Shell in Norway

This company acquired a tank farm at Nesodden outside Oslo, launching what was to become A/S Norske Shell. It expanded with coastal depots and service stations along the whole coast.

Norske Shell has experienced huge progress, from delivering lamp oil by horse and cart to today’s high-tech production of gas from waters almost 1 000 metres deep.

Getting going

Established only five years earlier, in 1907, the Royal Dutch/Shell group was seeking new markets worldwide for its branded products.

Its entry to Norway came when Indian Refining Company[REMOVE]Fotnote: Indian Refining Company was an American oil firm which operated from the first decade of the 20th century until 2 April 1943. went bust before the tank farm it had built at Granerudstøen on the Nesodden peninsula could even become operational.

Together with two Norwegian partners, Shell formed Nemak to take over the facility. This was perfectly positioned on a good harbour in a sheltered fjord close to Oslo (then known as Kristiania). It was the company’s main import channel to Norway for many years.

Shell was not alone in viewing Norway as an attractive market, and several oil companies had established themselves there in the early 20th century. They bought petroleum from the USA or Romania for distribution around the country.

During the second half of the 19th century, paraffin lamps had become the dominant form of lighting for most Norwegians. Gas lights were only found in a few large towns, and electricity did not become a serious option until around 1910.

Refined from crude oil, paraffin imports rose steadily from the 1880s and right up to the 1920s. Moreover, lube oil shipments from abroad increased as machinery became more widespread in industry and transport.

Petroleum imports were started by individuals or small companies which included these products among the commodities they traded.

One was wholesaler Fredrik Sundt, who became Norway’s biggest paraffin importer in his day. His house in Oslo was nicknamed “Villa Parafina”, and is now the government’s official residence.[REMOVE]Fotnote: Parkveien 45 used to be the prime minister’s official residence, but has not functioned as such since 1907. Francis Hagerup was the first premier to live there from 19896, and was followed by the first prime ministers after Norway became independent from Sweden in 1905. Starting with Wilhelm Christophersen in 1908, however, the building became the official residence of the foreign minister, and Johannes Irgens lived there throughout his time in this office from 1910-13.

Another was Adolf Øien. Together with his friend, Ingebrigt Wahl, he established a business in 1876 which specialised in paint, building materials, gunpowder and petroleum.

This range of products was in demand and the pair earned good money from rapidly growing oil imports, building up a distribution system for Norway northwards from Trøndelag.

Americans arrive

Foreign oil companies began to set up shop in Norway during the 1890s, with A/S Vestlandske Petroleumscompagni in Bergen as the first-comer at the start of that decade.

Its founders were leading local businessmen Conrad Mohr, N H Brun and Christian Andreas Irgens plus Denmark’s Det Danske Petroleums Aktieselskab. The latter was part-owned by John D Rockefeller’s Standard Oil Company of New Jersey.

This was followed three years later, in 1893, by the creation of A/S Østlandske Petroleumscompagni in Oslo through a merger between three small Norwegian oil companies. These were A Hiorth, owned by Andreas R Lind, as well as wholesalers F Mørch-Reiersen and Otto Pedersen, with Det Danske Petroleums Aktieselskap again involved as co-owner.

The Danish company functioned as an intermediary for Standard Oil, and the two Norwegian enterprises merged in 1953 to form Aksjeselskapet Norsk Esso.[REMOVE]Fotnote: National Archival Services of Norway: ExxonMobil 120 år, on the archival services’ website: http://www.arkivverket.no/arkivverket/Arkivverket/Stavanger/Nettutstillingar/ExxonMobil-Norge-120-aar/Vestlandske-og-Oestlandske-Petroleumscompagni. (Published 3 May 2017, downloaded 9 January 2018)

Norsk Vacuum Oil Company held its statutory general meeting in Oslo during 1918 to conduct trading, an agency business, and production of oil and related products.

But this US firm had been present in Norway since 1898 through sales representatives. Offices selling Vacuum products opened in that year in Bergen, Trondheim and Oslo.

Sales of its lube oils went well, and the large Norwegian merchant fleet was a particularly important market for the company.[REMOVE]Fotnote: National Archival Services of Norway: ExxonMobil 120 år, on the archival services’ website:http://www.arkivverket.no/arkivverket/Arkivverket/Stavanger/Nettutstillingar/ExxonMobil-Norge-120-aar/Vestlandske-og-Oestlandske-Petroleumscompagni. (Published 3 May 2017, downloaded 9 January 2018)

Own refinery

Established in 1862, Mandal Paraffin Olie Co was Norway’s first oil refinery. Production of lamp oil, paraffin wax and artificial fertiliser based on imported Scottish coal continued until 1874.

