Chapter 3: Gas for Generations

First spudded by Shell in 1979 and declared commercial four years later despite a water depth of 350 metres, then considered forbiddingly deep, Troll was monstrously large, as befitted its name.

Shell had got the job of developing Troll while Statoil would eventually become production operator. With recoverable reserves of 1.3 trillion cubic metres, Troll could satisfy a large percentage of European gas demand for generations. Yet to justify the expense of development in such deep water, long-term contracts with European buyers would have to be sewn up in advance.

Despite growing demand for natural gas on the continent, it was a buyers’ market in the early 1980s, and Norway was having a problem lining up orders on the scale required. European gas buyers, for one thing, were being tempted by relatively inexpensive gas from the Soviet Union. They were negotiating annual deliveries of 40 billion cubic metres of Russian gas as well as the construction of pipelines from Siberian gas fields to Western Europe.

The proposed Soviet gas purchases were part of the European countries’ strategy of diversifying energy sources. But in the eyes of the United States, Europe’s chief military protector, the Soviet Union was no ordinary energy source, and trade of the magnitude contemplated would be tantamount to succouring the enemy.

Thus Ronald Reagan, the hawkish American president, became the Troll gas field’s most enthusiastic promoter. On numerous occasions he told European heads of state that Troll was the answer to their energy worries. To the irritation of most of Europe, the Reagan Administration in 1985 went so far as to ban the export of American equipment for the Soviet pipeline and to threaten sanctions against European companies that took part.

Look to Norway
Through the International Energy Agency, the United States proposed that Europe limit Soviet gas imports to 30 per cent of its consumption and look to Norway to fill any projected gaps. To make the policy more realistic the Reagan Administration and the U.S. Congress impatiently pushed Norway and Shell to speed up Troll’s development, revealing in the process a lack of appreciation for the complexity involved.

The whole issue made Norwegian leaders and the Norwegian petroleum establishment uneasy. They wanted to sell gas but not at the cost of having to rush headlong into such a massive project, which in addition to requiring an offshore platform of record-breaking proportions would need the world’s largest onshore processing plant. Nor did the Norwegians wish to be perceived as American lapdogs in a Cold War conflict that angered not only the Soviet Union but most of Europe.

Washington’s heavy-handedness was arguably a waste of effort, as Norway would have promoted the gas on a purely commercial basis anyway. Moreover, Norway stuck to its original ten-year development plan despite American pressure to get the gas up sooner. What did emerge  though not necessarily as a result of the superpower tussle  was that buyers in Germany, France, Belgium and the Netherlands committed themselves in 1986 to acquiring large volumes of Troll gas. Two years later, Spain and Austria joined the list.

Seen as a single transaction, the Troll gas sales agreement was the largest energy contract in history, with Norway promising to send a third of its gas reserves, about a trillion cubic metres, south to continental Europe over a 28-year period beginning in 1993. At current prices, the gas is valued at more than Chapter 3: Gas for Generations00 billion. Up front, the Troll field licensees and the Norwegian state (through its direct financial interest in Troll) would invest nearly $5 billion on the platform and associated subsea pipelines, the processing terminal outside of Bergen and other infrastructure. The start-up of production at Troll could not be counted on until 1996, so the European buyers agreed to accept early deliveries from the nearby Sleipner field.

“When the contracts were signed in 1986”, recalled Simon Blakey, a European gas expert at Cambridge Energy Research Associates, “Troll was known as the Norwegian Man on the Moon project because of its 10-year time frame and the commitment of resources”... a metaphor, as we have seen, that would be resurrected two decades later with the government’s commitment to CCS technology.

Just as the Apollo moon missions had reassured Americans that the Soviet space threat was adequately met, so the 1986 Troll gas contract calmed American fears that the Soviet Union would gain a stranglehold over Europe in the waning years of the Cold War. In a letter to President Reagan much later, one of his security advisers, William Martin, wrote, “Your efforts to find alternatives to Soviet gas was one of the major contributors to the rapid economic decline of the Soviet Union”.

