By Bill Walker
September 17, 2011
Norway directly participates in the development of its resources. Norway and Alaska got into the energy game about the same time with big finds in the 1960's. Norway, however, has maximized its opportunities in contrast to the Alaskan experience. Major oil companies explored for and developed Norway's first oil and gas fields but the government soon began to play a dominant role. In 1972, the Norwegian State Oil Co., "Statoil", was formed. Today, Statoil is one of the world's largest suppliers of oil and gas, operating in over 30 countries, and the majority of its shares are owned by the Norwegian government.
Norway also instituted its State's Direct Financial Interest (SDFI) in petroleum operations. Through the SDFI, the government owns an interest in numerous oil and gas fields, pipelines and onshore facilities. As a stakeholder, the government pays its share of investments and costs while also reaping a corresponding share of the profits. This investment gives the government a head seat at the table as a decision maker with full access to all information. Norway does not give development incentives/tax credits which are another form of investment but one that returns no direct revenue. The government's investing directly in the fields and sharing in the risk and revenues has not deterred participation as evidenced by the 60+ companies holding licenses in its oil and gas fields.
0ne example of the government's participation is its ownership of 46% of the country's nearly 8,000 km of gas pipelines. A separate government entity operates the pipeline system. As we learned from Ole Anders Lindseth, Director General of Norway's Petroleum and Energy Department, "Norway doesn't view its gas pipelines as profit centers for its resources." The regulated investment return on the pipelines is limited to 7% and therefore, the owners include, in addition to Norway, various pension funds, insurance companies and other entities that are satisfied with a 7% return which is wholly insufficient for leaseholders such as ExxonMobil. By comparison, should the State of Alaska embark on the All-Alaska Gasline/LNG project by taking ownership of the 800 mile gas line as infrastructure, the State would likely receive a federal regulated return of 12% -- a solid return for the State, but not for the North Slope leaseholders who must appease stockholders with higher returns.
The Norway model is not a perfect fit for Alaska but perhaps the most valuable lesson can be learned from Norway's refusal to allow the leaseholders to determine where and when its resources go to market. Alaska must adopt this same approach. While our gas remains idle on the North Slope, multi-billion dollar long term contracts in the Asian markets are announced weekly for LNG projects involving the very same leaseholders currently on the North Slope re-injecting our gas. That is wrong. But as long as we remain complacent, Alaska's ability to monetize its gas, deliver low cost energy to Alaskans and increase oil production will be stifled. In the same vein as Hickel's famous pronouncement, "You drill or I will," it is time for Alaska to step into its ownership role and proclaim, "We can. And we will."
About: Walker is a former Democratic candidate for governor.
Received September 14, 2011 - Published September 17, 2011
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