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Interview

with Nicolai Zarganis, Vice President, Danish Energy Agency

06.02.2013 / Energyboardroom

The Danish Energy Agency (DEA) is instrumental in establishing the success of the Danish energy sector. Would you begin by giving a short introduction of the organization to our readers, outlining its main tasks and main responsibilities & synergies with the oil & gas industry?

The DEA is part of the Ministry for Climate, Energy, and Building after having been part of several other ministries over the past decade. Most of the time we have been connected to environment and climate; however we are also connected to industry business and transport.

The Agency has worked in different constellations pursuing energy policy issues, but, at least for the fifteen years that I have been working at the DEA, there has always been a green agenda attached to it.

At the same time we have been through a liberalization process and certainly we also look at the commercial angle of the whole energy sector. Energy is business, but it also has an environmental impact, on the climate, therefore we have to see those different priorities in relation.

Considering both sides is crucial in the way we run the Agency to support the Minister to carry out his energy and climate policy.

Could you give an assessment of the Danish oil and gas reserves and the state of its current oil and gas production?

We have been producing oil & gas in Denmark since 1972. Denmark is today considered a mature area. The country has most likely seen its production peak in both oil & gas. The annual production has been declining since 2004, but we still have significant production of both resources. We expect in the future to have new discoveries and improve the technology so we can increase production from existing fields.

At least for ten years we expect to be net exporter of oil & gas. After that we will still have significant production but probably we need to import oil and gas to cover our consumption

Would you outline the specific infrastructural and technological challenges that Denmark faces today in the field of exploration and production?

The technological challenge is mainly attached to the fact that Denmark never had easy oil: most of our reserves are found in mature chalk reservoirs with an average recovery rate of only 26 pct.

We have also already produced a large part of the resources, so we are going for the more marginal resources in a difficult environment. It seems likely that in the longer run we will go to a larger depth, beyond three kilometers, which will also represent a technological challenge as we reach HTHP conditions.

Denmark’s infrastructure is relatively old as we are a mature producer. The producing companies are considering to update existing infrastructure. bearing in mind the trade-off between keeping the old infrastructure or building new one compared to the probability of finding new resources and how big those would be. In addition for marginal fields to be economic existing infrastructure must be used.

The Danish Energy Agency is preparing a new licensing round in the western part of the North Sea. Could you give us an update of the progress of the organization of this upcoming 7th licensing round and your expectations for the round?

It is the ambition of both the DEA and Minister Lidegaard to organize the round in 2013. We are awaiting the independent assessment of the framework conditions for the exploration activities and that has not been completed yet.

The 2012 Energy Agreement focuses strongly on the role of renewables, targeting an energy mix fully consisting of renewables by 2050. What role is oil & gas expected to play in Denmark’s energy portfolio up to 2050?

We have certainly set very ambitious targets on renewable energy and energy efficiency. Already by 2020, 50% of our electricity consumption should come from wind power alone. Combined with biomass this should lead to about 70% of total electricity consumption to come from green energy eight years from now.

That is more or less double of the current share, so calling it ambitious is justified. After 2020 it is the ambition of our government to move further along the way of more renewables in electricity and heating while introducing renewables directly in industry and, in the long run, in transport.

But, having ambitious targets for renewables up to 2050 means that we also need to use fossil fuels until 2050. They are certainly part of our energy mix until 2050. Today we still use a lot of imported coal for our power plants, which we aim to have stopped by 2030. Natural gas is still used widely for private heating and in our power plants.

Fossil fuels still play an important role. Their role will diminish over time, but in the foreseeable future their role will remain significant in our economy. Therefore the production forecasts from our North Sea fields fits quite well with the introduction of renewables.

How do the oil & gas industry and Denmark’s green agenda co-exist?

Denmark has ambitious policy targets and we try to be at the forefront of global developments both in the conventional and in the green part. We are trying not only to pursue the green ambitions but also to make it interesting for business to operate. We aim to establish framework conditions that simultaneously allow us to take care of the environment, the green agenda, and produce economic growth.

One thing is the issue of using or not using oil & gas, but another is how to explore and use it. We are working with operators to keep their production as efficient as possible in terms of economy but also in terms of not wasting resources or stressing the environment unnecessarily. We are aiming at reducing flaring to a bare minimum and avoiding spills at all times.

How do you expect Denmark’s role as a net oil and gas exporter to develop against this background of decreasing dependency on oil & gas and declining output?

We may be able to prolong the net exporting role for natural gas after 2022, until around 2030. For oil this seems less likely but it is certainly possible.

We just arrived in Denmark but feel that, while the oil & gas industry represents nine percent of exports and boasts some serious potential, the industry does not get the attention from society & politics it would deserve based on its size & importance. Where is the disconnect?

The Danish economy is highly diversified. Yes, the oil & gas industry’s activities create a lot of revenues – 30 billion DKK in tax in 2011 – but it still constitutes just 1 to 1.5 percent of GDP. The industry is very important but we cannot say that without oil & gas we could not sustain our a welfare society at all.

Furthermore, we have to get used to a relatively near future without large oil & gas revenues.

These factors explain part of what you referred to as a disconnect. An other part is more physical: oil & gas in Denmark is largely an offshore activity, taking place in the far western part of the country, on the opposite side of the capital Copenhagen.

Lots of people here do not know anyone who works in the industry. This makes that the industry is not on everyone’s radar. Having said that the industry is important for the economy, but also for the many people working in relation to offshore industries. This is also why we in the DEA and in the industry as a whole have a focus on how to increase the recovery rate.

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?

First and foremost there are great possibilities for Danish companies around the world to apply the expertise gained in the challenging environment of the Danish North Sea. The expertise gives certain Danish companies a competitive edge e.g. as we see with Mærsk in Qatar.

It is today that the shape & success of the final decades of Denmark’s oil & gas adventure are determined. What is the vision of the DEA for the Danish oil & gas industry five years from now?

By then we aim to have had a very successful 7th licensing round that brought new actors into the Danish North Sea. We hope to have found out that there are still significant resources out there, and that some of the collaborative activities between different state- and private actors in developing new technologies have provided new possibilities and extract resources that we are not able to extract today.

DONG Oil & Gas recently had to temporarily give up a big gas field because it was too challenging at the moment. They had to give the license back, but we are hopeful that in the 7th licensing round this field will come into play again, and in a few years a company would devote substantial funds into exploring that field.

This illustrates the challenges of the Danish sector, and this is why we are happy to experience the collaboration between oil companies, universities and government agencies for example with projects like ‘joint chalk research’, ‘PETSYS’ – analysis of Jurassic-sandstone petroleum systems, another example are the NANO research at University of Copenhagen. All examples for the great work being done aiming for efficient use of Danish oil and gas resources.

What is your final message for our readers, for those in international oil & gas community looking at Denmark as a potentially interesting place to invest?

It is still interesting to explore for oil & gas in Denmark, we believe that we still have resources worth looking for and developing. We are awaiting stable framework conditions and are not opening the 7th licensing round without knowing exactly what these conditions will look like. Furthermore, new companies can leverage the significant resources and expertise present in both our institutions and companies.

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