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Interview

with Martin Lidegaard, Minister for Climate, Energy, and Building, Danish Ministry of Climate, Energy, and Building

08.02.2013 / Energyboardroom

Under your tenure, Denmark has introduced the highly progressive Energy Agreement last year, which prescribes that Denmark’s energy mix should fully consist of renewables by 2050. Would you begin by sharing your vision for the Danish energy sector and energy supply with our readers?

Why is Denmark, the green state of Europe, is so active in oil & gas? The aim of not only the Danish government, but the entire Danish parliament, is to become fossil-free in national demand. We want to be self-sufficient and prove that it is possible for a modern welfare state to become independent of fossil fuels in thirty to forty years’ time.

We want our heating and power supply to fully consist of renewables by 2035, and we are already half way.

When it comes to exploration and production, Denmark aims to provide some of the cleanest oil & gas in the world. We strive to achieve the most environmentally friendly and safe oil production possible, and we have significantly improved energy efficiency in the process. There will always be a demand for oil, gas and coal as long as it exists; and if Denmark can provide it to the world in the most environmentally safe way, it makes perfect sense.

We could say that our oil & gas revenues are paying for our green transition. When you make a transition to green energy you need capital for upfront costs, before it becomes profitable. This is where our oil & gas revenues play their part.

The prices for fossil fuel will continue to grow: we do not see any contradiction here because in order for Denmark to go green and to become independent from these prices, we need our oil & gas revenues to bolster the transition. Europe is importing 70 percent of its energy and as such, we are different from Asia and America.

The Danish parliament is completely green when it comes to the Danish demand, but we are also in complete agreement that we should be a part of the fossil fuel supply system, as long as international demand remains. In this transition period to green energy by 2050, is there any fear or risk for Denmark to be seen as trying to get rid of dirty energy to the rest of the world?

Denmark has greatly advanced in energy efficiency. Agreements have also been made with oil companies to further improve efficiency specifically in flaring, and other related problems.

To look at the situation pragmatically, if Denmark cuts down production tomorrow, what would happen? Environmental matters in the world would not be affected at all. On the other hand, if we continue to prove that our oil & gas production technologies are environmental friendly, we can contribute significantly in making it a focus for the rest of the world.

It is a controversial issue, and there are non-governmental groups in Denmark that believe we should stop oil and gas production. My point is, fossil fuel production is inevitable as long as there is demand in the world: if Denmark can produce in an environmentally friendly and responsible way, we can set an example and have a positive impact for the rest of the world .

The Danish oil & gas industry generates 9 percent of total Danish exports and provided the state with 30 billion DKK of tax income in 2011, but we feel that attention and awareness in both society, and political circles, is lagging behind. Would you agree, and where is the missing link?

I think that is a fair picture. Just like the rest of the world, the Danes view Denmark as an environmentally conscious, green country. Our oil and gas production is offshore and less visible, but in western Jutland, where we have a lot of employment in the sector, the perception is different.

A crucial development for Denmark is the increasing exploitation of synergies between green energy, and oil and gas. Offshore oil and gas and offshore wind both work under extreme North Sea conditions, and there is a lot of knowledge to be shared in this respect.

I visited Esbjerg recently, the oil and gas capital of Denmark but also the harbor for offshore windmills, and there, practical cooperation is increasingly common in supply chains.

What role will national oil company Nordsøfonden play in further strengthening the Danish oil & gas industry?

The raison d’être of the North Sea Fund is to establish better cooperation between the private sector, private operators, and to determine how we can provide better services for them.

The role of the North Sea Fund is very transparent. Whenever an enterprise wants to explore in Denmark, the Fund will join the project if it is appropriate. It contributes twenty percent of the cost for the project, whilst receiving twenty percent of revenues if successful.

What is crucial for oil & gas investors, with regards to the mature Danish oil fields where extraction is challenging, is that the industry needs stable framework conditions, not just today, but for decades to come.

I hope that the mere fact that the state is engaging itself in projects is a signal that the framework is stable, and that we have a huge interest in saving the investments we made.

How does the somewhat controversial amendment of the North Sea Agreement with Maersk fit in establishing stable framework conditions?

For fifty years the exact form of the framework conditions has been under huge discussion in Denmark. The revenues at stake are large in this industry and can have such an impact on a country and its citizens, leading most democratic countries to debate about how best to use those revenues.

I think the best way to publicly debate is to enlighten ourselves on what is actually happening in Denmark, and what is also happening in other countries with a comparable situation, such as Norway, the Netherlands, and the UK. We should have experts look into whether the income is used in a fair and transparent framework.

It is good that the government reassesses the investment profile every decade. It should not be seen as a sign of a lack of a stable framework, but rather as a signal that we want to make sure we can continue to offer a stable framework in the future.

My role, and the whole purpose of the North Sea Agreement, is to ensure that Danish society and the Danish citizen gets as much benefit from it as possible. That does not necessarily mean more taxes, because if we tax companies out of the North Sea, we would not see revenues at all: it is about finding the right balance. Experts are currently looking at the best way to move forward, and I am completely open to different paths.

Denmark has never had ‘easy oil’, which has led the Danish oil & gas industry to develop a cost-efficient and innovative reputation. Companies like Mærsk Oil are today successfully drilling ultra-long horizontal wells around the world. What role do you envision for Denmark’s oil & gas industry globally, and how can the ministry help increase its impact?

Denmark has made huge improvements in efficiency. The whole history of Danish oil & gas E&P is built on difficult oil, with horizontal drilling that has been developed by the DUC. The main challenge for the industry today is how to further develop such techniques in order to greatly increase our current recovery rate, which stands at around 28 percent.

Each extra percentage point drives a great deal more revenue, but it also requires much greater investment in R&D. This means greater cooperation between companies directly involved in the process, including universities and political circles.

Denmark has huge international potential, and we are developing a new strategy for oil & gas development. This will affect both our national and our export markets. The reason why we are developing this strategy is two-fold. The first reason is that the extreme conditions of production in the North Sea are exactly the kind of conditions that we are increasingly seeing in oilfields around the world. The world has all but run out of easy oil.

Our oil & gas industry is small in comparison to many other countries, but in this area we are specialists. We have something extremely valuable to offer in a world where oilfields are maturing.

The second reason for this new strategy is that there are many synergies between different technologies in Denmark: we have offshore oil & gas, offshore wind, and we are currently developing wave-technology. Denmark is a seafaring nation, and we need to use this strength to drive benefit.

It is during your mandate that the shape & success of the final decades of Denmark’s oil & gas adventure are determined. Where do you ultimately want the Danish oil & gas industry to stand?

I expect and hope to see a 7th exploration round this year. We will provide stable conditions and frameworks, which should increase our chances to attract investors. We are conducting thorough analyzes at the moment, and before the round starts we want agreement within parliament on the framework to secure its stability.

Additionally we are striving to further improve the environment for innovation and to specifically look into how we can prolong production, and give world-class R&D the chance to flourish.

Finally I think we have some of the best oil & gas engineers in the world, due to the specific production circumstances that they face in the North Sea. That is also why the Norwegians buy a lot of the Danish labor.

Denmark has a lot to offer, but we should strive to better promote ourselves and our strategies. For this, we need a more aggressive approach.

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