SPECIAL EDITION / PUBLISHED BY OIL GAS DENMARK
2016
DANISH OIL FOR 50 YEARS
FIRST 50 THEME: DANISH OIL TURNS 50
MINISTER LARS CHRISTIAN LILLEHOLT:
PETER TAKSØE-JENSEN:
New study: “One in ten jobs in Esbjerg is in oil”
“The North Sea has contributed jobs, growth and development”
“Energy is now on the foreign policy agenda”
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Editorial This year marks the 50th anniversary of the first oil discovery in the North Sea. Expectations were not great back then – but reality exceeded expectations, and today 19 fields are in production in the Danish part of the North Sea. The total tax revenue of 400bill. DKK has contributed significantly to building Danish welfare. Former Minister of Finance Thor Pedersen points, in this magazine, to the historically large surplus on public finances generated by the oil revenue in the 00’s as being crucial to bringing down public debt. This meant that Denmark’s net debt was turned to a surplus which provided the government at the time with the opportunity to make investments to counteract the financial crisis. Close to 34.000 direct and indirect full-time jobs also speak a language of their own – a lot of them even being regional jobs outside the cities. Danish oil and gas have provided a secure supply of energy for Denmark for decades. An entire generation remembers the oil crisis of 1973 and the car-free Sundays, where the vulnerability of society being dependent on foreign energy became painfully obvious. Energy is the lifeblood of any society – and as a result, it is an advantage for a country to be self-sufficient. We need oil and gas for many years to come – in Denmark and globally. The green transition is a complex challenge, which takes time. The fact is, that far into the future the world will need oil, gas and sustainable sources of energy. The population of the world will grow from seven to nine billion over the next decades, and they will all demand more energy. There are many good reasons why we should produce our own resources in Denmark. If we do not, we will become completely dependent on other countries’ production. Countries who do not necessarily provide orderly conditions for employees or subject production to high environmental standards. The potential in the North Sea is large – but we are at a crossroads. Production is falling and investments are not being made. So, if Denmark is to have an oil industry in the future, there is a need to secure the business base in the North Sea, so that we can have the absolutely necessary and very large investments in the infrastructure. Then we can have the marginal and cost demanding fields put into production, and then we can do research in increasing recovery rates beyond the current 27 percent. Time is a crucial factor – it must happen very soon. If the infrastructure is decommissioned, as the necessary renewals have not been made – it is the end. The cut-off date is approaching rapidly! Large amounts of oil and gas remain in the North Sea – and we need it. Because of this, I hope the trend will turn. That companies are again given incentives to make the necessary investments, so that we soon may see a business in growth - an industry which can provide tax revenue, jobs and security of supply. To the benefit of companies and society.
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PUBLISHER Oil Gas Denmark, trade organization for the Oil and Gas sector in Denmark PRODUCED BY First Purple Publishing EDITOR Ulla Lena, Oil Gas Denmark PROJECT MANAGEMENT Tine Presterud ART DIRECTOR Trine Natskår COVER PHOTO A.P. Møller – Maersk archive PHOTO Lars Just, Büro Jantzen & Steen Brogaard
CCO Kristian Lee Dahm Dickow SALES Daniel Skjøth Christensen & Jan Skov CIRCULATION Danish: 75,000 English: 6,000 CONTACT FIRST PURPLE PUBLISHING Kasper Thejll-Karstensen kk@firstpurple.com 3119 4000 The magazine is distributed through numerous channels to the decision makers in the oil and gas industry, opinion forming stakeholders and a vast part of members of the industry. Additionally to the political, the science and the education segments, in close connected industries and at Oil & Gas Summit 2016 and Task Force Zero.
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2 OIL GAS DENMARK 2016
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Content THEME:
MINISTER:
MARTIN NÆSBY:
Danish oil turns 50
Lars Christian Lilleholt
We need the oil
Expectations were not great, when oil was first found 50 years ago in the Danish part of the North Sea – but the reality was radically different, Nordsøfonden and Maersk Oil tell us.
The North Sea will continue to play a part for many years to come, says minister for energy, utilities and climate Lars Christian Lilleholt.
The population is growing and so is the global demand for energy. Because of this we need both oil & gas and green energy
Page 18
Page 28
THEME:
TAKSØE - JENSEN:
DTU:
Esbjerg
Energy is now on the foreign policy agenda
North Sea oil: Difficult, cumbersome and valuable
Page 4
The former fishing town has become Denmark’s energy metropolis, and one in ten jobs today is generated by the oil industry. Page 8
”We have not been targeted by the same pressure as others have, as we have been self-sufficient for many years.” Page 22
THEME:
The North Sea oil is crucial to Danish welfare
At the Centre for Oil and Gas at DTU they are working hard on getting more oil and gas from the North Sea. Even a small increase in the recovery rate is very valuable to society. Page 32
Thor Pedersen on the importance of the North Sea to the Danish economy and welfare . Page 14
OIL GAS DENMARK 3
50
DANISH OIL TURNS
- AND THERE IS STILL A LOT TO BE RETRIEVED
This year marks the 50th anniversary of the first time a drilling showed trace of hydrocarbon in the North Sea. Since then, 19 fields have been put into production and the North Sea now contributes a large number of jobs, self-sufficiency in energy and billions in revenue, which no one expected at the time. And there are still three billion barrels of oil to be retrieved. TEXT Ulla Lena & Joachim Møller Pallesen
pect of finding oil in the North Sea, that he would drink every drop of oil in the North Sea. It is possibly an urban legend, but it tells the story of how the expectations of an oil adventure in Denmark were not that high. It is a picture that Birgitta Jacobsen, CEO of Nordsøfonden – the state-owned oil company – recognizes: To the question of what ideas the state had when Maersk was given the license to explore the Danish subsurface, Birgitta Jacobsen answers, “Probably no one, when the first oil was discovered in the Kraka field in 1966, had the imagination to picture how much the North Sea oil would mean to Danish society”. The producer didn’t expect to find the amount of resources which were actually found, either.
