Storting approves landfalls

Landing these resources in Norway was impossible because of the deepwater Norwegian Trench which hugs the country’s western coast.

Instead, the Storting (parliament) approved ­– by 90 votes to three – that the crude oil and natural gas liquids (NGLs) would be landed at Teesside in the UK while the gas was piped to continental markets via Emden in West Germany.

This decision came decidedly late in the day for Phillips. All the practical preparations had been made, and pipelaying to Teesside began the day after the Storting vote.

Anders Waale, later head of the Phillips office in Oslo, was centrally placed when that landfall issue was debated in the Storting. He shared his personal recollections in an interview with Kristin Øye Gjerde from the Norwegian Petroleum Museum on 2 December 2002.

How did you experience this period?

It was an incredibly interesting phase. We found ourselves in a position we hadn’t foreseen. This was possible a kind of translation problem, although it’s not entirely correct to put it like that either. The licences we’d received in 1965 were termed an utvinningstillatelse, translated as “production licence”. That suggested we had a right to produce.

The regulations admittedly specified that we needed a consent to lay pipelines and so forth, but everyone presumably regarded this as something to do with safety, with the choice of route being compatible with Norwegian government interests, fishing interests and so on. It was not until much later in the process that the Storting established a general rule that oil and gas had to be landed in Norway.

After all, the legal provisions could be interpreted to mean that oil should be landed in Norway by tanker. That wouldn’t have been a problem. The difficulty arose when we began to talk about pipelines for oil (and later for gas).

Many options were available at the planning stage, and we went through a series of phases. It wasn’t possible to lay pipelines to Norway because of the Norwegian Trench, which lies just off the coast and is very deep.

The regulations also required us to be able to repair a pipeline. But we couldn’t lay one because the water was too deep, and we couldn’t repair it even if we’d been able to lay it. That was also beyond the depth range of the technology of the day.

But wasn’t a possible pipeline landfall considered in Norway, outside Egersund?

Considered, yes, but rejected because of the Norwegian Trench, because of the depth. We also, of course, had the amusing episode when the Norwegian Confederation of Trade Unions (LO) suddenly entered the scene and explained that the Trench wasn’t as deep as we thought, because they’d been in Japan and obtained other figures. But it transpired that they were talking in fathoms and we were in metres. They were very embarrassed afterwards that they hadn’t done their homework better.

What about the Goethe committee’s proposal?

This official body was appointed to assess landing options, and came up with a plan for crossing the Trench which involved laying a large pipeline up to the start of the deep water.

That could then be divided up into thinner “spaghetti” piping across the actual submarine valley. This would be less risky than a single crossing, since transport would be able to continue even if something happened to one of the spaghetti lines.

But that was rejected, along with a suggestion to build a big island out on Ekofisk – quite simply a terminal in the middle of the sea.

After all possible studies and assessments had been pursued, the best option was ultimately to land in continental Europe or in the UK.

We had again conducted very detailed assessments. That included establishing two companies, almost to be ready for any eventuality. These were called Norsea Oil AS, og Norsea Gas AS. The first was eventually wound up, but Norsea Gas still exists, and owns the Emden terminal.

The Norwegian government presumably wanted some compensation for allowing the oil to go to Teesside and the gas to Emden?

Now you’re talking almost like the Norwegian authorities. Our view was that the terms in the production licence – paying royalty and so forth, paying tax to Norway, bringing the oil back to Norway and so on, were the conditions determining our right to produce.

We weren’t expecting that this Norwegian phenomenon, a new permit for bringing the resources ashore, would involve further conditions. But that’s exactly what happened, of course.

Some very exciting and difficult negotiations ensued, which have been written about a lot. We negotiated with a committee where Jens Chr Hauge and [Statoil CEO] Arve Johnsen called the tune. Our side included top people from all the companies in the group.

We wanted a landfall in the UK, and were willing to accept certain conditions. But each time we felt we’d accommodated the Norwegian government and that message had gone back to the ministry, even more requirements were introduced. Johnsen is among those who’ve written a lot about this in his book.

Our initial position was that the Ekofisk licence should own the oil pipeline and meet all the costs. But the outcome was that Statoil had to be included. A separate company was established to own the oil and gas pipelines, and was owned 50-50 by the state oil company and the Phillips group.

The group was to be responsible for 90 per cent of the loan capital. Since it also put up half the share capital, the group thereby had to meet 95 per cent of all costs associated with the pipeline but only owned half the company. It was pretty brutal.

What do you mean by half the company and 95 per cent of the capital?

The share capital represented 10 per cent of the investment. Statoil contributed 50 per cent of that and the Phillips group the rest along with the remaining 90 per cent of the capital cost. That came to 95 per cent in total.

