Ten new drilling licenses have just been sold by Norway in the Arctic waters of the Barents Sea to key industry players such as Tullow, Cairn Energy and Aker BP as part of the government's 23rd round of sales. These consist of 40 different blocks in an area which is ice free due to the Gulf Stream. It represents the first new acreage sold for exploration in 20 years.
Energy and Petroleum minister Tord Lien said in May this year that the move was “opening a new chapter in the history of the Norwegian petroleum industry,” presenting the sales as laudable growth in a country that, despite being the 14th biggest oil producer in the world, has seen its production halved since 2000.
But the license sales have not been welcomed by all. Greenpeace Nordic and Nature & Youth announced in October that they are taking the government to court over the sales, claiming that the licenses fly in the face of the Paris Agreement. The case, which will be heard at Oslo Crown court next year, will be the first of its kind.
Norway was one of the first to sign the momentous Paris Agreement, which brings together 197 parties to fight global warming. By signing up, nations agree to invest in research and renewable technology to keep global temperatures within two degrees Celsius of pre-industrial levels.
Assessing the risks of Arctic drilling
Norway has produced 169.5m Sm3 oil equivalent already this year. The increase in drilling under the new licenses will ultimately lead to the creation of large amounts of CO2, as Greenpeace Norway’s leader Truls Gulowsen explains. “If we talk about the carbon budget, the global carbon budget associated with the one and a half to two degrees goal, there is no space in that budget for new fossil fuels of any kind.”
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The new production licenses pose a threat on two levels, both to the global climate and to local ecology, critics say. The Barents Sea has a fragile ecosystem, containing a rich variety of rare fish and plants which could be damaged by oil spills, especially as the dangerous conditions of Arctic waters make assessing the potential damage difficult.
But it is the contribution to global warming caused by increased oil production that forms the basis of the case. “This field is one of the biggest climate threats, and direct Arctic and lower mantel threats,” Gulowsen warns. Holding onto an industry many believe to be in decline is a desperate measure, he adds, especially when it presents such a clear threat to climate change.
What's the real cost of drilling Norway's Arctic waters?
New drilling will be expensive and, according to Greenpeace, the proposed oil fleet will be one of the most expensive in the world. A final cost will be unclear until the areas have been explored, but the easiest comparison to the drilling platforms required on the licenses is Goliat, a platform north of Hammerfest in the western part of the Barents Sea which has just been delivered at nearly twice its intended price, costing Eni Norge a whopping €5,08bn.
Norway’s oil tax system has been designed to encourage investment, and this has benefitted the country for decades. The Norwegian government pays not only 90% of exploration costs but also for construction, an investment it receives back with interest from successful oil projects. But with the crash of oil prices to below $50 a barrel there are concerns that this system is no longer economically reliable.
Greenpeace has suggested the economic investment involved is misplaced. Gulowsen accepts this tax scheme can create a large profit if the oil companies are successful. “But if not, 90% of the risk is carried by the Norwegian state,” he continues “so the tax system has been good for the oil based economy for many years, but that is now turning into a corrosive system to save the oil companies from basically paying the cost of exploring marginal fields that should never be explored.”
Drilling may be a risk, but if it pays off, as it so often has for Norway, it will bring massive economic returns. Not only would the government make a healthy profit, but there would be localised knock-on benefits. "This will contribute to employment, growth and value creation in Norway. Northern Norway is now in the forefront of further developing the Norwegian petroleum industry,” said Lien.
Whilst the government is optimistic, Statoil and other license holders appear more reserved. Statoil senior vice president for exploration on the NCS Jez Averty said: "We will now be able to explore a very interesting area in the Barents Sea… There is always uncertainty related to probability of discovery in new areas. But if we make a discovery, it may involve considerable resources."
Averty has countered Greenpeace’s argument that the operation will be extremely expensive, however. Earlier this year he highlighted that Statoil has “worked efficiently on reducing costs by developing new technology, such as Cap-XTM, and improving drilling efficiency. The wells to be drilled in the south-eastern part of the Barents Sea next year seem to be the most inexpensive offshore exploration wells throughout Statoil,” he added.
Setting a legal precedent with the Paris Agreement
Norway was an early participant of the ambitious Paris Agreement, and a country renowned around the world for its dedication to clean energy. Producing 125 TWh of renewable energy a year, Norway is also one of the only countries capable of exporting renewable energy as its five million strong population only consumes 115 TWh annually. The majority of this energy comes from hydropower, with some figures stating that as much as 99% of renewable energy in the country is generated from water.
As a global environmental leader, being the first to break the Paris Agreement has suggested hypocrisy to many. Greenpeace's use of the climate change agreement as grounds for a legal challenge could set a new precedent for similar cases around the world. “This is completely new and the environmental paragraphs under the Norwegian constitution are new and the protection given by the Paris Agreement about what constitutes dangerous climate change is new,” Gulowsen explains.
This will create its own challenges for the court and for the plaintiffs, but Gulowsen believes that this is a precedent that needs to be set. “I think it must be very clear that we do not save the climate with agreements only, we also need litigation, we need action, and we need to keep resources in the ground.”
This is not only new ground legally, but importantly ti is also new ground for offshore exploration in the Arctic – and as such, truly understanding the effect of drilling is a challenge. There has been comparison between attempted drilling in the Arctic near Alaska, which Shell spent $7bn on only to ultimately pull out citing weak returns. But conditions in the Barents Sea are completely different to other parts of the Arctic, so no direct comparison can be made. Lien called those making such a comparison “people [who] do either not have knowledge about the issue or are trying to mislead the public.”
Further to this, Norway has an exemplary safety record when it comes to offshore drilling. This makes the contrast between the American and the Norwegian Arctic all the more important, as Norway’s extensive regulations and checks have granted the country a reputation as one of the safest and most environmental oil producers. In contrast, the US has been plagued with a history of disasters.
Could this case inspire future legal battles?
Should the case be successful it could set a precedent for climate cases globally. “We see a clear trend that climate change activists all over the world see that we cannot only focus on individual emissions; we need to focus on keeping fossil fuels in the ground,” Gulowsen says. The success of this case could provide the legal backing environmental organisations need to succeed in their campaigns elsewhere – an intimidating prospect to oil companies.
Greenpeace is not alone as plaintiffs however, as it is bringing this case against the government in coalition with Nature and Youth. The organisation is the largest of its kind in Norway, with 7,600 members under the age of 25 working to put pressure on politicians and push towards more environmental solution to today’s problems. Gulowsen says the group's involvement is essential. “They represent the youth that will inherit this planet, and therefore it’s a very strong voice to have in the courtroom because their voices cannot be heard in the normal political process,” he adds.
The case will not be concluded until next year at the earliest, and its knock-on effect on other environmentally based legal challenges could take even longer. New oil exploration brings as many challenges – economically, environmentally and ecologically – as it has potential benefits. As countries such as Norway work towards reducing global warming the strain upon resource based economies will be clear, but Greenpeace insists that this should not mean promises are broken. Whether their case is successful or not, the use of the Paris Agreement is a monumental step in environmental litigation.