When A.P. Møller-Mærsk in 1962 was awarded a Sole Concession to search for oil in Denmark, and established the Danish Underground Consortium with Shell and Gulf, no one imagined that the oil would become such an important source of income to society. At the time, a lot of “dry wells” had been drilled in the North Sea, and legend has it that the chief geologist of BP at the time, Peter Kent, stated, in relation to the pros-
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“When the Danish Underground Consortium (DUC) found the first hydrocarbon in the Danish part of the North Sea 50 years ago, no one knew the scale of the reserves actually present in the subsurface, and as a result, no one could predict the importance of these reserves to the Danish state”, says Martin Rune Pedersen, the top executive of Maersk Oil in Denmark.
Former prime minister Poul Schlüter All images are from A.P. Møller - Mærsk's archive
THREE BILLION BARRELS OF OIL
IT WON’T HAPPEN BY ITSELF
Shortly after finding the Kraka field, two of the largest fields to date, Tyra and Dan, were found, and the first Danish oil was produced in 1972 from the Dan field. Today 19 Danish fields are in production. Throughout the eighties and nineties production steadily increased, and in 1993 Denmark became the only country in the EU self-sufficient in oil and gas. In the 00’s, production picked up speed and it peaked in 2004, when more than 200 million barrels of oil were produced, and so did the revenue for the state treasury.
The many billions of oil barrels will not come automatically. It will take a focused effort, if companies and society are to benefit from the oil. Both the operator and the state believe so.
“Throughout the years production has contributed more than 400 billion DKK in revenue to the state, which is a significant contribution to financing the Danish welfare society”, says Birgitta Jacobsen, who also points out, that a lot remains to be retrieved. Because even though production has been decreasing since 2004, large amounts of oil and gas remain in the Danish part of the North Sea. “3,8 billion barrels of oil equivalents have been produced from the Danish part of the North Sea, and we estimate that a further 3 billion barrels of oil equivalents can be produced. In other words, there is a large potential for future production”, she explains.
“We see a large potential in the North Sea. But because DUC’s platforms in the North Sea are ageing, they also require more maintenance in order to ensure lifespan extension, and at the same time the process of recovery (extraction) becomes more and more complex. As a result, major investments are continually required in order to ensure that the infrastructure and facilities out there are kept in optimal condition, both in terms of security and operationally. In DUC we make a substantial effort to continuously streamline and ensure future production, and under the right conditions the sector will also be able to contribute positively to our society in the future,” says Martin Rune Pedersen. To conclude, Birgitta Jacobsen says: “It won’t happen by itself. To fulfill the potential, some crucial decisions must be made before long, in order to ensure that we will also see Danish oil and gas resources utilized in the future.” •
OIL GAS DENMARK 5
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One in ten jobs in Esbjerg is in oil The Danish oil industry is centered on Esbjerg, where it creates thousands of jobs like rings in the water, making one in ten jobs dependent on production of Danish oil. Esbjerg would have been a different city without the oil, says Mayor of Esbjerg Johnny Søtrup – and director of Esbjerg Business Development Tom Nielsen does not dare to think what will happen if the upturn everyone is waiting for does not materialize. TEXT Ulla Lena / PHOTO Lars Just
Mayor of Esbjerg Johnny Søtrup and director of Esbjerg Business Development Tom Nielsen
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15.000 people are working in oil production, and close to 34.000 full-time jobss are dependent on the Danish oil industry in one way or another. This is the conclusion of an analysis made by Damvad for Oil Gas Denmark. The analysis also shows that more than 45 percent of all jobs in oil and gas are placed in the Region of Southern Denmark, where Esbjerg, as the absolute center of the oil and gas industry, has more than one in ten jobs placed in the oil industry. THE HUGE IMPACT OF THE OIL INDUSTRY
These numbers do not come as a surprise to the Mayor of Esbjerg, Johnny Søtrup (The Liberal Party), who does not beat about the bush when it comes to the importance of oil to the city. “The numbers are no surprise to me. Oil is of invaluable importance, and if we had not had the industry here in Esbjerg, it would have been a completely different city I had represented as Mayor for all these years. There are, just when looking at our harbor, thousands of jobs in oil and gas. Furthermore, the oil industry has had a series of spillover effects, ranging from the capacity of our hotels to retail, subcontractors and service providers. The infrastructure that Esbjerg has today, with the freeway stretching all the way to the harbor, and a large and well-functioning airport with a heliport, would not have been here, were it not for the oil and gas industry. Of that I am certain.”