Statoil was newly established at that time, after the Storting voted on 14 June 1972 to create it?

Yes, the company had only just got going. This was its first project. It was very difficult. The outcome was unlike anything before or since.

We negotiated the whole time on the basis of an understanding that the Norwegian Limited Company Act would not apply on one point – namely that the chair had a casting vote. It was already agreed that Statoil would provide the pipeline company chair.

If we’d accepted a casting vote for the chair, our views wouldn’t have counted at all and we’d simply have been left with the full exposure in terms of responsibility for the pipeline.

Statoil had no organisation worth mentioning at the time, nor did it have any experience. That it might occupy the driving seat and control our money was just something we couldn’t accept. The banks which were going to lend us money wouldn’t accept it either. That was obviously a very important point.

No casting vote for the chair had been a precondition throughout. So our consternation was naturally very great when we were presented with the final document, the day before it was to be approved by the Council of State [cabinet], which stated that Norwegian law would apply. In other words, the chair would have a casting vote.

We spent a very long evening and night at the Oslo office. The upshot was that, the following morning, then industry minister Ingvald Ulveseth received a visit from Fox Thomas before leaving for the Council of State. Thomas related later that he had entered Ulveseth’s office, waved the envelope, and said something along the lines of “here’s the mailman”.

The letter, agreed unanimously by everyone in the Phillips group, stated that we could not accept a casting vote for the chair under any circumstances. So the White Paper was postponed.

We were therefore in the unique position that the great majority of the journalists had received and read the White Paper, while those who were to discuss it had not.

The industry committee perhaps presumed that the Phillips group would not be so determined in its opposition, but this was essential. An extraordinary Council of State was held, where the White Paper was amended to state specifically that the chair would not have a casting vote.

This was debated by the Storting (parliament) on 26 April. I was in the public gallery and listened to the debate, which ended with an overwhelming majority in favour of the amendment.

I could return to the Bristol Hotel, where all the top executives who had participated in the talks were assembled. They were relieved when I could report that everything was now in order. And suddenly everyone was hurrying to pass that message on to their respective companies.

So pipelaying could get going?

Pipe began to be laid a mere 24 hours after the Storting vote. That’s also unique, of course. It’s not usual in Norway to sit ready and just press the button when you’ve received an official consent. You wait for permission first, and then start to prepare.

But we didn’t have time for such a long-winded procedure. Steel was in short supply at the time, its price was very high, so we had to buy what was needed at considerable cost. Another factor was a shortage of capacity at the various yards.

But we had almost taken it for granted that “something would come out of this”, so we’d prepared by purchasing steel and having pipe produced so that we were ready to start. This meant we could get going as soon as we’d received the green light for the oil pipeline, and later for the gas one.

Both pipelines were considered by the Storting at the same time?

Yes, and we’d done all the preliminary work, secured pipes and laybarges and put all possible equipment in place. So we could start laying at once. In that way, we chopped perhaps a couple of years off the whole project schedule.

The refinery area in Teesside had also been acquired and planned.

That’s right, except that it’s not referred to as a refinery area. It’s a refinery in Teesside owned by ICI [which the Phillips group has equity interests in].

What the Phillips group did was build a terminal. This doesn’t refine anything. It only receives the oil under high pressure, which is then reduced and the crude stabilised.

On the subject of giving something back to Norway, one of the conditions was that we should make available – or ship back to Norway – feedstock in the form of natural gas liquids [NGLs]. This was to be consumed at Rafnes [south of Oslo] by the petrochemical industry built up there.

That represented, in a way, a sweetener provided in return for getting the oil to Teesside. It created jobs and activity in Norway.

Even the ships transporting the NGLs to Norway represented a certain level of activity. The first consignments were carried by the Helge R Myhres Rederi shipping company, with Hera as the first vessel involved. It was built by Moss Rosenberg Verft in Moss. More carriers followed and have served safely and faithfully down to the present day.

Building a gas-fired power station in Norway was surely also under discussion?

It may have been discussed but, don’t forget, to achieve that would have required a pipeline in. That was only possible further north, where the Norwegian Trench flattens out.

Getting the gas across to eastern Norway has also been speculated on many times, but has never led to anything. It was clear to everyone involved in the various committees that the gas market wasn’t big enough in Norway.

The gas could naturally have been liquefied, like they do in Alaska. Phillips has operated a terminal there for many years to send LNG to Japan. Statoil has similar plans [now realised] in northern Norway to export gas from Snøhvit. But that wasn’t a genuine option in those days.

Anders Waale in interview with Kristin Øye Gjerde, 2 Desember 2002