This reading of history is not accepted by all who participated in the Troll negotiations. What can be stated neutrally is that the buyers, headed by Ruhrgas of West Germany, as well as the sellers, most notably Statoil, were satisfied with the terms achieved. The Soviet Union was temporarily curbed on its western flank but nonetheless remained Europe’s pre-eminent natural gas supplier, a position that improved with the fall of the Berlin Wall. With nearly 35 per cent of the world’s proven gas reserves, compared with Norway’s 2 per cent, Russia is well positioned for centuries of gas production.

Statfjord to the rescue
State revenues from oil and gas operations on the Norwegian continental shelf continued to fall in 1986 and 1987. The good news was that production volumes rose sharply, averting what could have been an even greater financial crash. The first Gullfaks platform, an integrated drilling, production and accommodation facility, came on line in 1986. A year later Statfjord, with three platforms running full bore, set an as yet unbeaten production record in Norwegian waters of 850,000 barrels in a single day.

The 1987 daily production average for the entire Norwegian continental shelf was still less than a million barrels, so Statfjord was the undisputed workhorse of the North Sea. Ekofisk, meanwhile, was in decline, having reached its average daily production peak of 624,000 barrels in 1980. Seven years later the figure was down to 170,000 barrels per day. To make matters worse, as the oil rose out of the seabed, the seabed sank. The platform decks on the vast complex were 2.5 metres closer to sea level than when they had been constructed.

To save its investment from drowning, Phillips decided on a two-pronged approach. First, it resolved to spend some billion on a long term water injection project to repressurize the reservoir. In addition to shoring up the seabed the course of action would eventually boost production by nearly 50 per cent. The more emergent problem for Phillips was the degree to which the platforms had already sunk. The company’s solution was to spend $500 million on a massive jacking operation in which six of the nine platforms at Ekofisk were raised six metres while steel leg extensions were welded into place above the water line  an unprecedented feat of engineering. As for the million-barrel storage tank at Ekofisk, it was too heavy to lift, so Phillips encircled it with a concrete sleeve the height of a 35story building to protect it against the feared “100 year wave”.

Low point for revenues
With oil prices remaining low the year 1988 saw production start up on the Gullfaks B platform and in Norsk Hydro’s Oseberg field, which entailed the first oil pipeline to mainland Norway. Yet this was a low point for state revenues from offshore operations, which now accounted for less than five per cent of total state revenues, as opposed to more than 40 per cent a few years earlier. With oil prices remaining low, companies began casting about for cheaper production technologies. The “Condeep” concrete behemoths that had put Norway on the map were impressive pieces of equipment, but with oil at Chapter 3: Gas for Generations5 per barrel, new ones were hard to justify. In 1990 Saddam Hussein’s Iraq attacked Kuwait, causing a short-term spike in oil prices, but there would be no repeat of the price rollercoaster of a decade earlier. The West was better prepared for this crisis, both militarily and economically, and the OPEC countries were at each other’s throats.

End of an era?
On top of the woeful status of oil prices, which seemed to have settled in for the long term at between Chapter 3: Gas for Generations5 and 0, there didn’t appear to be many more elephant fields lurking off the coast of Norway. The challenge ahead would clearly be to make the most of smaller reservoirs and to redouble exploration efforts in deeper waters and higher latitudes. The early 1990s would be the period in which Norwegians came to terms with the fact that the North Sea was not a new Persian Gulf.

“The era of the giant oil and gas discoveries on the Norwegian continental shelf is over”, declared the consulting firm Goldman Sachs in a review of Statoil. “Increasingly, Statoil’s production base will come from the smaller satellite developments tied into existing infrastructure or developments in the harsher operating environments of the Barents or Norwegian seas.”

This view was repeated often enough through the early 1990s that it was easy to lose sight of the fact that unimaginable riches remained. Statoil had taken over from Mobil as operator of the Statfjord field and was eagerly looking forward to the production of Sleipner gas in 1993 and Troll gas in 1996. Even if no new discoveries were found, several generations of Norwegians would be well provided for.