JOBS IN THE OIL INDUSTRY
NORTHERN JUTLAND 6% Direct: 800 Indirect: 600 Induced: 700
FULL-TIME EMPOYMENT Direct / Indirect / induced 50/100/50 150/300/150
CENTRAL JUTLAND 11% Direct: 1,400 Indirect: 1,100 Induced: 1,200
500/850/500 3,500/6,000/3,500
3,500/+6,000/+3,500
IN TOTAL: 33,700 Direct: 12,700 Indirect: 9,800 Induced: 11,200
POSSIBILITIES FOR EDUCATION AND EMPLOYMENT
It is not just in business the oil and gas industry has left its mark. Esbjerg has a high number of educational institutions in the city such as high schools, vocational training, business academies, a school of marine and technical engineering and two universities, as both Aalborg University and the University of Southern Denmark have franchises in the city. And there is a reason for this, says Tom Nielsen, who is the director of Esbjerg Business Development. “A lot of educations are represented here in Esbjerg, and in the region we have in the order of 6500 students in our institutions for higher education. This is of
SOUTHERN DENMARK 45% Direct: 5,700 Indirect: 4,400 Induced: 5,100
ZEALAND 5% Direct: 600 Indirect: 500 Induced: 500
THE CAPITAL 33% Direct: 4,200 Indirect: 3,200 Induced: 3,700
OIL GAS DENMARK 9
THE MINISTER FOR BUSINESS & GROWTH
Troels Lund Poulsen, Minister for Business and Growth, on the North Sea “The oil and gas industry has been an important part of Danish business and society for a good many years, where it has contributed positively to economic growth, jobs, security of supply and tax revenue to the benefit of the welfare society since production began in the 1970’s. Concurrently with production the Danish subcontractors have developed advanced technologies, and in the universities a highly technical research environment has been established. With the resources in the North Sea, a large portion of the oil and gas industry is situated nearby in the Region of Southern Denmark and Esbjerg. An effect of the industry’s presence is that a significant number of highly specialized and well-paid production jobs are placed in the area. Hence the industry plays a part in creating growth and employment in an area relatively distant from the largest cities, where we have generally seen weaker growth in recent years. As sustainable energy becomes a more central part of our energy supply at home, the oil and gas industry will naturally play a different role than previously in our national supply. But demand for oil and natural gas remains. In the future it is important that the industry remains capable of producing oil and gas and utilizes the competencies in energy technology to create economic development, export and private employment. Thereby revenue generated from the industry can continue to support our future common welfare”.
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course in more technical subjects – but we also feel an interest in energy in a broad sense in economics, business and in the social sciences”, Tom Nielsen tells us, and is supplemented by Johnny Søtrup, who also has a take on why educations in Esbjerg are seeing such an influx of students. “I saw a survey the other day, which marked us as one of the cities in the country with the highest chance of employment right after finishing school. Of course we are going to use this to attract new students. The survey shows that if you have a higher education, you will get a job right away, and actually in a well-
“Oil is of invaluable importance, and if we had not had the industry here in Esbjerg, it would have been a completely different city” JOHNNY SØTRUP, MAYOR OF ESBJERG Continued on next page >
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50 FIRST
MAERSK OIL
50 FIRST
MAERSK OIL
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THE UNION BOSS
Claus Jensen, Chairman of Dansk Metal* and CO-Industri*, on the North Sea. ”To Danish Metal the North Sea is very important, as many of our members are employed directly on the platforms or in affiliated industries. For the past 50 years the North Sea has created a lot of new and highly specialized jobs, which are technically challenging and exciting to our members – and we must retain those jobs. Therefore we see a need to secure investments in the North Sea, so that the Danish resources are utilized, which does not only require development of the proper technology, but also strengthened education of qualified employees. The oil and gas industry will, as will the rest of Denmark, also face challenges in recruiting qualified employees – especially skilled workers and engineers. The industry must therefore continuously look at how to best attract the right competencies.”
paid position. This is another area where oil is hugely important to Esbjerg.” * DANSK METAL: A union for employees in technical fields, mechanics and IT
DOES NOT DARE TO THINK THE THOUGHT – WE HAVE A LOT TO LOSE
* CO-INDUSTRI: Central Organization of Industrial Employees
The low oil price and a general downturn in the number of investments made in the North Sea has made the market drop – which they are also feeling in Esbjerg, where taxi companies and hotels, to whom this magazine has spoken, are reporting significant drops. Tom Nielsen knows this as well. “Cab drivers, they really know how things are going in the oil industry. The same
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can be said for hotels and restaurants. I don’t ride cabs that much, but when I do, I always ask the driver how it is going. What they tell me now is that they don’t drive as much. They don’t see so many visitors, as there is not that much going on in the oil industry these days”, says Tom Nielsen, who also says that despite the sustained drop in oil prices, which has been hard on the industry, he believes that better times are coming. “We have so much to lose, so I do not even dare think the thought that they don’t”, he finishes.