While competition from imported oil and declining prices reduced the company’s profitability[REMOVE]Fotnote: Wetting, Olav, Mandal Paraffin Olie Company, at Industrimuseum.no: http://industrimuseum.no/Mandal%20Paraffin. (Publication date unknown, downloaded 9 January 2018), petroleum imports eventually became large enough to lay the basis for another refinery.

A/S Petroleums Maskinolieraffineri built a facility at Vallø outside Tønsberg. This company’s purpose was to import, distil and refine Rumanian crude and semi-processed oil.

However, the new refinery also quickly ran into problems. The technology was poor and achieving profitable operation was difficult.

Paraffin from Vallø could not compete for quality with US products, and the company also failed to produce competitive lube oils. It was wound up in 1905, but operation was taken over by a new firm.

Established that autumn, A/S Vallø Oljeraffineri entered into collaboration with the oil companies in Oslo and Bergen. They would primarily sell and distribute the refinery’s petrol, leaving it to market its other products directly.[REMOVE]Fotnote: Development, adaptation and modernisation continued throughout this period, along with an upgrading of the product range. This eventually included petrol, paraffin, engine oil, lube oils and bitumen. A couple of mergers followed until the whole business ended up as a single company under the name A/S Norske Esso. When this firm entered into an operations agreement with Esso Exploration & Production Inc, it changed its name to the one still used today – Esso Norge AS. http://www.arkivverket.no/arkivverket/Arkivverket/Stavanger/Nettutstillingar/ExxonMobil-Norge-120-aar/Vestlandske-og-Oestlandske-Petroleumscompagni. (Published 3 May 2017, downloaded 9 January 2018)

During the early years, the refinery produced various types of petrol, white spirit, gas oil, lube oils and asphalt.[REMOVE]Fotnote:  Miljolare.no: Vallø; Verket og menneskene on Miljølære’s website: https://www.miljolare.no/karlsvika/lokalhistorie/valloe.php. (Published February 1995, downloaded 9 January 2018)

It was in this climate that Royal Dutch/Shell entered the Norwegian market. Internal combustion engines were introduced to Norway’s fishing fleet around 1904 and their use expanded strongly until the economic crash in the 1920s.

Interest in motor vehicles was growing, and Norway’s first car race was organised on a frozen fjord outside Oslo in the same year that Nemak was established.[REMOVE]Fotnote: Norsk bilsport, “100 år siden Norges første billøp”, on the magazine’s website: https://bilsport.no/100-ar-siden-norges-f%C3%B8rste-bill%C3%B8p/ (Published 22 February 2012, downloaded 9 January 2018) The race was staged on Saturday 25 February 1912 and was so popular with the public that the whole event descended into chaos.

The first Norwegian flight by a heavier-than-air machine also took place in 1912, 25 years before the country’s first civilian airport opened at Sola outside Stavanger.[REMOVE]Fotnote: Hans Fleischer Dons became the first Norwegian to fly a powered aircraft in Norway on 1 June 1912.

Shell’s activities during its early history in Norway were linked to the fishing fleet and shipping. With fishermen switching to oil, a market was open.

Nemak expanded rapidly, with depots along the whole Norwegian coast, and acquired particular visibility in the northern part of the country.

It began constructing a tank farm in Ålesund during its first year of operation and the facility at Vågan in Svolvær was ready in 1913.

New depots followed one after the other, at Langøya, Dolvik and Lervik near Stavanger, Bergen and Hammerfest respectively. By 1916, the company had seven tank farms between Oslo and Ålesund and no less than 14 between Lofoten and Vardø.[REMOVE]Fotnote: A/S Norske Shell, “Kort fra A/S Norske Shells historie”, on its website: http://www.shell.no/about-us/what-we-do/_jcr_content/par/tabbedcontent_3dac/tab_890f/textimage_33e7.stream/1478072716178/764cbb1d672561559692104dd0ad6cb2b83e3d5231aa8d892b24dbc25e1e1245/norske-shells-historie.pdf. (Publication date unknown, downloaded 9 January 2018)

Northern Norway was to remain the centre of gravity for Norske Shell’s operations over many years. Solar oil – a form of diesel oil – was introduced in the 1920s and massively marketed by the company as fuel for the fishing fleet.

A major campaign was launched to persuade fishermen to shift from petrol to solar oil. Shell had to maintain tanks for both products for a time. Freighters were needed to supply the coastal depots. The company therefore ordered two tankers in 1913 from the Kaldnes Verft yard in Tønsberg.

