Is Norway's oil & gas industry doomed?

Dec 15, 2015, 12:11 PM EST
Source: Per Karlsson/flickr
Source: Per Karlsson/flickr

Norway is in a dilemma over the future of its oil and gas industry in the aftermath of the Paris agreement on climate change. In a letter published on Tuesday, Yngve Slyngstad, manager of the country's $830 billion oil fund, asked the Ministry of Finance for permission to shift part of its holdings into green infrastructure projects like wind turbines and solar parks. The fund believes green investments can meet the same profitability requirements as others.

But some activists and opposition politicians are calling for the government to end all future exploration and production, starting by canceling its 23rd licensing round for new oil fields -- especially those in the Arctic. Arnstein Vestre, leader of environmental group Natur og Ungdom (Nature and Youth), said the Paris agreement “places enormous responsibility on wealthy countries like Norway,” and declared the oil “must remain lying” under the seafloor. In a similar vein, Frederic Hauge of the environmental organization Bellona agreed, claiming it was “‘game over’ for Norwegian oil and gas after 2035.” And Trine Skei Grande, leader of the minority Liberal Party, said that the Paris deal should push Norway to shelve plans to open up the picturesque Lofoten islands to exploration, a prospect that has generated strong opposition in the country. 

But on Sunday P.M. Erna Solberg affirmed "we will continue with oil and gas," siding with Oil Minister Tord Lien, who emphasized “no industries in the world have such a strict climate regime as what we have on the Norwegian continental shelf.” Norway’s oil and gas industry has already agreed to cut emissions by 43% by 2030, said Karl Eirik Schjøtt-Pedersen, a Labour Party veteran who now heads Norway’s oil and gas industry association. He added on Monday that instead of being the problem, the industry sees itself as “part of the solution” towards reversing climate change. “It’s impossible for Europe to reach its ambitious climate goals without Norwegian gas,” he stressed. Only consistent supplies of Norwegian gas can provide the needed alternative to replace coal, and the deal struck in Paris “puts no limits on how long Norway can produce oil and gas,” he continued.

The oil and gas industry accounts for a fifth of Norway’s GDP and half of its exports, and it remains the country’s most important source of jobs. But even without official discouragement, low oil prices are causing oil and gas firms to scale back operations, investments, and their workforces. Even before the Paris deal, in November, the Norwegian Oil and Gas Association predicted investments in the country’s oil and gas sector would drop by almost 40% from 2014 to 2017. And that assumed an oil price of $70 per barrel, although it is currently under $40. Statoil has previously announced it will cut 1,500 jobs next year, bringing the total number of layoffs to 4,500 since 2013 and leaving only 21,000 employees after 2016. Furthermore, Dolphin Group ASA, an Oslo-listed seismic surveyor, on Monday became the first firm in Norway’s offshore oil and gas industry to declare bankruptcy as a result of the current prolonged downturn in prices. More may follow.

Popular opposition, low oil prices, and high environmental risk in the Arctic should lead to some re-evaluation. Indeed, anticipating a rejection from the E.U., on Tuesday Norway’s oil ministry said the country had given up seeking permission from European competition authorities to provide governmental subsidies to Statoil to bring oil and gas onshore from its Arctic Johan Castberg find. That means Statoil is on its own to come up with a viable economic plan for doing so. And after Paris, that will be much more difficult.