LEADING TECHNICAL ADVISOR
THE CRISIS WILL END
The Mayor firmly believes that better times are coming. “The crisis will end. I believe that we will be able to adjust the framework conditions, which are so important to people investing out there. We must not fall into the trap of believing that this is only important on a local or regional level. This is also of national interest, as it is so many billions. If we wish to see a continued flow of revenue in taxes and if we are to maintain the thousands of jobs – there is simply no way around it.” •
Activities on the harbor in Esbjerg testify to the importance of the offshore industry
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PHOTO Lars Just
Interview with Thor Pedersen
“The North Sea oil is crucial to Danish welfare” Danish oil from the North Sea has been crucial to the development of the Danish welfare, and has meant that Denmark, among other things, was better prepared for the financial crisis. The words come from Thor Pedersen, who was Minister of Finance in the 00’s when production in the North Sea peaked, and the billions in tax revenue were even greater in number than expected. TEXT Ulla Lena & Joachim Møller Pallesen / PHOTO Lars Just
T
hroughout the last 50 years the oil and gas of the North Sea has provided more than 400 billion DKK for the Danish state treasury. The revenue was particularly great in the 00’s when production was high, and it peaked in 2004 with over 385.000 barrels a day at the same time as oil prices increased. Thor Pedersen, as Minister for Finance, had overall responsibility for the Danish economy from 2001 – 2007, and he believes without doubt that oil has been an unconditional benefit to Danish society. “The North Sea oil has been a crucial foundation for the development of welfare we have seen in Denmark – and decisive for the degree to which Denmark was prepared when the global financial crisis washed across the country”, he answers, when asked what Danish oil production has meant to Denmark. Continued on next page >
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Growing with Responsibility Denmark is self-sufficient in oil and gas. It has great potential in the North Sea. New E&P opportunities have been identified. DEA is looking forward to explore the two licences received as operator in April 2016.
Growing with Energy DEA Deutsche Erdoel AG, Ăœberseering 40, 22297 Hamburg, Germany
dea-group.com
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PHOTO Lars Just OIL AND FISCAL POLICY TURNED DEBT TO SURPLUS
Greater production and higher oil prices than expected through the 00’s meant more money from the North Sea than budgeted in the state’s household budget – the Finance Bill. From 2001 to 2005, the North Sea generated well over 25 billion DKK in revenues. The many billions from the North Sea combined with carefully controlled fiscal policy was, according to Thor Pedersen, the reason for a historical surplus of 87 billion DKK on the public finances in 2007 – which is the difference between income and expenditure. Instead of establishing an oil fund, as they have done in Norway for example, the Danish surplus was used to bring down public debt. This meant that the Danish net-debt in 2007 was turned to a net-surplus of about 30 billion DKK. “No one saw it coming. The tax-stop and steady public expenditure created a
E R S’
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“What plagued other countries in the EU, which we can compare ourselves to, was that they had large public net-debts. For Denmark it meant that when the financial crisis struck, the government had room to maneuver, room to make investments to counteract the crisis, which other countries really did not have in the same way. This meant that our welfare could be financed without further borrowing, and in that respect the oil from the North Sea is a major contributor”, he says.
NCE ONFERE IN E S S C S U B ’S T IO N O D E NNSTEER A S S O C IA
r u o j A
G IN E N IS H E N T H E DA
massive surplus on the public finances. However, we did not fall for the temptation to increase spending. We did not establish a fund; instead we used the money to bring down our debt. We had a desire to save for rainy days, which is exactly what we did”, says Thor Pedersen, and elaborates on its importance to Denmark, when the financial crisis struck.
CO N GR
ES S CE
th 24th-25BER
2016 N O VE M
SECURING THE WELFARE OF THE FUTURE
Despite falling production in the North Sea since 2004, the area continues to hold large reserves of oil and gas. On the question of what to do with the remaining resources, the former Minister of Finance is unwavering. “My point of view is, that if it is economically viable to produce the oil, we should do it, and thereby secure the future with the value embedded in the oil. Its revenue may be spent on hospitals for example, and to make sure that life in general becomes better for retired citizens in Denmark. If we don’t, it might eventually result in a loss of welfare for Denmark”, Thor Pedersen finishes. •
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PHOTO Scanpix
Thor Pedersen, the Liberal Party, was Minister of Finance from 2001-2007. He was since named president of the Danish Parliament, a post he held until the 2011 general elections, when he decided not to run for reelection.
“The North Sea oil has been a crucial foundation for the development of welfare we have seen in Denmark”
Meet among others: Jacob Meldgaard, CEO, TORM A/S: How do we generate growth and employment in the future?
Peter Birch Sørensen, professor, president of The Danish Council on Climate Change: Action with care – the current situation and the energy-policy challenges facing Denmark
Christian Majgaard, former global top executive at LEGO: Branding and strategy in an international context
Lilian Mogensen, COO, ATP Processing Business and HR: Great leadership has created one of the best workplaces in Denmark
Find the entire conference programme and registration on www.ajour2016.dk
OIL GAS DENMARK 17
Interview Danish Minister for Energy, Utilities and Climate Lars Christian Lilleholt:
“The North Sea has contributed to jobs, growth and development”
>
18 OIL GAS DENMARK 2016
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“I predict that oil and gas – in parallel to the green transition – will make up a significant part of our energy supply for many years to come” This year marks the 50th anniversary of the first oil being discovered on the Danish continental shelf. How has the North Sea oil impacted the development of Danish society for the past 50 years?
The production of oil from the Danish part of the North Sea has played a very important role for Denmark, and has impacted the Danish economy significantly for the last 50 years. From the start of production back in the 1970’s and up to the present day, our shared household budget has seen an influx of about 400 billion DKK. That is a substantial amount, which has aided in financing among other things our schools, hospitals and nursing homes. Besides the direct income from taxes, the Danish activities in the North Sea have contributed to jobs, growth and development. Today we have a large cluster of Danish businesses working in exploration and production in the North Sea. These businesses have created a lot of jobs.
