How should we make a living (after the oil runs out)?

"How should we make a living (after the oil runs out)?" has become a common topic of conversation in Norway and not least in Northern Norway. Fortunately, this is a question that has plenty of answers. The long Norwegian coastline and in particular the Arctic coast provides unique opportunities for sustainable processing of local minerals, metals and other raw materials. This can be accomplished by using natural gas, plentiful green electricity from hydropower and wind power, or hydrogen. Northern Norway is close to Europe, which has become more aware of its strategic vulnerability: The continent consumes close to 20 percent of the world’s minerals and metals, but only has three percent of the world's known reserves. During the three to five ice-free months of the year, Northern Norway is also located close to the major markets in China, Japan and Korea via theNorthern Sea Route (NSR). In order to develop new legs to stand on in the years ahead, the authorities must cooperate with the business community to realize these opportunities. We are embarking on one of the most exciting periods in the history of Northern Norway, and in the Tschudi Group we look forward to take part in it, both through a strong commitment to the reopening of theSydvaranger iron ore mine in Kirkenes and through logistics and port solutions for the Northern SeaRoute and the region.

Increased degree of processing

Processing should, logistically speaking, take place where the input factors exist, and especially where the necessary energy can be obtained in a way that is both economically and environmentally sustainable. This represents new opportunities for the High North. There are onshore minerals and metals deposits along almost the entire Arctic coastline, while there are hydrocarbons in the form of natural gas both onshore and offshore. The region has better conditions for wind power at sea and on land than anywhere else in Europe. This allows for sustainable processing of resources locally, with a low environmental footprint from transport and production. At the same time, the products coming out of the region could become more processed, thus achieving a higher value and lower volatility. For example, pelletization of Sydvaranger's iron ore concentrate could have given it the extra margin needed to survive until iron ore prices rose again during 2016. Thus, the closure of the mine at the end of 2015 could probably have been avoided.

Climate change in the Arctic is a grave and existential threat. Low-CO2 minerals extraction and processing in the Arctic could be an example of a win-win situation - both for the environment in the form of lower CO2 emissions, and for the people who live there, through new economic activity making the region economically attractive. In this way the population will get a better and broader private sector that will attract more inhabitants to the demographically challenged northern areas in the long run.

Oil and gas

There have been mixed results from the search for oil and gas in the Norwegian part of the BarentsSea during the past ten years. The more extensive development in the Arctic has taken place on theRussian side of the border. The giant Yamal LNG project, with Russian, Chinese and French partners, was decided upon, financed and implemented during a six-year period. The project was realised despite many challenges, including financial sanctions and difficult geographical and climatic conditions. This very large project has worked as a catalyst for a number of associated activities such as an increased year-round transport capacity westwards towards Europe via Norwegian waters, but also eastwards via the NSR. Construction of more large, floating LNG plants, partly developed inNorway, is in progress. Such projects can have major ripple effects in Norway as well. An example of how Norwegian and Russian companies can cooperate with regard to Arctic logistics and infrastructure, was the completion of the world's largest LNG transhipment operations of more than20 million cubic meters of LNG transferred from icebreaking to conventional LNG carriers managed by Tschudi Arctic Transit for Yamal LNG in Honningsvåg in 2018, 2019 and 2020. Such positive news is rarely reported and discussed outside of Northern Norway. Instead, the focus is on how the Shtokman project did not materialize.

International cooperation

The fall in oil prices in 2014 and its significance for the Russian economy, combined with geopolitical tensions after Russia's annexation of Crimea and subsequent negative developments have created an unclear situation in the Arctic after several years of positive cooperative climate. This “cooling”,combined with the Trump administration's more aggressive attitude to the outside world, not least in the Arctic, has contributed to making the opportunities for cross-border collaboration with Russia more difficult at present.

Processing

Norway has favourable conditions for environmentally friendly processing of metals through low cost access to clean hydropower, wind power and short-distance natural gas. Whether natural gas is used as an energy source, a direct input factor in production processes, or indirectly through the production of blue hydrogen, CO2 will have to be captured and deposited or processed into other products, such as methanol. Methanol is produced by combining CO2 with hydrogen. When methanol is produced by combining green hydrogen from electrolysis with green electric power, its production is emissions-free, based on the reuse of captured CO2. Blue hydrogen and green hydrogen may be the key to the next phase of industrial development in Norway, and the conditions for this development are best in the North.

There is a large number of studies of the potential for industrial processing in arctic Norway. One of these studies was the GeoNor Project from 2010–11 for industrial value creation based on geological resources in the High North, which concluded with a whole series of possibilities. A concrete project that progressed far was LKAB, Höganäs and Equinor’s Ironman project on Tjeldbergodden, Norway where the goal was to combine Norwegian gas with Swedish iron ore where natural gas replaced coke as a reducing agent (DRI). This would have had great environmental benefits compared to conventional blast furnaces. The project was unfortunately not realized, as Equinor withdrew, probably in part because the project would have caused large local Norwegian emissions of CO2. This illustrates one of the main problems with using natural gas for processing in Norway. While natural gas in most other countries is seen as part of the solution, it is often seen as the problem in Norway.An important challenge for this type of project has been that the key lies with the oil and gas companies that control the natural gas, but these companies do not have their own incentives to realize industrial projects that are defined to be outside their core business. Therefore, the authorities must contribute as a catalyst so that the mineral and industrial companies are secured the gas or other alternative energy needed. This gas must be supplied under conditions that are workable for long-term industrial investments. The general shift towards green solutions, not least among the energy companies, is paving the way for a meeting of minds between the stakeholders.This is more in the cards now than ten years ago and that is inspiring!