Sister ships M/T Blaaskjæl and M/T Rødskjæl were delivered in 1914 as Norway’s first motor tankers, and represented an important part of the infrastructure for people living along the coast. During their early years, these vessels sailed virtually the length of the country and participated in both First and Second World Wars.

Rødskjæl was sunk by the British navy in April 1940 while berthed in Narvik, but was raised and sent to Harstad for repair. It sailed the rest of the war without incident.

The ship was stationed in Svolvær after 1945 and continued to sail for Norske Shell until about 1966, when it was sold to new owners.[REMOVE]Fotnote: Nesdal, Bjørn Anders, “MS Epo tidligere MT Rødskjæl. Dokumentasjonsrapport av skrog med prisoverslag”, Bredalsholmen, downloaded from docplayer.me: http://docplayer.me/4978523-Ms-epo-tidligere-mt-rodskjael-dokumentasjonsrapport-av-skrog-med-prisoverslag-epo-i-dokka-pa-fosen-med-sandblast-og-primet-skrog.html. (Publication date unknown, downloaded 9 January 2018)

First World War

A rapid transition to internal combustion engines occurred in the Norwegian fishing fleet up to 1914. From 1917, the Norwegian government faced problems in securing enough oil products.

Mild rationing was introduced that spring, followed by tougher restrictions the following autumn. That naturally caused discontent.

The government collaborated with Nemak and others to secure the largest possible imports and the best distribution of the very inadequate deliveries.

Once the war ended on 11 November 1918, it was not long before imports normalised and prices fell towards the prewar level. A new record for crude oil, lube oil and petrol imports was set in 1919, at more than 132 000 tonnes.

Cars and service stations

The motor car experienced its breakthrough in Norway during the war years. Paraffin and petrol had previously been shipped from tank farm to customer in wooden barrels and five-litre tin cans. Drivers bought petrol from the barrel at their local store.

Car numbers and traffic in Norway grew year by year, also creating a bigger market for petrol sales. On average, 20 new service stations were built annually in the period after 1920.

The horse and cart had earlier been the most important means of distributing petroleum products to inland districts, but barrels were inefficient for delivering large volumes.

Road tankers took over from horse-drawn transport during the 1920s. Shell acquired its first vehicle of this kind in 1923, with a top speed of 15 kilometres per hour.

In line with social developments, the company improved its ability to deliver petroleum products which helped to keep the wheels turning. The range at Nemak’s various facilities also constantly expanded.

Airports and aviation fuel

Stavanger acquired Norway’s first civilian airport at Sola in 1937, and Shell was in place with its 2 500-litre Federal road tanker. Today’s tankers carry about 45 000 litres.

Reputation building

A major marketing campaign was launched internationally in the 1920s under the slogan “You can be sure of Shell”. The company commissioned a number of well-known artists to produce posters which communicated the idea of power, cleanliness, reliability and modernity (see the article on the history of Shell).

In Norway, renowned Polar explorer Roald Amundsen was used for all he was worth. Leading Oslo daily Aftenposten wrote on 19 May 1926: “Roald Amundsen’s North Polar expedition uses Shell petrol exclusively”.

Nemak changed its name to A/S Norske Shell on 1 January 1940.

Second World War and after-effects

Norway was hard hit in the Second World War, and many Shell service stations were destroyed. The distribution network was largely bombed out of existence. About half of all oil storage capacity was smashed on a national basis, while every facility north of Svolvær suffered complete destruction.

The oil store in Oslo was the last to be wiped out, on 23 January 1945. Norske Shell had 130 employees when the war broke out, but this had fallen to just 80 by 1942 because of extensive layoffs.

Parallel with Marshall Aid in the post-war years, Shell’s US arm also participated in Norway’s reconstruction. One of the group’s top American executives visited the country and its northern region.

On his return home, an immediate green light was given to build up a new office in Hammerfest, and Shell thereby had one of the first permanent buildings raised in that town after the war.

Private motoring increased, and restrictions on car sales were lifted in 1960. That generated greater demand for petrol and oil products.

Sola refinery

Shell wanted to build its own Norwegian refinery in the mid-1960s, and chose Sola outside Stavanger as the site for this facility. It opened in 1968.

When Norsk Hydro brought the first cargo of Norwegian North Sea oil from Ekofisk on 4 August 1971 to Sola, the Shell refinery ranked as the largest in Norway.

By the 1990s, however, an excess of refining capacity combined with tighter EU environmental standards prompted Shell to consider selling out of Norway in 1998. It decided on 26 February 1999 to close down its refinery business even though this was operating at a profit (see separate article on the Shell refinery at Sola).