What opportunities and challenges do you see in the Danish part of the North Sea today?
The last couple of years have been hard on the offshore sector. The oil and gas industry has suffered from low oil prices, an increasing demand for investments
20 OIL GAS DENMARK 2016
in aging production facilities and infrastructure, as well as an increase in regional competition. In spite of the situation today being different from the “golden days”, I believe, that the North Sea continues to hold a vast potential for further production, and that the production of oil and gas from the North Sea will continue to play an important role for many years to come. Looking ahead, our job will be to find solutions to ensure overall optimization of the production of the remaining resources in the North Sea. In doing so, I believe that cooperation between businesses, as well as between businesses and authorities, will be completely central. My personal ambition is to secure a framework facilitating the future optimization of production from the North Sea, to the benefit of the industry and society as a whole.
What is the importance of self-sufficiency in oil and gas for Denmark?
Denmark was the only country in the European Union self-sufficient in oil and gas from 1996 to 2014. This contributed to economic growth, and has had a clear positive effect on the Danish balance of payments. Even though Denmark is no longer completely self-sufficient, our North Sea production ensures a high degree of overall energy self-sufficiency, and
Denmark is still a net exporter of oil and gas. I am pleased with our high degree of self-sufficiency, as oil and gas produced in Denmark, all things equal, must be preferred to resources from other parts of the world, where production does not take place in a setup equal to ours in regard to safety, health and protection of the environment. If we look to the central and eastern European countries, it is evident that it is practically and politically challenging to be reliant on a single external supplier.
What role does oil and gas play in the transition to green energy?
I believe that it is a special strength for Denmark to have a business community capable of embracing both the conventional energy industry with the jobs and added value it comes with, while at the same time being able to embrace the future and deliver on our expansion of sustainable energy. I predict that oil and gas – in parallel to the green transition – will make up a significant part of our energy supply for many years to come, and looking forward, I hope that we will achieve even greater synergy between the two. I see it as a big plus for Denmark that we have built up an energy supply resting on multiple legs, made up of oil and gas, wind, biomass and solar energy. With this structure, we have reduced Denmark’s dependence on a single source of energy. •
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“Energy is now on the foreign policy agenda” Explosive growth in global population, increasing wealth in developing countries and a rising dependency on energy is making the need for energy increase significantly, whilst also increasing the demand for green energy. At the same time a changing world order led by Russia has placed security of supply high on the foreign policy agenda. This is the assessment of the man in charge of the review aiming at developing a more strategic effort in Danish foreign policy. TEXT Ulla Lena og Joachim Møller Pallesen / PHOTO Büro Jantzen
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n 2 May 2016, Denmark’s ambassador to India, Peter TaksøeJensen briefly stepped out of the anonymous world of diplomacy and into the spotlight. This happened when he handed in his review “Danish Diplomacy and Defence in Times of Change” to the Danish government. The review is meant to secure the maximum possible effect of Danish foreign policy, and concludes that Denmark should focus more on Danish interests when conducting foreign policy. The magazine met Peter Taksøe-Jensen for a talk on demography, increasing demand for energy and independence from Putin’s gas.
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HOW WILL THE NEED FOR ENERGY DEVELOP IN THE FUTURE?
“I don’t think there is any doubt that energy will be in even higher demand in the future. The developed societies of the world grow ever more dependent on energy, and at the same time we see a demographical development in the world, which means vast new markets for energy will open. I have just arrived from India, where we see a rapid growth in population and an expanding middle class; this at the same time as millions of Indians are moving from rural areas to the city. It is expected that 400 million Indians will move to the city in the coming 25 years. Millions of people will
move from a situation where they were not dependent on energy, to a situation where energy is an integral part of everyday life, as it is for you and I. In Africa we will see population increase by 400 million in the next 15-20 years, combined with massive initiatives to promote growth. A central element in growth – besides water – is energy”, says Peter Taksøe-Jensen, and continues to say that he sees the increase in demand for energy putting the transition to green energy under pressure. “Either you will end up in a situation where people lack energy, or fossil fuels will continue to play too great a part, in a climate perspective. Because of this, I
Peter Taksøe-Jensen is Denmark’s ambassador to India and the man behind the report “Danish Diplomacy and Defence in Times of Change.”
think that the nations of the world will be forced into investing in sustainable energy, as I simply do not believe that it is possible to continue burning so much fossil fuel. In Delhi, where I live, we see an increase in population of about 5 percent a year. It may not sound as much, but when you are 20 million people it is a further 1 million people a year, who are driving on the roads and need electricity for charging iPhones and air conditioning. It kind of puts it into perspective. So if nothing is done (in relation to the transition to green energy, ed.), there are going to be very few places on Earth where it is possible to make a decent life for yourself.
HOW IMPORTANT IS SECURITY OF ENERGY SUPPLY TO A COUNTRY?
