US embassy cable - 06OSLO140

HIGH NORTH ENERGY, IRAN INVESTMENTS, RUSSIAN GAS: NORWEGIAN ECONOMIC HIGHLIGHTS, JANUARY 2006

Identifier: 06OSLO140
Wikileaks: View 06OSLO140 at Wikileaks.org
Origin: Embassy Oslo
Created: 2006-02-10 13:28:00
Classification: UNCLASSIFIED
Tags: ECON EPET ENRG EFIN ETRD SENV NO
Redacted: This cable was not redacted by Wikileaks.
This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS  OSLO 000140 
 
SIPDIS 
 
 
STATE FOR EUR/NB RDALLAND; EB/ESC SGALLOGLY, RGARVERICK, FDOWDY 
COMMERCE FOR 4212 MAC/EUR/OEURA 
DOE FOR S-3 GBISCONTI, PI FOR DCONOVER, JBRODMAN, EROSSI, LEKIMOFF 
PARIS FOR OECD 
 
E.O. 12958: N/A 
TAGS: ECON, EPET, ENRG, EFIN, ETRD, SENV, NO 
SUBJECT: HIGH NORTH ENERGY, IRAN INVESTMENTS, RUSSIAN 
         GAS: NORWEGIAN ECONOMIC HIGHLIGHTS, JANUARY 2006 
 
------- 
Summary 
------- 
 
1. (U) * Developing the Barents Sea as a new oil and gas 
province will be of global importance, underscored 
Statoil Chief Executive Helge Lund.  Statoil's Snoehvit 
project is building a new energy bridge to the United 
States and Europe and bringing greater employment and 
prosperity to northern Norway. 
 
* Italian petroleum firm ENI hit commercial amounts of 
oil in the Barents Sea's "Goliat Field, the second 
commercially viable strike in the Barents after Statoil's 
Snoehvit gas field. 
 
* Norway and Russia may cooperate on oil and gas ventures 
beyond the Barents region.  Speaking in Moscow, Norwegian 
Petroleum and Energy Minister Enoksen encouraged Russian 
companies to participate in Norwegian energy projects. 
The head of Russia's Federal Energy Agency went further, 
stating that Russia would like to see joint Norwegian- 
Russian ventures around the world, not just in the 
Barents region. 
 
* Norway is currently producing all the natural gas it 
can and is unable to fill a gas supply gap in central 
Europe.  Norway has plans to increase gas output by 50 
percent over the next five years as the Snoehvit field in 
the Barents Sea comes on line. 
 
* Statoil announced a $240 million write down in the 
value of its share of the Iranian South Pars gas field. 
Cost increases from contractor Sadra and delays in 
production of platform topsides and platform-to-shore 
pipelines led to the downward adjustment. 
 
* Seven multi-nationals have been excluded from the 
Norwegian Government Pension (formerly Petroleum) Fund, 
including Boeing, Northrup/Grumman, United Technologies, 
and Honeywell, after the Fund decided to divest from 
companies involved with nuclear weapons programs. 
 
* A U.S. nutrition journal has warned of the dangers of 
eating large amounts of farmed fish, particularly salmon, 
citing dioxin and PCB levels.  The Norwegian Food Safety 
Authority has pulled some smoked salmon from Norwegian 
shelves after finding nitrates in the product. 
 
* Norwegian and Russian officials agreed to continue 
discussion on ending Russia's month-long ban on fresh 
Norwegian fish following meetings in Berlin. 
 
* Norway plans to spend $3 million to protect the world's 
flora with a seed bank in the Svalbard archipelago.  The 
bank would help ensure genetic diversity is maintained in 
the event of a global environmental disaster, but would 
also serve as a depository for researchers. 
 
* High petroleum prices resulted in a record Norwegian 
trade surplus - $46 billion - in 2005. 
 
* Economic Outlook: According to official projections, 
continued low interest rates will contribute to slower 
but steady growth in the Norwegian economy. 
 
End Summary. 
 
Statoil:  Barents Petroleum of Global Significance 
--------------------------------------------- ------ 
 
2. (U) Developing the Barents Sea as a new oil and gas 
province will be of global importance, underscored 
Statoil Chief Executive Helge Lund at the annual 
Confederation of Norwegian Business and Industry 
conference in Oslo January 4.  Lund, noting International 
Energy Agency forecasts that world energy demand will 
rise by about 50 per cent before 2030, predicted that 
 
 
Barents oil and gas resources would play an important 
role in securing the USA's and Europe's future energy 
supplies.  Lund drew attention to the developing energy 
bridge between Norway and the U.S., stressing that half 
of the LNG from Statoil's Snoehvit field will be exported 
to the United States.  Lund pointed out that the Snoehvit 
field has significantly improved employment conditions in 
Norway's northernmost counties.  Roughly 13,000 people 
have been involved in work at the Hammerfest LNG plant, 
including 3,500 people from the northernmost counties. 
 