From distributor to producer

Until the 1960s, Shell’s Norwegian business concentrated primarily on downstream activities, marketing and sales. But a key event for Royal Dutch/Shell in 1959 would completely change its involvement in Norway.

The Dutch government decided that oil and gas would be sought in country’s North Sea sector, while leaving actual exploration and production to Shell and Esso.

These two majors collaborated in the Nederlandse Aardolie Maatschappij (NAM) partnership, which had been established as early as 1943.[REMOVE]Fotnote: Carstens, Halfdan, “Opptakten til oljeeventyret”, GEO 365: http://www.geo365.no/oljehistorie/det-norske-oljeeventyret-opptakten/ (Published 12 April 2015, downloaded 9 January 2018)

It found one of the world’s largest gas fields in 1959 at Groningen in the Netherland, which meant that Shell had found resources in its own backyard.

Perhaps even more importantly, this discovery suggested that possible petroleum deposits were also to be found offshore in the North Sea basin.

All the big oil companies turned their attention to these waters. The NCS was opened for exploration in 1965, and Shell won sole licences for 10 blocks in the first licensing round. Shell has since participated in all but two Norwegian licensing rounds, securing interests as both operator and licensee.

Eight of the holdings secured in the initial 1965 round were later relinquished to the government. But block 1/6 neighbours Ekofisk, and turned out in 1979 to include an extension of that field as well as the Albuskjell satellite.

Before drilling began on the NCS, Shell was already at work in the UK sector – still with Esso. It established the UK Shell Expro arm in 1964 to act as operator in a 50-50 joint venture with the US major.

The partners secured licence interests in no less than 75 blocks in the UK North Sea, and Shell Expro made the first British offshore discovery in 1966 with the Indefatigable gas field. BP found Leman, also a gas field, later the same year.

On the NCS, Norske Shell spudded its first well in 1968 with the Orion rig. An exploration and production department was formally established the same year. This acquired offices in some temporary buildings at Tananger outside Stavanger.[REMOVE]Fotnote: Lerøen, Bjørn Vidar (1990): Fra Groningen til Troll. Norske Shell – 25 år på norsk sokkel. Norske Shell, 14. After five dry wells, however, these premises were quickly shut down again.

Like most of the other oil companies, Shell was giving up on the NCS when the news came in 1969 that Phillips Petroleum had made a big oil strike on Ekofisk. That revived interest.

Shell Expro found the Auk and not least the Brent oil fields in the UK sector during 1971, and Dunlin two years later. The Norske Shell exploration office in Tanager reopened in 1971.

Royal Dutch/Shell had long experience of offshore exploration and production in such places as Venezuela, California, the Gulf of Mexico and Brunei. But the northern North Sea, where Brent lies, presented deeper water, higher waves and more extreme weather changes than these regions.

Thinking along new lines was required from the company when developing this field. In addition, the proportion of associated gas in the oil was relatively high. The British government had prohibited large-scale gas flaring, while injection into the reservoir was technically undesirable in the long term.

Taken together, these factors meant that a more complex platform was required – an offshore factory. Having only previously operated simple steel structures, Shell opted now for large and heavy concrete installations.

Statfjord straddles the UK-Norwegian boundary in the North Sea close to Brent, and Shell had a 10 per cent holding in the two Norwegian blocks containing this field. Both Statfjord and Albuskjell came on stream in 1979, providing Shell with welcome revenues.

After the 1973 oil crisis, all the oil companies – including Shell – turned towards Europe. Finding petroleum resources in parts of the world with stable political conditions was important.

North Sea exploration expanded. The breakthrough for Norske Shell came in the early morning of 26 August 1979, when Borgny Dolphin encountered gas in block 31/2 – the Troll field.

This acreage had been put on offer in the fourth licensing round in 1978, and it attracted wide interest despite a water depth of 350 metres and a long distance to markets. Shell gave the block low priority, but promised to drill a relatively large number of wells. It was made exploration operator, subject to stringent conditions.

According to Norwegian rules at the time, big licence holdings were reserved to the national oil industry and state-owned Statoil got 50 per cent. Shell also had to accept that the operatorship would be transferred to Statoil when production began.

The first well identified large quantities of gas and oil. Troll was almost on a par with Groningen for gas reserves. Shell developed the gas side together with Statoil, while Norsk Hydro took charge of bringing the oil on stream.

European oil production was extremely important for Shell during the 1980s, and occupied second place to the USA in global terms. Europe’s political certainty and stability were crucial considerations.

The 1990s saw natural gas become more significant for the Shell group’s overall business, moving into second place among core activities after oil but ahead of petrochemicals.