|Fig. 1: Norwegian oil production versus time.|
It was Christmas 1969 when the enormous Ekofisk oil field was discovered in the Norwegian part of the North Sea. A surge in exploration activity quickly followed and oil was found in the North Sea, the Norwegian Sea and recently in the Barents Sea. The small nation of Norway became the third largest oil exporter in the World. [1,2] However, the Norwegian oil production peaked in 2001 at 1.13 billion barrels. By 2009 the production had gone down to 726 million barrels.  The important question is then how many years Norway has left as an oil exporting nation.
Forty years of oil and gas production has produced values of $1.2 trillion for Norway and the petroleum sector accounts for 22% of Norway's GDP.  The petroleum industry has enabled one of the most extensive welfare systems in the world, with free public health care and generous disability and unemployment benefits. To provide a buffer when the petroleum revenues decrease the Government Pension Fund was established in 1990 and its current value is over $500 billion.  The so-called spending rule, made effective in 2001, states that only the real returns of the fund (estimated to be 4% per annum) should be spent in the national budget, thus saving oil wealth for future generations.
Fig. 1 shows Norwegian production of oil and condensate from 1971 to 2008. It can be clearly seen that the production peaked in 2001 and has declined since then.
The Norwegian Petroleum Directorate estimates that there are 17.6 billion barrels of oil remaining in Norwegian seas, of which 7 billion barrels are projected discoveries.  The number for projected discoveries carries an especially large uncertainty, as these resources have not been confirmed by drilling. The projected discoveries include resources in areas such as the sea outside Lofoten and parts of the Barents Sea where no significant exploratory drilling has been done. The parts of the Barents Sea where Norway and Russia have overlapping claims for sovereignty are not included in these estimates.
Using the naïve assumption that oil production will remain constant at 2009 level, Norway has 24 years left as an oil producing nation. However, it is more likely that the production will slowly dwindle over a longer period of time. The Norwegian Petroleum Directorate (NPD) forecasts petroleum production (in terms of oil Equivalents, meaning that natural gas is taken into account) to remain roughly constant until 2020.  Norwegian oil production has been dropping steadily since 2001, and will continue to do so, but the production of natural gas is steadily increasing. Based on the export values for oil and gas from Norway and that the gas price per oil equivalent is approximately 35% of the oil price per oil equivalent I estimated that about 75% of the value created from the petroleum industry is from oil. Therefore, a large increase in natural gas production is required to make up for the loss of oil revenue.
In April 2010, Norway and Russia settled a 40 year old border dispute over parts of the Barents Sea, which extends from the northern tip of Norway.  The treaty will allow for exploratory drilling in a previously unexplored area with vast potential petroleum reserves, though geological surveys indicate that the majority of the reserves on the Norwegian side of the Barents Sea are natural gas.  The treaty will have to be ratified in the Russian duma before exploratory drilling can begin in this area. In the undisputed parts of the Barents Sea several companies, including Statoil, are ready to start exploratory drilling. 
The melting of the polar ice caps has opened vast areas of the ocean for exploratory drilling and potential oil production. As much as fifth of the world’s remaining oil reserves may be in the Arctic.  However, extraction of the oil will be difficult with rough weather conditions and sea ice. Another major roadblock is political - USA, Canada, Norway, Denmark and Russia are all claiming sovereignty over parts of the Arctic. In 2006, Norway submitted a claim to the UN for the 'Banana hole' in the Norwegian Sea, the Western Nansen Basin in the Arctic Sea and the Loop Hole in the Barents Sea. The claims for the Banana Hole and the Western Nansen Basin were supported by the UN in 2009, and are now part of the Norwegian seas.  The dispute over the Loop Hole with Russia has later been resolved in the treaty mentioned above.
Unless major discoveries are made in the unexplored areas of Norwegian seas, the Norwegian oil reserves have an estimated lifetime of about 30 years. The decline in oil income will be partially covered by increased gas production, but the revenue from petroleum is expected to decline rapidly from 2030 onwards.
© 2010 Nils Johan Engelsen. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
 "Key World Energy Statistics," International Energy Agency, 2006, p.11.
 E. Ekman, "Trouble Brewing in Oil-Rich Norway, New York Times, 18 Nov 05.
 "Facts 2010 - The Norwegian Petroleum Sector," The Norwegian Petroleum Directorate, 5 Jul 10.
 "Fund Tops 3 Trillion Kroner For First Time," Norges Bank Investment Management, 19 Oct 10.
 "Petroleum Resources on the Norwegian Continental Shelf 2009," The Norwegian Petroleum Directorate, 10 Sep 09, p. 14.
 W. Gibbs, "Russia and Norway Reach Accord on Barents Sea," New York Times, 27 Apr 10.
 H. Harbo, "Jakter etter olje i Barentshavet-igjen," Aftenposten, 11 Nov 10. (Norwegian)
 M. McCarthy, "Riches in the Arctic: the New Oil Race," The Independent, 25 Jul 08.
 "The Extent of Norway's Continental Shelf in the High North Clarified," Norwegian Ministry of Foreign Affairs, Press Release, 15 Mar 09.