Moreover, recovery rates were increasing dramatically with technological advances such as deviated and horizontal drilling. In 1991 Statoil set a new record for horizontal drilling with a well that extended 2500 metres below the seabed before bending to a horizontal course and continuing another 2145 metres through several pockets of oil in a thin layer. It was the hundredth well spudded in the Statfjord field, and it yielded 30,000 barrels per day  oil that a few years earlier had been classified as unrecoverable.

	Saga Petroleum’s Snorre platform

Jewel in the crown
A year later Saga Petroleum had installed its crown jewel, the Snorre platform, north of Statoil’s Statfjord and Gullfaks complexes. It was the first tension leg platform on the Norwegian continental shelf  a floating platform with drilling, processing and accommodation units all tethered to the seabed by means of hollow steel pipes. With associated subsea units, Snorre was one of world’s largest floating production facilities. The state of the art in drilling and completion technology evolved rapidly during the Snorre design stage and the early years of production. A major advance credited to Norwegian engineers was the conversion from water injection to WAG, or water-alternating-gas injection, to increase reservoir pressure. That coupled with improved reservoir description allowed Saga to increase its estimate of probable recovery from 770 million barrels to 1.1 billion barrels.

So despite the fact that the North Sea was increasingly being referred to as a mature oil province, Norwegians had every reason to be buoyant. Few took notice in 1993 as the North East Frigg gas field became the first Norwegian field to cease production as a result of depletion. By 1994 the economy had fully righted itself from the twin shocks of the 1986 oil price collapse and the global recession that followed. The central Norwegian town of Lillehammer hosted the 1994 Winter Olympic Games, providing Norway with positive worldwide exposure. Exports of all kinds were picking up and so were the state’s oil revenues as production zoomed past the two million barrels-per-day level. The central bank projected a rise in state oil revenues from $4 billion in 1994 to Chapter 3: Gas for Generations3 billion in 2000. There was even talk of salting some of the cash away for future generations. “Maturity”, in this context, need not mean dull....

The NORSOK process
For petroleum industry insiders, Norway’s ever-rising rate of production did not obscure the fact that high wage levels, strict government oversight and harsh weather conditions made the cost of designing and constructing platforms and other facilities substantially higher than in most other producing countries. That didn’t matter much in the heady days when Mideast tension had driven up prices, but with new countries entering the oil game each year and technology driving down the cost of exploration and development worldwide, analysts foresaw a long term buyers’ market. To stay competitive in the absence of big new easy-to-tap fields, Norway would have to cut costs and adopt many of the same playing rules that emerging oil nations in Asia and elsewhere were using to lure investment and market share.

By 1994 the Norwegian-owned oil companies had already banded together to establish uniform technical standards for offshore facilities  a significant step forward. But it was the government’s public-private NORSOK initiative that brought the supply sector into the fold and set ambitious efficiency goals that challenged and inspired executives across the industry. By forming multi-company project teams, rewarding innovation, standardizing contracts, cutting red tape and heightening competition among suppliers, the NORSOK process sought to slash field development costs and lead times by 40 per cent to 50 per cent within a few years.

And it worked. Renewed optimism swept through Stavanger and Oslo as cost estimates for projects already on the drawing board fell sharply  sometimes by half compared with pre-1994 estimates. At the same time, new extraction and reservoir pressurization technologies made old fields young again. Operators queued up with development and expansion plans. “It was like removing a floor”, one Statoil official told Offshore & Energy magazine. “The costs just sank and sank.” But the glory of the previous era, when sheer size was the measure of a project’s importance, was not quite over. In 1995 Shell finished constructing the monumental Troll platform, and with great fanfare ten powerful tugs towed it to its place of business 90 kilometres west of Bergen in water 350 metres deep.

It was the largest concrete platform ever built and the largest object ever transported, eclipsing even the Gullfaks C platform. Shell’s steel Bullwinkle platform in the Gulf of Mexico was slightly taller than Troll, but spindly by comparison: while the Bullwinkle structure weighed 75,000 tonnes, Troll’s ballasted weight was 1.2 million. Forty wells radiated from the base of the platform.

