Energy policy, economy and society

Many observers expect that climate policies and alternative energy sources will put down-wards pressure on the demand for fossil fuels in the coming decades. This may have important consequences for the oil sector and the oil market as we know them. First, the appetite for investments in hydrocarbon exploration and production may decline. This may result in higher risk premiums in the financial markets to finance such investments and fiercer competition from other oil producing countries to attract the remaining investments.

A central challenge for governments as well as for the oil and gas sector is to balance invest-ing in profitable projects and avoiding stranded assets. The difficulty of the tradeoffs involved is highlighted by the recent “revenge of geopolitics”, a renewed interest in energy security, and the emergency of the climate crisis. A question is how to best design robust policies to deal with the risks involved. An important backstop against unprofitable projects in the Norwegian regime is the discretionary licensing system.

The oil and gas sector may be a vehicle of transition towards new technologies. For example, there may be important complementarities between oil and gas and new technologies, such as CCS and Hydrogen. Cash flow from oil and gas may also be important to fund potentially risky new energy investments.

This project will employ and develop risk principles and methods for evaluating the quality of subsurface solutions, including the use of multi-criteria decision-making approaches and prioritization of measures. The increasing scrutiny facing oil producers in politics, in the legal system and in financial markets contribute to a less predictable business climate. How to communicate risk and uncertainty to financial markets, policy makers and the wider society will be an important part of this sub-project.