“One of my colleagues in the Ministry of Foreign Affairs told me 10 years ago that it was time for us to develop a policy for energy. I thought to myself, what do we need one of those for, get out there; we have all sorts of important things to do – European policy and such. But it was actually a very good idea, since energy has moved up on the foreign policy agenda during the last 15 years, compared to where it was before. The Middle East has played a major part as the supplier of energy to the world in many years. It has had an impact on the vision of stability in the Middle East and securing sail-
ing routes, among other things. This is changing now. We are seeing a shale gas and oil revolution in the USA, meaning that the USA is now the largest producer of both oil and gas in the world. But is has really come into play after Russia started changing the landscape of security policy in Europe. I was in the USA at that time, and I had a front row seat to the reaction of countries dependent on a single supply of energy, Russian gas, being subjected to pressure. The gas valve was turned as an instrument of geopolitics, and how do you respond to that? By securing diversity in supply and independence from a single supplier. Ukraine has seen how the question of gas was central to Russian-Ukrainian
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relations. That has led to a stronger demand for a European distribution network, where energy can be transferred in other ways than before. Trying to create alternative sources of energy. This is something I believe not many people thought of as hugely important, following the end of the cold war. So my colleague was very foresighted when he said that energy policy should be part of our foreign policy. And some of my eastern European colleagues, referring to the countries 100% dependent on foreign energy supply are hugely occupied with developing gas infrastructure to make “reverse flow” possible, as they have not invested in independence, like we have. It is an absurd situation when the Russians are selling gas to Germany at one price, and selling to Ukraine at close to twice the amount. This is why energy has become a foreign policy instrument, also in European security policy, within the last 10 years. Earlier, this was not the case.
“It is an absurd situation when the Russians are selling gas to Germany at one price, and selling to Ukraine at close to twice the amount. This is why energy has become a foreign policy instrument, also in European security policy, within the last 10 years.”
WHAT HAS SELF-SUPPLY IN OIL AND GAS MEANT TO DENMARK?
“Denmark has been on a fantastic journey. From 1974, when we were walking on the freeway and were 98% dependent on foreign energy, to a situation where we are self-sufficient, and where we have seen an economic development raising our GNP by 80-82% from 1974 until now, and where we have been capable of keeping our use of energy at similar levels, as we have been capable of meeting part of the growing demand by using energy more effectively, using our energy supply in
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an ever more effective way. First and foremost, it has had a huge impact on the national economy, but it has also had an impact on our foreign policy. We have not been targeted by the same pressure as others have, as we have been self-sufficient for many years. We are linked up with the others, and indirectly rely upon Russian gas for Europe, but it does give you the chance of formulating a completely different energy policy, rather than if you were 100 % reliant on others. You only
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“Denmark has been on a fantastic journey. From 1974, when we were walking on the freeway and were 98% dependent on foreign energy, to a situation where we are self-sufficient”
have to go back to the energy crisis of 1974 and ask yourself, what really happened? Foreign powers decided to turn a valve, which risked totally undermining the Danish national economy, as we were dependent on foreign energy, which is exactly what created the incentive to put us in the situation we are in today. That we were fortunate to have a supply of oil and gas in the North Sea was nice of course. We have had a chance - which we have taken – to invest in alternative sources of energy. So, when the oil dries up, it will still be the case that Denmark is relatively independent of foreign energy. That is a massive advantage.
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SHOULD DENMARK START LOOKING AT ITSELF AS PART OF A BIGGER PICTURE IN TERMS OF ENERGY SUPPLY IN THE FUTURE?
“I think that the first step is mutually obligating cooperation in Europe and the EU, which provides a really good framework for introducing competition in this area. At the end of the day, that will mean cheaper energy for consumers. But it is also important to establish the necessary infrastructure in order to say that all countries have security of supply, and that you are independent of anyone deciding to use this geopolitical instrument (as you see Russia doing at the moment, ed.) I don’t think, that we will see a transatlantic energy union, as it is more profitable to the Americans to sell their energy in Asia compared to Europe. It is more a question of solidarity in terms of security policy, when the Americans are considering exporting to Europe, expressing a wish to be integrated with Europe. But the Americans do spend a lot of time viewing energy in a strategic perspective, as they are attentive to its importance. We already have a decent infrastructure in our part of Europe with Sweden, Norway and Germany, and the more we are able to expand this to the rest of Europe, the better it will be for all of us. •
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“We need the oil”
Even though the world is moving towards more sustainable energy, oil and gas will be a necessary part of the energy mix for many years to come, in Denmark as well as globally. Because of this, it is a major advantage for Denmark to produce our own North Sea oil, says the industry director. TEXT Ulla Lena / PHOTO Hans Søndergaard
In spite of the focus on wind and solar energy these years, the world’s demand for energy is still overwhelmingly met by oil and gas – and that trend will continue for many years to come. IEA – the International Energy Agency – expects a demand for oil and gas, only slightly decreasing going toward 2040. Today, oil and gas make up 31,1 and 21,4 percent of the global energy mix. The IEA estimates these numbers to be 26,4 and 23,6 by 2040. In Denmark we see the same
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tendency. The Danish Energy Agency estimates an almost constant demand for oil and gas in the coming 10 years. Today 37 and 18 percent of Danish energy consumption is covered by oil and gas, respectively, and in 2025 those numbers will be 37,1 and 13,9 according to the Danish Energy Agency. So even though we are in a transitional period, oil and gas will be needed for many years to come.
Martin Næsby, Managing Director of Oil Gas Denmark, explains: “It is possible to get the idea that the green transition is waiting just around the corner, due to the large focus on sustainable energy. But the reality is that the transition of the energy system is a great and complex challenge, which will take time. I think that a lot of people would be surprised to learn that only 4 percent of global energy consumption today is covered by sustainable energy sources such as wind. The IEA estimates the share of global consumption covered by sustainable energy sources such as wind to be 8 percent in 2040. Of course we also need to invest in green energy. But it is a fact that the world will need oil and gas, as well as sustainable energy, for many years to come. This is not least due to the fact that the world’s population will grow from 7 to 9 billion people over the
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next few decades, who will all demand more and other sources of energy than green energy can provide. So for many decades to come there will be a market for Denmark’s green technology as well as our oil and gas,” says Martin Næsby. TAX REVENUE, SECURITY OF SUPPLY AND JOBS
Oil and gas have been produced from the North Sea since 1972. Today, 19 fields are in production in the Danish part of the North Sea, and Denmark has been selfsufficient in oil and gas since 1993 – as the only country in the EU. At the same time the industry has contributed more than 400 billion DKK in direct tax revenue for the last five decades. And because, as a society, we need oil and gas as energy sources for many years to come, Martin Næsby thinks that it is beneficial to Denmark that we produce the resources in our own subsurface.
energy supply being decisive in political contexts. It is obviously an advantage for a country to be independent in that game, and to have control of it’s own energy sources, as we do in Denmark”, says Martin Næsby, and points to jobs as the third major value driver. “Close to 34.000 full-time jobs are dependent on the Danish oil industry – and a lot of them are regional jobs located outside of the big cities. When you think about how much is done politically to sustain life and growth in all of Denmark, here we are dealing with an industry that supports the desired development on standard market terms. Most significantly in the Esbjerg area of course – but oil and gas clusters are also found elsewhere, such as in Northern Jutland. Every 10th job in Esbjerg is dependent on the oil industry, from the engineer designing platforms to the taxi driver and
“As long as there is a need for oil and gas, it is a major advantage to Denmark to produce the resources in our part of the North Sea”
“As long as there is a need for oil and gas, it is a major advantage to Denmark to produce the resources in our part of the North Sea. This is obviously true for the massive tax revenues, but the value from the North Sea should be measured by more than just tax contributions – such as security of supply. We do not really talk about security of supply in Denmark – maybe because we are self-sufficient. But we do not need to go back more than four decades, when we had “car-free Sundays”, because a crisis in the Middle East meant that the OPEC countries with very short notice lowered production and raised the prices. Energy is the lifeblood of any society, and throughout history we have seen many examples of
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hotel receptionist, a lot of whom have jobs because of the activity that the industry creates in the city. Because of this, it is an extremely vulnerable position at the moment, where the industry is under pressure, investments are dropping significantly and jobs are beginning to disappear,” says Martin Næsby. THE COMPANIES NEED A RETURN ON INVESTMENT
You don’t need to have read a lot of news to know that the oil industry is under pressure globally. The sudden and sustained drop in oil prices has challenged a lot of companies, and projects are postponed or cancelled entirely. This trend has also been observed in Denmark –
which was already the case before the oil price dropped, Martin Næsby explains. “There is no doubt that the North Sea is under pressure – and this is not just because of the oil price currently being low. It is a more structural problem, where, prior to the drop, production was already falling and new investments were not being made. When that happens it is a sign that companies are not expecting to profit from the projects. One might say that the business base is too fragile in the Danish part of the North Sea – which doesn’t have much to do with oil prices currently being low. The oil price at the time of investment is not the only factor in an investment decision. They are very long-term investments – and even major fluctuations in the oil prices are factored in. The long-term framework conditions for production, however, are crucial. And in this phase of the lifecycle of the oilfields there is a need for incentives to promote investments, so that lifespan extensions of the infrastructure make sense to the state and companies alike. As all other commercial businesses oil companies need a return on their investments”, says Martin Næsby, who is hoping that the companies are given that incentive sooner rather than later. A LOT OF OIL REMAINS IN THE NORTH SEA
There is no lack of oil in the North Sea. Previous studies have shown that the oil and gas potential in the North Sea is still very large, and when the North Sea Strategy is published before long, Martin Næsby is convinced that it will point to the same conclusion. “We know that a lot of oil and gas remains in the North Sea. There are marginal oil fields, which we have already found, but are not profitable to produce under the current conditions. There is also a lot to be gained by raising the recovery rate from the current 27 percent. Even a single percentage point is very valuable. Finally, there’s the oil, which we have not yet discovered. The sum of these represents significant value to Denmark. It is my hope that when the North Sea Strategy is finished, the government and the industry work together to fulfill the large potential that remains in the North Sea”, he finishes. •
We work to find new solutions and demonstrate how the recovery of oil and gas can increase in the Danish part of the North Sea in a commercially viable way. This will happen through research and development in collaboration across universities and the industry to ensure that the innovative solutions work in the laboratory and in the North Sea.
North Sea Oil is Part of our Future
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This requires cooperation and partnerships between politicians, authorities and oil companies. And if we all join forces, we can ensure a sustainable future.”