	Norwegians had every reason to remain buoyant

Proud beauty
Troll was also considered a luxurious place to live and work. And as industrial structures go, despite its name, it was a beauty to look at. One art expert wanted to enter it in a design competition usually reserved for avant-garde furniture, but she was deterred by the prospect of bringing the Troll platform into the exhibition hall as the rules required.

The New York Times described the Troll tow-out as “a turning point for Norwegian energy”. Troll simultaneously symbolized the end of an era  that of the concrete giant  and the start of a new era in which gas will gradually overtake oil as Norway’s most important export.

“We will more than double our gas exports through the year 2005, and that is counting only volumes already contracted”, the then industry and energy minister (and later prime minister) Jens Stoltenberg told the newspaper. “We don’t know exactly when Norway will begin to produce more gas than oil, but that can take place rather early in the next century.”

For Norway, the increasing importance of gas would require no painful transition. Troll production began on schedule in the fall of 1996. With oil production already nearing its planned peak, Norwegian gas production was slated to increase yearly until stabilizing at about 80 billion standard cubic metres per year in 2008; the low-sulphur gas off Norway’s coast was projected to last a century or more. With 1.3 billion standard cubic metres recoverable reserves, the Troll field itself would last at least 50 years despite a high extraction rate. The field was described as a producer’s dream. 

“The beauty of the Troll field is of course that it is very big, but it is also very easy to produce”, said Statoil Vice President Georg K. Gundersen. “It is like a huge tank of gas. You can open a valve anywhere and have a very high pressure stream, and then you can close it off again.” Troll gas was piped ashore to Kollsnes, near Bergen, where the world’s largest gas processing plant treated and pressurized the stream before transporting it through the new Zeepipe to Belgium. A pipeline to France was added later. Without reservation, Norway had committed itself to supplying a third or so of Germany’s growing gas demand, 27 per cent of France’s, 40 per cent of Belgium’s and smaller percentages in the rest of Europe, including the East. The limit on future delivery contracts appeared to be on the demand side, though analysts were projecting an increase in European consumption of two to three per cent per year, with Russia, Norway, Algeria and the Netherlands sharing the market. In any case, no one would ever again mistake Norway for a province of Sweden. 

	Troll production began on schedule.

Moving forward
With the mighty exception of Troll, the mid-1990s entailed a “maritimization” of North Sea operations in keeping with the low-cost philosophy behind NORSOK as well as Norway’s age old seafaring traditions. While semi-submersible platforms were nothing new, the use of production ships for small-to-medium sized fields began in the mid1980s with GolarNor Offshore’s Petrojarl I, designed by Tentech. Suddenly it became clear that a single production unit could move from field to field like a vacuum cleaner, tapping marginal fields with minimal capital outlay.

The economics of floating production, storage and offloading vessels (FPSOs) were so favourable that by the 1990s the trend had gone worldwide, with the notable exception of the Gulf of Mexico. Norwegian engineers who had pioneered the concept were quick to push production ship technology forward to expand its utility. These developments in offshore production were best exemplified by Statoil’s approach to the Norne oil field in the Norwegian Sea, which lay farther north than any field yet developed.

With recoverable reserves estimated at 450 million barrels, Norne was considerably smaller than Statfjord or Oseberg. But it was the largest discovery in a decade, and if costs were kept low Norne would be a boon for Statoil and the Norwegian state treasury. Working under the slogan “Keep It Simple”, a team of engineers representing a half-dozen industrial technology companies pared down earlier Norne development proposals and settled on a unique, permanently anchored production ship concept requiring an investment of less than Chapter 3: Gas for Generations billion. Using the principles of NORSOK (then still under development), Statoil had found the elusive “ten-dollar technology  profitable, in fact, with oil prices as low as $6 per barrel. In the event, the last decades of the departing millennium were turning out to be the finest hour for hard-workitheir industrial ingenuity.