Green electrons

The EU-supported pilot plant in Berlevåg shows that wind power provides great opportunities to produce emissions-free electric power for hydrogen production. In the future, hydro- and windpower with its green electrons will increase even more in value relative to the equivalent non-green energy sources elsewhere. Several large industrial projects in Northern Sweden, including Northvolt -Scandinavia's first «Gigafactory» for battery production - and HYBRIT, a cooperation between the industrial companies LKAB, SSAB and Vattenfall - actively play on their clean and cheap power sources to market their products. HYBRIT is planning to reduce iron ore with hydrogen produced by electrolysis with hydro- and wind power, and aims to supply completely fossil-free steel from electricsmelters. The first pilot plant is already under construction, and the construction of a full-scale plant has been accelerated. If we remove coal from steel production, we can simultaneously remove seven percent of the world's CO2 emissions. Thus, put in a larger context, it becomes even more important that Statnett's plan for a power line to East Finnmark is completed according to the plan, so that the power supply does not remain a limiting factor.

Hydrogen

With the launch in 2019 of The European Green Deal, which has a requirement of zero CO2 emissions by 2050, and with the EU Taxonomy legislation that will enter into force from 2021, the trend towards hydrogen will accelerate. The European Commission recently presented its HydrogenStrategy, at the same time as the launch of the European Clean Hydrogen Alliance, where leadingEuropean industrial companies are in the driver's seat. This strengthens the need for a Norwegian initiative. Steffen Møller-Holst, the marketing director of SINTEF, an independent research organization founded by the Norwegian Institute of Technology, stated that while the financial responsibility for developing hydrogen must still remain with the industry, initial state support through public-private partnerships is required to build the necessary hydrogen infrastructure. This support can be decreased when volumes become large enough. The exponential decline in solar and wind power prices shows that such incentive schemes can be very effective. Møller-Holst also stated that “the market will not sort this out alone, history has already shown us that."

Norway has to make some brave decisions and invest now. If not, other nations with less favourable natural conditions will outpace us. Norway has a comparative advantage in developing its natural gas resources which will be one of the keys to achieving the zero emission targets. However, one must solve the challenge of storing CO2, which will be a catalyst for, among other things, blue hydrogen, but also for industrial use of natural gas in other contexts. If business and the government manage to find joint solutions and get started in time, Norway can become a key player in the coming green industrial development.

The Northern Sea Route

Infrastructure is the key to development in the north. All economic activity requires workable logistics solutions which are dependent on the available infrastructure, a bottleneck in the Arctic.Logistics is also a business area in itself. Just consider the importance port cities have had for the activities and economies of their surrounding countries everywhere in the world. Northern Norway, like an ice-free cone into the Arctic, is particularly well suited both geographically and climatically. In addition, in an Arctic context, this region is densely populated with a relatively high level of competence, which provides a unique opportunity to serve the rest of the Arctic. Throughout theArctic, only the Murmansk area has the same natural conditions.With a decreasing ice cover in the years to come, it will become possible to reach the markets in thePacific and the Far East with purpose built ice-breaking ships beyond the ice-free season which now lasts around four months. This is illustrated by the fact that the first sailing eastwards this year withLNG from Yamal departed in mid-May, and that a test voyage is planned for February next year. To serve their growing exports from the Arctic, Russia is now building next generation nuclear-poweredice breakers which will help to further extend the sailing season. To put this into perspective forNorway's part, Kirkenes is as far from Gibraltar as it is from the Bering Strait which means that it is equidistant to the Mediterranean and the Pacific Ocean, a voyage of about nine days each way. To reach the markets of Japan, Korea and northern China, it takes from 18 to 22 days from Kirkenes, while the alternative through the Suez Canal takes between 40 and 50 days.

Russia invests a lot in its northern regions because the resources there are of great importance to the country, but they cannot be developed without infrastructure being in place. As infrastructure in theArctic is expensive and suitable locations are scarce, cross-border cooperation should be the modus operandi. Due to geopolitical, political and cultural differences this is only to a small extent the case today. Depending on how the world develops, such collaboration would benefit both Russia andNorway and should be a common goal as their comparative advantages in the North complement each other very well.

Conclusion

The requirements for the environment, social responsibility and corporate governance (ESG) and green development will, if we make the right decisions now, enable Norway to finally transition from the raw material supplier we have traditionally been, to making a living by combining our resources in ways that are more robust and sustainable, both economically and environmentally. The change of direction must start now, while we still have enough momentum in the "old" economy.