Environmental Law the Norwegian Oil and Gas

Environmental Law

The Norwegian Oil and Gas Industry: Relatively Successful

Norway became an oil producer when it drilled a hole into the continental shelf off its shores on June 15, 1971 (Law Library of Congress 2010, p. 1). Since then the Norwegian oil industry has become the country's largest sector, representing 26% of economic production in 2006. Norway was the ranked fifth in the world for oil exportation in 2009 and the largest in Europe. Although oil production has begun to decline in recent years, the reserves off its coast remain the largest in Europe (Business Monitor International 2013). Norway is the second leading gas exporter after Russia, primarily because domestic use is low given the heavy reliance on hydropower.

Concerns about a possible drilling disaster were voiced soon after the industry began developing the offshore oil fields. A 1976 report in The Guardian claimed that the oil industry would be powerless to quickly resolve accidents (Goldsmith 1976). Estimates at the time suggested that it would take at least five months to fix a blowout, but in the meantime 10,000 tons of crude would enter the North Sea each day. Given Norway's fishing industry, such an oil spill would be devastating to both the environment and the nation's economy.

Norway's legislature responded by implementing some of the strictest policies and statutes governing its oil production industry (Law Library of Congress 2010). The Norway Pollution Control Act of 1981 established provisions to prevent and limit pollution. The costs for implementing these measures would also be the sole burden of the oil producers. In essence, this act required the oil industry to prevent oil spills. The Petroleum Activities Act (PAA) of 1996 established the liabilities for acute spills under Norwegian jurisdiction, whether offshore or on land. Under the PAA the licensees are responsible for the costs associated with any spill, including stopping the leak, cleanup, and damage to the fishing industry. Even if the person or persons who cause the leak are not licensed, they are still held legally liable.

Criminal penalties can also be assessed to any person deemed to have willfully ignored PAA provisions, including prison time (Law Library of Congress 2010). Licensees are also required under the PAA to carry sufficient insurance to cover damage to oil production facilities, cleanup costs associated with pollution, recovery of wrecks, and employees. Licensees are also required to ensure that all subcontractors are appropriately insured. These and other requirements imposed upon oil and gas producers are covered by a long list of additional regulations.

The government of Norway has ample opportunities to set industry standards because it has invested heavily in the oil and gas production industry (Law Library of Congress 2010). Norway is a major shareholder in StratoilHydro ASA (62.5%), Petoro ASA (40%), and Gassco AS (Business Monitor International 2013). The major private producers are ExxonMobil and Total. A double carbon tax was imposed on offshore oil producers in 2012, which tends to limit exploration and development to the major players. To offset the tax disincentive, however, Norway will cover oil and gas exploration costs on the Norwegian Continental Shelf. Norway has implemented strict environmental laws and when combined with tough labor regulations the incentives for gas and oil exploration are balanced by capital expenditures.

Norway is considering opening up prospective oil and gas fields above the Arctic Circle, while at the same time promising to implement tougher environmental and safety regulations (Business Monitor International 2013). For example, government representatives have asked oil producers to develop technology that will detect and prevent oil leaks before being allowed to into these areas. Such regulations would tend to limit any enthusiasm that oil companies might have for entering into what everyone agrees is a fragile environment.