companies were no longer sovereign powers loose in the world, “owning” the oil they tapped. They were simply engaged to extract and sell other peoples’ commodities. As Norway geared up for large-scale oil production, the authorities in Oslo took a studied interest in the rise of OPEC and the corresponding rise in world oil prices.

To cool Norwegian consumption of imported goods and to stimulate non-oil exports, the Brundtland government devalued the krone by 12 per cent. Still, unemployment rose to levels that were high by Norwegian standards, interest rates soared, property values shrank and banks descended into financial crisis. In coping with the situation, Ms. Brundtland slowly steered her party away from its socialist moorings and toward many free-market policies previously staked out by the rival Conservative Party. As a pragmatic matter, she also told OPEC that Norway would slow the rate at which its oil production was expanding if OPEC relented on its market-flooding strategy.

Norway had entered its oil age with eyes open, fully aware that oil boom and oil bust had been dance partners from the beginning of the industry, when Col. Edwin L. Drake drilled his well in Pennsylvania only to go broke a few years later. But Norway was not going broke. It was simply going through a wobbly economic period.

Despite the glut, it soon became obvious that the long-term strategic importance of Norway’s number one export was undiminished. In fact, according to some American historians, Norwegian natural gas  and in particular the development of Troll  would play a significant role in the end of the Cold War.