Statoil’s Lund cites three global challenges for oil, gas

The global oil and gas industry will simultaneously need to become more economically competitive, environmentally benign, and socially responsible if it expects to survive, Statoil ASA Chief Execute Helge Lund suggested.

“If you look at what the industry faces today, particularly finding new supplies in a cost-effective way, the challenges are formidable,” he said in remarks at the Center for Strategic and International Studies on May 6.

“The industry must remain competitive and a reliable source of energy,” Lund said. “Society, particularly politicians, must create a level playing field both for more oil and gas and dealing with climate and social impacts.”

He said Statoil responded in four main areas: to revitalize the Norwegian Continental Shelf, where it has made major discoveries the last 10 years in even mature areas; to reenergize its exploration efforts over the last 10 years; to modernize its natural gas portfolio by moving to gas-to-gas and market-based contracts and building a solid gas base in the US as well as Europe; and to continue building its unconventional oil and gas business “because we believe that will be the basis for long-term supply.”

Lund said he thinks oil and gas companies have increasingly become risk management institutions during his 10 years at Statoil’s helm because of all the politics they have to confront.

Russia and Europe

“In terms of the current issue in Ukraine and the current gas markets, there is no problem in the supply to Europe because it had a very mild winter and storage is good,” he observed. “Medium term, storage could be drawn down. Some Russian gas could be rerouted to Europe, while Holland and Norway potentially could produce more. In the long term, Europe will be very dependent on Russian gas, but it also has been a very reliable supplier. There is no way Statoil could replace Russian gas.”

The global industry also must respond to society’s concerns, both in the standards and practices used in its operations and taking more seriously concerns expressed by people living close to its operations, Lund said.

“Safety must come first when you’re working with hydrocarbons because they can explode,” he maintained. “We use only the highest drilling and production practices and standards, employ independent inspectors, and engage with others in the industry on ways we can improve. Every incident must be a source of new learning so we can improve and improve. That’s the philosophy we have offshore, and there’s no reason we can’t apply it onshore.”

Climate change is global, and unfortunately has become much more political, Lund said. “People care about what we do because what we do matters,” he noted. “Our industry must be able to build trust with society with more transparency, dialogue with all stakeholders (including those we may not agree with), and continued improvement of our own operating environment. We know there’s more to do from both industry and government as the unconventional oil and gas revolution continues to unfold.”

He said, “We are committed with our peers, governments, and others to develop the best standards and practices here in the US. We believe a number of states have put forth the best regulations, and feel requirements must reflect local conditions. At the same time, there are areas were common best practices can be applied. The goal is to assure that these resources are developed in an environmentally responsible way.”

Managing capital costs

The growing cost of capital, meanwhile, could force the global industry to become even more efficient, Lund said. “My personal view is that the oil and gas industry has been quite effective when oil prices are low, and is less so when they’re high. Our companies needs to trim costs along their value chains, including working with our supply and service companies. I think the current cost of capital might also hamper, and perhaps delay, some of the most challenging offshore opportunities, particularly in the Arctic.”

He said Statoil recognizes technology can help its business grow, but also realizes that a step-by-step process sometimes is necessary, particularly when it comes to moving further into the Arctic. “Actually, the world has many Arctics,” Lund said. “We operate our [Snohvit] field without ice, but there are other areas where the industry has to contend with this. We’ve gradually moved activities north since the 1960s as the industry has shown the government it can use the abilities it has acquired.”

In the US, Statoil and other producers are committed with many levels of government and other stakeholders to develop and use the best standards and practices, he said. “We believe a number of states have put forth the best regulations, and feel requirements must reflect local conditions,” he said. “At the same time, there are areas were common best practices can be applied. The goal is to assure that these resources are developed in an environmentally responsible way.

“We’re proud of the progress we’ve made, but we recognize there’s still a lot of work to be done,” Lund continued. “Commercial-scale shale gas and oil are still in their infancy, and it will require the efforts of more than one company. Some progress has been made. North Dakota has a good regulatory system in place, and Statoil is working hard, for example, to help it meet flaring reduction targets. But more can be done, such as encouraging more use of gas locally, particularly in running rigs.”

He said states and the federal government can streamline regulations to enable faster build-out of gas infrastructure. “I’m glad the US Department of Energy is emphasizing infrastructure in its first quadrennial energy review, and we look forward to working with it to help the country’s demand centers get better access to these resources,” Lund said.

Contact Nick Snow at nicks@pennwell.com.

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