Norway Seeks to Temper Oil Addiction After OPEC Price Shock

By Saleha Mohsin  

Photographer: Kristian Helgesen/Bloomberg

Prime Minister Erna Solberg said, “We need new industries, a new tax system and a... Read More

After the biggest slump in oil prices since the start of the global financial crisis, the prime minister of Norway says western Europe’s largest crude producer must become less reliant on its fossil fuels.
“We need new industries, a new tax system and a better climate for investment in Norway,” Prime Minister Erna Solberg said yesterday in an interview in Oslo.
The comments follow threats from SAFE, one of Norway’s three main oil unions, which warned this week it will respond with industrial action unless the government acts to stem job losses. Solberg said that far from triggering government support, plunging oil prices should
be used by the industry as an opportunity to improve competitiveness.
A 39 percent slump in oil prices since June is killing jobs in Norway, which relies on fossil fuels to generate more than one-fifth of its gross domestic product. In the past few months, Norway has lost about 7,000 oil jobs and SAFE said this week it was up to the government to reverse that trend. Solberg says protecting oil jobs will ultimately make it harder for the economy to wean itself off its commodities reliance.
“We need to lower our cost of production in the development of new fields,” she said. “Oil production is not going to rise, it will slowly fall in Norway.”

Investment Slump

Norway’s oil and gas companies will invest 14 percent less next year than in 2014, according to a survey published today by the statistics office. The office also cut its estimate for growth next year in the mainland economy, which excludes offshore production, seeing just 1 percent expansion versus an earlier forecast for 2.1 percent.
The krone sank as much as 0.8 percent against the euro and traded 0.7 percent lower at 8.7196 as of 1:03 p.m. in Oslo. It was the day’s worst performing major currency tracked by Bloomberg.
“The sharp fall in oil prices in the autumn has strengthened the oil companies’ focus on reducing costs” which “means that several investment projects have been put on hold,” the statistics office said. “There has been significant activity for increased recovery at producing fields. The activity level in this type of projects is now falling.”

OPEC Effect

Since the Organization of Petroleum Exporting Countries rejected calls to cut supply last week, the price of crude oil has dropped to about $70 a barrel from a June high of $115. Over the same period, Norway’s krone has slumped about 15 percent against the dollar. That’s a trend to be welcomed in parts of the economy, Solberg said.
“For some companies the lower exchange rate will increase their competitiveness with European markets,” she said. “If international markets have increased growth it will have a pull-factor for other industries in Norway.”
Still, given the country’s continued reliance on fossil fuels for its wealth, “the overall picture is that lower oil prices are not good for the economy of Norway,” she said.