Italian Firm Hits Oil in the Barents Sea 
----------------------------------------- 
 
3. (U) The Norwegian Petroleum Directorate (NPD) 
announced on January 5 that ENI Norge, the Norwegian 
subsidiary of Italian oil company ENI, discovered 
significant oil and gas reserves in the Goliat field in 
the Barents Sea near Hammerfest.  The oil reserves are 
estimated at 100 million barrels, enough to make the 
field commercially viable.  This is the second 
commercially viable strike in the Norwegian Barents, 
after Statoil's Snoehvit natural gas field. 
 
Growing Norwegian-Russian Oil/Gas Cooperation 
--------------------------------------------- -- 
 
4. (U) During a visit to Moscow January 23-26, Norwegian 
Petroleum and Energy Minister Odd Roger Enoksen stated 
that Norwegian companies are already working in the 
Russian oil and gas sector and that cooperation and 
participation of Russian companies in development of 
Norwegian deposits could be mutually beneficial.  No 
Russian companies currently hold shares in any Norwegian 
oil and gas producing assets (though several Russian 
service companies are qualified to do business in the 
Norwegian Continental Shelf.)  Enoksen stressed that "one 
of the fundamental aspects of the Russian-Norwegian 
energy dialogue is the stimulation of cooperation between 
our oil and gas companies."  On January 25, the head of 
Russia's Federal Energy Agency, Sergei Oganesyan stated 
that Russia values Norwegian expertise and would like to 
see joint ventures around the world, not just in the 
Barents region's Shtokman field.  He further complimented 
Norwegian firms for their expertise in environmentally 
sound offshore and deep water drilling. 
 
Norway's Gas Production at Full Capacity 
-------------------------------------- 
 
5. (U) Norwegian officials say the country is unable to 
fill a gas supply gap in central Europe. "We are 
producing at full capacity.  Therefore, we cannot do 
anything about it for the time being," Norway's Petroleum 
and Energy Ministry spokeswoman Trude Larstad told 
reporters.  Norway's gas pipeline system is delivering 
near record volumes - 270 million cubic meters per day - 
to the European continent and Britain.  Norway plans to 
increase gas output by 50 percent in the next five years 
by expanding production and transport facilities on the 
Norwegian Continental Shelf.  Over the past five years 
Norwegian gas exports have increased from 50bcm (2000) to 
80 bcm (2005).  Norway's goal is to produce 120bcm by 
2011. 
 
Statoil Writes Down Iran Gas Investment 
--------------------------------------- 
 
6. (U) Statoil announced a $240 million write down in the 
book value of its share of the Iranian South Pars gas 
field.  Productivity and quality problems with Sadra, the 
contractor responsible for engineering, procurement, and 
construction of platform topsides and pipelines, led to 
the downward adjustment.  According to Statoil, 
strengthening of management resources and technical 
expertise at Sadra will be required, and the possibility 
of transferring parts of the remaining work to other 
contractors will be explored.  Statoil had estimated 
 
production of 10,000 barrel equivalent in 2007 from the 
project; production is now expected to begin in the 
second half of 2007.  Statoil owns 40 percent of the 
venture, with Iranian firm Petropars owning the rest. 
Statoil Chief Executive Helge Lund stated that Statioil 
will focus on expanding its international business 
operations in other countries, as conditions for doing 
business in Iran are "challenging." 
 
Norway Excludes Companies from Its Oil Fund 
------------------------------------------- 
 
7. (U) Norwegian Finance Minister Kristen Halvorsen 
announced on January 5 that seven global companies - 
including U.S. firms Boeing Co., Northrup Grumman, United 
Technologies, and Honeywell International Inc. - have 
been excluded from Norway's Government Pension (formerly 
Petroleum) Fund.  The Fund decided to divest from 
companies involved in nuclear weapons programs.  The 
other companies are:  Britain's BAE Systems Plc, 
Finmeccanica Sp.A of Italy, and Safran SA of France.  The 
Fund last year formed Ethics Council that reviews the 
ethical implications of owning shares in certain foreign 
companies.  Finance Minister Halvorsen said the latest 
review resulted in selling off $500 million worth of 
shares in the seven companies.  "This does not exclude 
the possibility that there are more companies, but that 
will be an ongoing process," Halvorsen said.  The Fund's 
value topped the $200 billion mark at the end of last 
year.  Embassy has been working with the American Chamber 
of Commerce and concerned companies to address the 
investment blacklisting issue. 
 
Salmon: Health Warnings . . . 
----------------------------- 
 
8. (U) The U.S. Journal of Nutrition recommends that 
consumption of farmed salmon be restricted to three meals 
a year.  The Journal warns that high intake can lead to a 
variety of health ills (e.g., cancer and birth defects) 
because of high levels of PCBs (Polychlorinated 
Biphenyls) and dioxins.  The toxin levels reported by the 
U.S. scientists are similar to those found by the 
Norwegian Food Safety Authority (NFSA), but while the 
U.S. scientists conclude the levels pose a health risk, 
the NFSA maintains that the fish are safe.  Health 
officials in the E.U., Japan, and Singapore have 
pronounced Norwegian salmon safe to eat.  The Norwegian 
Food Safety Authority reported a second possible health 
problem with Norwegian salmon after discovering that 
smoked Norwegian salmon producers were using unauthorized 
nitrates as a color enhancer.  The EU bars nitrates in 
fish as a food additive.  The Food Safety Authority 
announced that the products were withdrawn from the 
market and the processors have stopped using nitrates. 
 
. . . and More Talks with Russia. 
--------------------------------- 
 
9. (U) Norwegian Minister of Agriculture Tere Riis- 
Johansen met Russian officials in Berlin January 12 to 
urge Russia to lift its recent ban on Norwegian fresh 
fish.  Although they found no resolution, the officials 
decided to set up a bilateral work group on food safety 
issues.  Further talks between Russian officials and the 
Norwegian Foreign Minister are scheduled for February. 
Russia is the largest single market for Norwegian seafood 
products.  Seafood sales to Russia rose nearly 50 percent 
in 2005 to $500 million.  Producers say the impact of the 
ban has been tempered by substituting frozen fish exports 
for fresh fish.  Seafood is Norway's third largest export 
commodity ($4.7 billion in exports in 2005); farmed 
salmon exports rose 26 percent in 2005 to $1.6 billion. 
 
Norway Plans "Doomsday" Seed Store for Future 
--------------------------------------------- ----- 
 
10. (U) Norway plans to build a "doomsday vault" in 
 
 
Svalbard to store two million crop seeds to safeguard 
future food supplies in the event of widespread 
environmental collapse.  According to the Norwegians the 
number of seeds and types of plants would be determined 
by the countries wishing to use the seed bank, which 
would be operated as if it were a bank vault.  Permafrost 
will keep the vault below freezing point and the seeds 
will be further protected by three foot walls of 
reinforced concrete, two airlocks and high-security, and 
blast-proof doors.  The $3 million facility will not be 
permanently manned. 
 
High Oil Prices Boost Norway's Trade Surplus to Record 
--------------------------------------------- ---------- 
 
11. (U) High petroleum prices resulted in a record 
Norwegian trade surplus - $46 billion - in 2005. 
According to the Central Bureau of Statistics, total 
exports of goods amounted to $100 billion, up 20 percent 
from 2004.  Imports of goods in 2005 rose nine percent to 
$53 billion. 
 
Economic Outlook:  Slowing Growth 
--------------------------------- 
 
12. (U) Norway's Central Bank forecasts that continued 
low interest rates will help sustain the nation's 
economic growth.  However, decelerating offshore oil and 
gas investment this year could contribute to slightly 
slower growth.  The Central Bank projects that 2006 real 
mainland GDP growth will decline to 3.3 percent from 3.9 
percent in 2005, with even slower growth (2.5 percent) 
forecast for 2007-2008. 
 
----- Key Economic Indicators for Norway [a] ------ 
 
- GDP Growth: 
                          Volume Growth [Pct] 
Category                2004  2005  2006 2007 2008 
--------                ----  ----  ---- ---- ---- 
Private Consumption     4.4   3.8   3.8  2.5  2.3 
Public  Consumption     2.3   1.8   2.0  1.8  3.0 
Oil and Gas Investm.   12.3  20.0   2.5 [2.5][5.0] 
Mainland Invest.        6.1   7.8   6.0  3.3  2.5 
Exports                 0.9   3.5   2.7  3.5  3.3 
Imports                 9.1   7.3   4.5  2.3  1.8 
--------------------------------------------- ----- 
Mainland GDP            3.5   3.9   3.3  2.5  2.5 
--------------------------------------------- ----- 
Total GDP               2.9   2.5   2.8  2.3  2.3 
--------------------------------------------- ----- 
- Unempl. Rate[Pct][b]  4.5   4.5   4.0  4.0  4.0 
- Inflation   [Pct][c]  0.4   1.5   2.0  2.0  2.5 
- Wage Growth [Pct]     3.5   3.5   4.3  4.5  4.5 
- Int.Rate [M.Mkt;Pct]  2.0   2.1   2.2  2.2  2.4 
Current Account 
  Balance [NOK Bill]    228   319   416  366  356 
- Crude Oil Price  [d]  257   356   368  311  312 
- Foreign Exch. Rate 
  [NOK/USD]             6.7   6.4 
- U.S. Exports to 
  Norway [USD Bill][e] 1.60   1.83 
- U.S. Imports From 
  Norway [USD Bill][e] 6.51   7.01 
--------------------------------------------- ------ 
Notes: [a] Sources: The Ministry of Finance; The 
Norwegian Central Bureau of Statistics [CBS]; The Central 
Bank; [b] Surveyed unemployment; [c] Consumer price 
inflation; [d] Brent Crude Spot Price: NOK/Barrel; [e] 
Source:  USDOC 
 
WHITNEY 
 
 
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