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Norway's Catastrophic Oil & Gas Dilemma
Are they being hypocritical or pragmatic?
Norway just gave the green light to tens of billions of dollars worth of new oil and gas fields. This flies in the face of their desperate attempts to curtail international fossil fuel expansion at COP27. At face value, this move seems hypocritical, morally wrong and massively anti-climate action. But things are a lot more complex than that. You see, this new gas supply has the potential to help the EU fend off Russia and give the EU the headwind it needs to entirely switch to renewables. So, why did Norway greenlight this expansion? Is it a step in the wrong direction? Or has Norway just saved Europe?
Let’s start at the beginning. About a week ago, Norway’s government announced that it had approved the development of 19 new oil and gas fields, with investment in this expansion exceeding $18.5 billion! This expansion started back in 2020 when Norway’s oil and gas industry was experiencing a slump, so they gave out tax cuts that incentivised growing the industry. Around 19 companies applied to develop yet untapped oil and gas fields (also known as unabated fossil fuels), and it has taken three years for these applications to be submitted, processed and accepted.
This might sound like a surprising move for Norway, who is seen as a very climate-progressive nation. They are leaders in renewables and EV adoption and a vocal supporter of rapid international decarbonisation. But there is a flip side to this. Norway is rich in oil and gas reserves, and 4.3% of its economy is tied up in this industry. What’s more, the funds it used to rapidly adopt EVs and develop renewables infrastructure came from its wealthy fossil fuel industry. So, to keep its economy afloat and support its net-zero transition, counterintuitively, Norway has to keep its fossil fuel industry afloat.
This is in stark contrast to Norway’s long-term plans. They have set themselves world-leading targets to phase out oil and gas and have been hailed as a trailblazer for this. Moreover, at COP27, Norway tried and failed to get an international agreement to ban fossil fuel expansion into unabated (untapped) reserves. This was in accordance with an IEA report, which stated that all future fossil fuel projects must be scrapped to meet the global target of net-zero carbon emissions by mid-century. This makes Norway one of the few countries taking proportionate action based on current scientific understanding.
Some see this duality as hypocritical, and in a way, they are 100% correct. But Norway is having to pull off a political and economical 360 that could be catastrophic if done incorrectly.
Take their call to ban unabated fossil fuels. If this bill passes, then their gas reserves will become more valuable over time as the international natural gas supply dwindles. This would allow them to phase out gas without damaging their economy, as the industry would become more profitable per unit of gas, meaning their overall profits and portion of GDP can stay the same while their overall oil and gas industry shrinks. Now, Norway’s renewable energy and EV expansion is subsidised and paid for by their fossil fuel profits, so keeping their oil and gas industry profitable for longer means they can fully develop their renewable and EV industries to the point where they are large enough to replace the oil and gas part of their economy and reach net-zero without committing economic and political suicide.
Now, if they tried to do this transition without the international ban on expansion into unabated reserves, they would financially struggle, and the expansion of their renewable industry could falter or even grind to a halt.
But we also have to consider Russia.
Before Putin decided to claim back his old USSR territories, Russia was, by far in a way, Europe’s biggest natural gas supplier. In 2020, they supplied 155 BCM (billion cubic metres) of natural gas to the continent, accounting for 45% of their total supply. This made Europe heavily dependent on Russian gas. But, thanks to sanctions and Putin using this dependency for energy blackmail, Russia’s gas supply to the EU has fallen to 80 BCM.
However, the EU want to take this down to zero. Why? Well, firstly, the EU desperately wants energy independence. Energy security (how reliable the energy grid of a country is) is closely tied to economic growth; in a modern world, you can’t have one without the other. Putin’s natural gas debacle has shown the EU just how dependent they are on energy imports and how weak this can make them on the international stage. Instead, they want to ensure all energy comes from within their borders and within their control to ensure they can boost their international standing and national security.
But there is also another reason. The Kremlin owns all the Russian natural gas companies, so the profits of this 80 BCM gas supply directly fund the war they are trying to stop by supplying and funding Ukraine. This is akin to a null-sum game and is morally all over the place. So, it makes sense for the EU to ensure none of its actions fund the Kremlin.
