Truth is often stranger than fiction, though Norway’s upcoming television blockbuster “Okkerpert”, or “Occupied,” is more the exception than the norm. The show, which features a Norwegian moratorium on oil production and a subsequent EU-sanctioned Russian-led silk occupation, has ruffled feathers among those in Russia who conflate fact with fiction.
For what it’s worth, drilling moratoriums are nothing new, and Russian occupation of a foreign territory, overt or otherwise, is not as farfetched as it may have seemed when the showrunners began penning their script in 2008. But, have no fear, Europe. Norwegian oil production is far from its death throes and the country remains a shining example of oil-driven economic success for many of its more shortsighted, and more well endowed, peers.
Of course, Norway has proven far from immune to the effects of oil’s slide. According to the International Monetary Fund, Norway’s mainland economy will slow more than expected this year. Mainland GDP growth is projected to fall to 1.3 percent, down from 2.2 percent last year. While not included in the mainland metric, offshore oil production is the main culprit for the reduced economic output.
Central government revenue fell 4.7 percent from the second quarter of 2014 and the operating surplus from petroleum activities is down 13.3 percent from the same period as producers feel the squeeze of lower oil prices. Drilling slumped 6.4 percent last year and a drop of more than 14 percent is projected for 2015.
Further, local oil producers and service companies such as Statoil and Aker Solutions have cut upwards of 20,000 jobs, sending unemployment to a ten-year high. Investments in 2015 in exploration activity, field development, and fields on stream are all expected to be substantially down from last year’s record totals. But, these are all problems for another day, or rather, another country.
Norway is equipped with a bag of tools and policy levers more than capable of combating the current oil price downturn – a period that Oil Minister Tord Lien believes will be short-lived.
Norway’s sovereign wealth fund – a monster of a rainy day fund, valued at over$880 billion – is, to put it lightly, more than adequate should the nation need to fill a budget hole. Early indications suggest next year’s budget features corporation tax cuts, increased spending, and a surplus.
The Norwegian krone has seen better days, but its current state – down some 8 percent against the euro this year – is, in some regards, just what’s needed. A struggling krone is a boon to exporters and motivates a look at the country’s diversification and fossil fuel exit strategy. Speaking more to that strategy, Norway is already well on its way to a renewable future, a goal that will also benefit its European neighbors.
As it stands however, oil and gas production is doing just fine. Oil production beat expectations for the third straight month in July, hitting 1.56 million barrels per day. In fact, daily production has surpassed or matched that of 2014 in all but two months this year. Further, production is now underway at Statoil’s critical Smørbukk South Extension. The complex and pioneering tight oil project has come online under budget and on time.
Moving to gas, production has now exceeded forecasts for the eleventh month in a row. Total production from January to July was 65.66 billion cubic meters (bcm). Deliveries to Europe are also reaching record highs. In August, Norway delivered 8.7 bcm of gas to Belgium, France, Germany, the Netherlands, and the UK, up 36 percent from the same month last year. This caps a summer that saw Norway overtake Russia as the number one gas supplier to Northwest Europe.
Looking forward, oil and gas investment declines are projected to flatten in 2016. Much of those investments will be targeting production further down the road, in 2018 and beyond. Germany’s Wintershall will spend $1.8 billion in development drilling in 2016 in the Maria reservoir, a 180 million barrel basin in the Norwegian Sea. The more highly anticipated, 2.8 billion barrel, Johan Sverdrup field will also see pre-drilling begin in 2016, with commercial production following in 2019.
All bets take on added risk in today’s depressed and volatile market, but a bet on Norway is as safe as they come.
First published at Oilprice.com