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OIL

Norway study smashes Arctic oil and gas dreams

The Arctic, often presented as the promised land by oil companies, is likely to play only a marginal role in providing for the planet's future energy needs, a Norwegian study claimed on Tuesday.

The share of Arctic oil and gas in global energy production is expected to decline by 2050 because of prohibitively high production costs, according to a study conducted by the Centre for International Climate and Environmental Research in Oslo and national statistics agency Statistics Norway.

Oil production in the region is seen doubling in absolute value during the period, but will drop from 10 percent of the global total in 2010 to eight
percent in 2050, the researchers said.

Their findings were published in the journal Energy Economics and summarized in Norway's leading daily Aftenposten on Tuesday.

For natural gas, the decline is expected to be even more pronounced, with the share dropping from 27 percent to 22 percent. Volumes will also continue to shrink in absolute value until 2030, when they are expected to begin rising again.

The researchers attributed the decrease to the boom of unconventional oil and gas sources, such as shale gas in North America, and growing conventional gas production in the Middle East — two sources that are significantly cheaper to exploit than Arctic oil and gas.

According to the US Geological Survey (USGS), the Arctic could be home to 13 percent of the planet's undiscovered oil reserves and 30 percent of its undiscovered gas reserves.

Faced with rising oil demand worldwide, and with the production-obstructing Arctic ice melting faster than ever, international oil corporations have shown a keen interest in the Arctic region — to the dismay of environmentalists.

But the oil and gas fields are for the most part believed to be out at sea, located far from land and infrastructure and in extreme climate conditions,
all of which would send production costs soaring.

One example of the difficulties encountered in the region is the Shtokman natural gas field in the Russian waters of the Barents Sea, whose future
remains uncertain almost 25 years after it was discovered.

Russian giant Gazprom and its partners, France's Total and Norway's Statoil, failed to reach agreement by a June 30th deadline on a viable
development of the field, which is believed to hold 3,800 billion cubic metres of natural gas, enough to meet the world's entire demand for a year.

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ENERGY

Could the Norwegian government introduce a cap on energy prices? 

Due to soaring prices, the Norwegian government is mulling over several solutions, including a potential price cap for electricity and limiting energy exports abroad. 

Could the Norwegian government introduce a cap on energy prices? 

High energy exports in the last 12 months, low filling levels in Norwegian reservoirs and an uncertain energy situation around Europe have led to soaring electricity prices in southern Norway. 

Last year the government introduced a scheme whereby it covers 80 percent of consumers’ energy bills where the price rose above 70 øre/kWh. The portion of the bill under 70 øre is paid in full by households. The portion the government covers will increase to 90 percent in October. 

Critics have argued that the current scheme still leaves households struggling with their bills. As a result, Norway’s government has said it is mulling its options to curb energy bills.

Norway primarily depends on hydroelectric dams to help it meet its energy needs. Still, reservoirs in southern Norway have been at the lowest level for ten years, public broadcaster NRK reports. 

Low reservoir filling over the past year has conceded with record exports with higher prices on the continent, making sending power abroad an enticing proposition.

Recently, exports have fallen significantly, and the government is considering introducing a limit to reduce the possibility of energy rationing being introduced this winter. 

“Restrictions on the export of electricity to Europe may be one of the measures that is needed,” Elisabeth Sæther, state secretary at the Ministry of Oil and Energy, told NRK. 

Earlier this week, Prime Minister Jonas Gahr Støre ruled out completely shutting off exports to the continent. 

“It is a dangerous thought and will not serve us well. It could give us more expensive power and lack of power in given situations. We will hardly be able to import power when we need it without contributing to other countries when they need it. There is a reciprocity in this,” he told the newspaper Aftenposten earlier in the week. 

Sæther also told NRK that the government was weighing up putting a maximum price on energy but warned that it could have unforeseen consequences. 

“We are afraid that a maximum price means that more water is drawn into the reservoirs, which we need for the winter. It is a serious situation. We must prevent ourselves from getting into a situation where we lack enough power this winter,” she told the broadcaster. 

At the end of May, the state-owned Statnett announced that the supply situation in Norway might be under strain – in some scenarios – all the way up to and through the winter, especially if Southern Norway experiences drier than usual weather in the second part of the year. 

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