Now, the EU wanted to turn to renewables to replace the Russian gas, keep the lights on, keep the economy ticking over and boost energy independence. Why? Well, renewables are cheaper per kWh than fossil fuels or nuclear power, and because they don’t require any fuelling, they are inherently good for energy independency (that is, if you ignore the issue of where renewable infrastructure comes from, which I have written about here).
But, the amount of renewables they would need to replace Russian gas is vast! One BCM of natural gas contains 100,000 MWh of energy, meaning the EU imported 15,500,000 MWh of energy from Russia each year. Now, a 1 MW solar farm takes up around 8 acres of land and produces around 2,146 MWh of energy per year in the EU. That means replacing Russian gas with renewables would take 57,782 acres of land or 90 square miles, which is a little less than the land area of Paris.
Now, it takes about a month and a half to build an MW of solar farm, and it costs around a million US dollars. This means this Russian replacement solar farm would cost $7 billion and take many years to build (you would have to hire and train an entire workforce it get it done in any sensible amount of time). It would also take vast costly, and lengthy changes to the EU energy infrastructure to switch from natural gas power to solar.
Now, while $7 billion is significantly less than the $18.5 billion that has been sunk into the Norwegian expansion, the cost is still a barrier to this hypothetical Russian replacing solar farm. You see, despite the staggeringly low cost of renewable energy, fossil fuels are still far more profitable per dollar invested in them. As such, raising $18.5 billion for new oil and gas fields is far easier than raising $7 billion for renewables.
The time frame is also a significant barrier. The EU needs to replace this shortfall in energy, and fast! Otherwise, it will significantly hamper their economy, and with a crashed economy, the EU is worse off, and they will struggle to invest in the infrastructure to meet these ever-looming climate targets. They can’t wait for the years it will take to build these new renewables. Instead, to ensure energy security and the buoyant economy and funds it will take to transition to net-zero, they can fill this gap by expanding the EU gas supply while they wait for renewables to be built.
Expanding gas is far easier and quicker than building new renewables, even if it is more expensive. This is where Norway comes in. They are now the EU’s largest gas supplier, delivering 122 BCM annually, or around 30% of the total supply. These new gas fields will ensure Norway can keep this supply consistent for at least the next few years and infill the shortfall caused by the decline of Russian gas.
As such, Norway’s gas exports are literally propping up European energy grids, keeping the EU economy ticking over, and ensuring European energy security and national security. This recent massive expansion means they can continue to fulfil this vital role while the EU develops its renewable supply to a level where fossil fuels are no longer needed.
So, the question has to be asked, is Norway expanding its oil and gas industry an anti-climate move?
It certainly didn’t originate from morally clear motives, but this expansion is helping to fend off Putin and ensure the EU has the ability to grow its renewable energy supply and try to meet its climate targets. But this is also pushing us past our climate targets (according to the IEA report) and going against the advice of climate experts. What’s more, it could lead to energy complacency and actually slow the expansion of renewables. After all, if energy demand is being met, there is little incentive to rapidly expand supply. Bearing in mind here that a recent IRENA report found that investment in renewables needs to quadruple if we are to meet our climate targets, so we can’t afford to slow their expansion, even by a little. So, is Norway being hypocritical or pragmatic? The answer isn’t clear because there isn’t a clear morality. Yes, you can have a black-and-white viewpoint and say what Norway is doing is utterly deplorable, and you’d be right. Or you can take the practical, more flexible viewpoint and say that if this still gets us to net-zero, it’s okay, which is also right. We are a society in transition, our past wasn’t moral or responsible, and it will take time and effort to change that. Until then, compromises have to be made; otherwise, the fabric of our cultures and societies will tear. While that doesn’t sit easily with me, at least I can still see a pathway to a better future.
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Sources: Climate Change News, Reuters, DW, SP Global, Consilium, Frontiers, WE Forum, IMF, Elsevier, ECFR, ECFR, Energy Post, Freeing Energy, Renewable Energy Hub, Solar Reviews, YSG Solar, The Guardian