July 3, 2017 / 11:47 AM / 2 months ago

Low oil price hurts Norway's economic case for northern drilling - report

OSLO, July 3 (Reuters) - Low oil prices mean drilling for oil and gas in an offshore zone between Russia and Norway will not bring the economic benefits Oslo had predicted, according to a report commissioned by two green groups that are suing the Norwegian state over its plans.

The Nordic country wants to open up new areas for exploration in the north of the country to offset declining oil production in the south. Oil production is Norway's leading industry, accounting for 20 percent of its economy.

A key part of the drive is to open up a border zone between Russia and Norway to oil firms, called the Barents Sea South East, after a 2010 deal that ended four decades of disagreement over the border.

A report commissioned by environmentalist groups Greenpeace and Nature and Youth, which oppose oil activity in the Arctic, said drilling in the zone would not bring as many economic benefits as the Norwegian government expects it would.

The report by Mads Greaker, a senior researcher at the Norwegian statistics agency, and Knut Einar Rosendahl, a professor at the Norwegian University of Life Sciences, criticised an assessment made by the government in 2012-2013.

Among its criticisms, it said the government assessment was based on an oil price of $120 per barrel against $48 on Monday.

"If we assume more reasonable price expectations, consider costs CO2 emissions in Norway, as well as discount future revenues and expense, the net benefit falls from 280 billion crowns ($33.37 billion) - high scenario - and 50 billion crowns - low scenario - to 41 billion crowns and a loss of 2 billion respectively," said the report.

"These are significant changes," it said.

Greenpeace and Nature and Youth are suing the Norwegian government over its latest oil licensing round, accusing it of infringing the Norwegian constitution by not protecting nature for future generations. The court case starts in November.

Norway's Oil and Energy Ministry declined to comment on the report, citing the upcoming court case and the inclusion of the report in the evidence to be submitted to the court.

On June 21, the state offered a record number of blocks in the Arctic Barents Sea.

Read the report here: bit.ly/2tI8AuM

Reporting by Gwladys Fouche; Editing by Edmund Blair

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