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NORTH SEA OIL:
Difficult, cumbersome and valuable
“We demonstrate how the recovery of oil and gas can be increased in the Danish part of the North Sea through new and innovative solutions.” BO CERUP-SIMONSEN, DIRECTOR OF THE CENTRE FOR OIL AND GAS - DTU
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Contrary to common belief, oil does not just float around in large underground basins. The oil is captured in microscopic pores in rock formations which make it difficult to produce. At the DTU Centre for Oil and Gas research is conducted on enhancing the recovery rate, thereby increasing the revenue from oil production. This Magazine spoke to senior researcher Hamid Nick about the challenges in the North Sea and about how Radial Water Jet Drilling can increase the recovery rate. TEXT Joachim Møller Pallesen & Ulla Lena / PHOTO Lars Just
At the outset of production from the North Sea, with the technology available at the time, it was possible to produce about 5 % of the oil in the reservoirs. Through the last 50 years the recovery rate has increased to the current 27%. At the DTU Centre for Oil and Gas, the scientists are working to increase this figure as even a single percentage point has a very large value for both companies and society at large. ”We demonstrate how the recovery of oil and gas can be increased in the Danish part of the North Sea through new and innovative solutions. Our work is done in a close partnership between research and engineering to find innovative solutions to the challenges in the North Sea”, says Bo Cerup-Simonsen, director of the centre. One of them is Hamid Nick who is part of the team of scientists in a project known as Radial Water Jet Drilling. The Magazine has met Hamid for a talk on the project and the challenges in oil production in general, and the Danish subsurface in particular. THE LARGEST CHALLENGES OF OIL PRODUCTION
In cartoons, oil production is often portrayed as a bath tub in the subsurface, where a massive over-pressure is just waiting to be punctured, allowing the oil to cascade out of the ground like a pillar-shaped fountain. This does not have much resemblance of reality, where the oil is often captured in microscopic pores in a very tight subsurface, and where the objective is to have the oil move through the rock towards the wells where it is collected. If you want to get a better idea of the way it works, you can try to squeeze a glass of liquid through a tile. In this process one element is paramount. In oil language this is called permeability – and it should be high. Permeability is about how easily the oil flows through the rock. In Danish reservoirs the permeability is usually low, because the Danish subsurface mainly consists of chalk. Production in Denmark is therefore more challenging and costly than in many other places, Hamid tells us, while he is showing us two small pieces of rock, where in one of the stones, a rougher texture can be seen with the naked eye, while the other looks like a piece of solid writing chalk: “The difference between e.g. sandstone and chalk, as we see them here, can be as much as 1:1000 in terms of permeability. When hydrocarbons are produced (oil and gas, ed.) this
means that there is a need for longer wells in chalk reservoirs,” says Hamid Nick. TO MAKE THE OIL FLOW
Hamid’s research centers on developing and improving methods which make the oil flow through the tight chalk formations. He explains how, for a start, a well is drilled several kilometers into the reservoir. The pressure, which is very high because the well is situated deep under ground, induces the oil to flow through the microscopic pores towards and into the well. From here it is transported to the surface. However this will not happen on its own, says Hamid Nick: “The problem is that the microscopic pores, the cavities in the rock, are not well connected. They are connected, but through very narrow tubes, which makes it difficult to push liquid through”. When oil is produced, the pressure in the reservoir drops, meaning that the initial pressure only keeps the well operational in the beginning. To make the oil flow continuously it must have some assistance. Therefore, liquid (e.g. seawater) is injected into the reservoir to maintain the pressure, allowing the oil to keep flowing and to be displaced by injected liquid. This technique – water injection - enhances the recovery rate significantly. THE NEXT STEP
Water injection is a good technique, but due to the natural variation in the reservoir, oil is only recovered from some parts of reservoir. Radial Water Jet Drilling, which is what Hamid is working on, is a method which enhances the well contact with the reservoir, allowing more oil to be produced. Radial Water Jet Drilling entails drilling a number of horizontal wells diagonally to the main well. Horizontal wells are not a new phenomenon; however, they are normally expensive to drill. What makes Radial Water Jet Drilling interesting is that it is a much cheaper alternative to other horizontal drilling methods, while it is also much more environmentally friendly, as it uses less water and fewer chemicals. The technique has resulted in significantly increased recovery rate from existing wells. Basically the technique entails using what is in reality a very powerful garden hose, feed it into the main well and point it in any direction using a specially developed frame and turn
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Explosion Protected Products HAMID NICK SENIOR RESEARCHER AT THE CENTRE FOR OIL AND GAS – DTU
on the water. With as little as two cubic meters of water this technique makes it possible to drill up to 100 meters into the rock, only using water at very high pressure. The water erodes the rock and eliminates the need for an ordinary drill-string. By drilling several of these laterals the connectivity of the well to the reservoir is increased significantly, resulting in more oil being produced. The project aims at optimizing various parts of the technique, one of which is control of the hose. At the moment the direction of the hose is known when the water is turned on, however, when it starts moving, its trajectory is unknown. The scientists hope to be able to show the potential of the technique in various types of materials: “Within this project we look at different types of rocks to determine the laterals’ sustainability. Where does it work, and where does it not? At DTU we are primarily interested in determining how it works in chalk, (comprising most of the Danish reservoirs, ed.) says Hamid Nick. The technique is already used commercially in the USA, and at DTU they hope to make the same thing possible in the North Sea.
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The project is set to run for three to four years and is supported by the EU Horizon 2020 program and the research institute at DTU. The project is conducted in cooperation with 9 other universities and research institutes across Europe. •
Learn more at safeexit.dk. Or contact Peter Bech on +45 43 20 89 26 or p.bech@safeexit.dk
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”In Danish reservoirs the permeability is usually low, because the Danish subsurface mainly consists of chalk, which is hard for oil to penetrate.” Hamid Nick
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