Skip to footer

Low oil prices are bad news for Norway

New oil projects are being scrapped in Norway amid falling production and low oil prices. Despite efforts to diversify, Norway’s economy is overwhelmingly dependent on oil, which accounts for more than half of the country’s exports. 

|
Reuters/Suzanne Plunkett/File
Pedestrians walk past a pump at a Statoil petrol station in Oslo, Norway. Norway is Western Europe's top crude producer and Stat Oil, the mostly government-owned oil company, has seen its share price cut in half since July 2014.

New oil projects are being scrapped in Norway amid falling production and low oil prices.

Long held up as the model for managing oil abundance, Norway has painstakingly sought to prevent the problems that occur with other natural resource-based economies, such as corruption, slow economic growth, currency appreciation, and subsequently, deindustrialization.

Since 1990, Norway has diverted much of its oil earnings to a sovereign wealth fund, which has become the world’s largest. The money, reaching $890 billion as of June 2014, amounts to $178,000 for every Norwegian citizen. The sovereign wealth fund helps Norway avoid some of the problems associated with the “resource curse” by investing capital abroad. But more importantly, the money is set aside to be saved and invested to help the country plan for the eventual decline of oil production, with the intention of transitioning to a more diversified economy that can take oil’s place.(Related: Norway’s Energy Policies A Lesson For The World) 

The early cracks in Norway’s petrol-based economy are beginning to show, perhaps quicker than many predicted.

Energy analysts have explored in detail how the ongoing decline in oil prices – down 40 percent since June – might affect oil exporting countries like Russia, Iran, Venezuela, and other OPEC members. But even Norway, the model for using natural resources to build a modern wealthy economy, is not immune to the price fall.

Statoil, the mostly government-owned oil company, has seen its share price cut in half since July 2014. It is idling several offshore rigs as oil prices drop. Three rigs – the COSL Pioneer, Scarabeo 5, and Songa Trym – will be suspended until the middle of 2015 because of lower profitability. “These measures are necessary due to the overcapacity of rigs compared to the assignments we are prioritising. This situation is unfortunate, and we are doing what we can to minimise the extent of the suspensions,” Statoil procurement head Jon Arnt Jacobsen said in a statement.

 

To make matters worse, costs of developing new fields have been steadily rising. “The boom is probably over. But we’re not looking at a steep decline in investment or production,” Norway’s oil minister Tord Lien told Reuters in May 2014. “The costs are rising too high and too fast. The Norwegian costs have risen a little bit more than elsewhere.” Since those comments, oil prices have tumbled. Norway may in fact see a steep decline in investment.

Lower oil prices could force more than $150 billion worth of investments to be put on hold worldwide,according to an assessment by Norwegian firm Rystad Energy. Statoil is deferring a decision on investing $5.74 billion in the Snorre field, an offshore oil project in the Norwegian Sea. Also, Statoil’s Johan Castberg field, an estimated $16-$19 billion oil field in the Barents Sea, will be tabled for the time being. These costly projects won’t generate a sufficient return given today’s prices.

But the oil price decline is only accelerating a trend that is already underway. Even with high oil prices Norway was facing a tougher future due to years of waning oil production. Since 2001, Norway’s oil production has fallen by almost half, from around 3.5 million barrels per day down to about 1.8 or 1.9 million bpd in 2014.

The decline in investment is already pinching the labor market. Around 10,000 Norwegian oil workers have been laid off as the industry pares back spending, accounting for 10 percent of the sector’s total workforce, the Wall Street Journal reports. Oil workers are threatening to strike unless the government steps in to stem further losses.

And the way forward is murky. Despite its best efforts, Norway’s economy is overwhelmingly dependent on oil, which accounts for more than half of the country’s exports. Other export industries have struggled to develop as costs are too high – a classic symptom felt in countries suffering from the resource curse.(Related: Norway Unfazed By Drop In Oil Prices) 

But resuscitating the sector may be difficult. With such a high cost environment, it doesn’t make sense for many companies in Norway to invest in new projects. Spending could drop by another 18 percent next year as project economics look poor.

Conversely, without investment, new production will not materialize in the coming years, leading to further deterioration for the sector as existing fields age and decline.

To be sure, Norway has its almost $1 trillion sovereign wealth fund to fall back on, so it is not as if its citizenry will be thrust into poverty anytime soon. Still, Norway may need to begin building a post-oil economy sooner than it thought.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:

Source: http://oilprice.com/Energy/Crude-Oil/Norways-Oil-Decline-Accelerating.html

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.
editor@csmonitor.com
Subscribe
Mark Sappenfield
Editor

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

Subscribe to insightful journalism

QR Code to Low oil prices are bad news for Norway
Read this article in
https://www.csmonitor.com/Environment/Energy-Voices/2014/1208/Low-oil-prices-are-bad-news-for-Norway
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe