Azerbaijan can benefit from Norwegian gas experience

Broad experience built up by Norway in developing its offshore gas reserves is likely to offer many lessons for Azerbaijan's efforts to tap similar resources in the Caspian.

This observation comes from vice president Terje HalmЫ at Statoil Azerbaijan, who heads the joint Statoil and BP Amoco gas team in Baku.

"Norway has developed over 25 years from complete dependence on imported oil to one of the world's largest net crude exporters. Only Saudi Arabia sells more oil abroad in net terms.

"But we're actually far more of a gas nation. Our offshore production of natural gas already plays a very considerable role in north-western Europe.

"Production and export of natural gas will become an increasingly important business for Norway as our oil production gradually declines."

He identifies a conscious commitment to making commercial use of Norway's large gas reserves as the most important force driving the development these offshore resources.

"The first developable oil discovery in the Norwegian sector of the North Sea was made during 1969. From a very early stage, the unacceptability of flaring gas became a guiding principle.

"So oil and gas operations off Norway have developed hand-in-hand, since the bulk of Norwegian offshore fields contain both oil and associated gas."

It is characteristic of Norway's offshore development that its first commercial petroleum find - Phillips Petroleum's Ekofisk field - prompted the construction of pipelines for both oil and gas.

Crude and natural gas liquids from this discovery are piped to Teesside in the UK, while lean gas travels through a line to Emden in Germany.

The latter facility marked the first step in building up a very extensive gas transport system from Norway's continental shelf which helps to fulfil delivery commitments to European customers.

These buyers are committed to taking some 75 billion cubic metres of gas per year from early in the next century. Annual Norwegian gas exports already total roughly 50 billion cubic metres.

Perspectives are long for Norway's oil industry, but even longer for its gas sector, Mr Halmo observes.

"Providing we can continue to sell our gas on competitive terms, these reserves will play an important role in Europe's energy supply for at least 50 years to come, and almost certainly even longer."

He adds that developing the big Norwegian gas fields, with Troll north-west of Bergen very much in a class of its own, has demanded outlets in major external markets.

Domestic demand for gas is insignificant, primarily as a result of the extensive hydropower supplies available to Norway since the beginning of this century.

The country's electricity distribution network is accordingly very well developed, but it has no direct gas supply to households. Nor are there any plans to install such a system.

Today, however, Norwegian electricity consumption exceeds national hydropower output. Supplies must accordingly be imported from nuclear and coal-fired generating capacity in Sweden and Denmark.

Most countries with access to natural gas would have solved this supply problem by building gas-fired power stations, but political resistance to that solution has been very strong in Norway.

Another interesting feature of Norwegian gas policy is that the country has never succeeded in selling gas to its immediate neighbour, Sweden.

The possibility of such sales have been on the agenda for many years because the Swedes plan - but have yet to implement - a gradual phasing-out of their nuclear power stations.

By contrast, demand for Norwegian gas from other European countries has steadily risen. Germany, Poland, Austria, the Netherlands, Belgium, France, Italy, Spain and the UK are among Norway's gas customers.

The biggest technological challenge faced in developing Norway's gas reserves was surmounted in the early 1980s when pipelines were laid to the Norwegian mainland, Mr HalmЫ recalls.

These lines had to cross the deep Norwegian Trench, which lies between the country's offshore fields and the coast with water depths down to 380 metres.

"The next big leap was the development of Troll, which was found in 1979 and is the biggest gas field so far brought on stream off Europe," he continues.

"A location in more than 300 metres of water made it necessary to develop new technology to bring this field into production.

"The 1 284 billion cubic metres of gas in Troll flows through a giant drilling and wellhead platform and pipelines to a big treatment plant on land. These facilities were developed by Shell, with Statoil as production operator."

Troll also contains substantial volumes of oil in thin zones under the gas cap, which is being produced with the aid of horizontal wells by Norway's Norsk Hydro. In addition to being a major gas producer, the field accordingly ranks as a substantial source of crude.

"In technical terms, we in Statoil are currently making the next major advance off Norway through our Пsgard development in more than 300 metres of water in the Norwegian Sea," Mr HalmЫ says.

"Almost 60 seabed production wells make this field the world's largest subsea development. These wells are being tied back to an oil production ship and a floating gas platform.

"This project also embraces a gas pipeline from the Norwegian Sea to tie with the existing transport systems in the North Sea. That means we've established a gas transport infrastructure covering very large parts of our continental shelf."

State-owned Statoil ranks today as the leading operator of submarine pipelines. Gas trunklines from Norway currently have three landfalls in continental Europe - Emden, Zeebrugge in Belgium, and the French port of Dunkerque. In addition, two pipelines run from the Frigg field to St Fergus in the UK.

"Norway has very large gas reserves, well developed transport systems and recognised gas expertise," Mr HalmЫ notes. "And Statoil has assisted Azerbaijan to draw up a national plan for gas use, for instance.

"All the signs are that gas will become even more important during the next century, and Norway is set to remain a substantial European gas supplier for generations to come."

Looking at the lessons Azerbaijan could draw from Norwegian experience, he points out that coordinating Norway's gas sales was important in the early phase.

"It was crucial in gaining entry to markets and establishing the production and transport infrastructure. Giving priority to the most profitable gas resources was essential in creating a commercial basis for Norwegian gas sales.

"Today, we can see that the market is undergoing major changes - away from virtual monopolies among both buyers and sellers to a large number of players.

"Existing infrastructure capacity gives space for more participants, which in turn boosts competition. All the same, I believe we'll see a continued need for coordination to implement major gas projects.

"I think the same will also apply in Azerbaijan, and this is one area where Norway can provide much useful experience."