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Thursday, May 23, 2024

Oil industry hits a mid-life crisis

Norway’s oil industry has just passed an important 50th anniversary but there wasn’t much mood to celebrate. The industry finds itself grappling with a dive in oil prices that’s led to uncertainty and thousands of job losses, at a time when political pressure is building to further curtail operations.

The announcement that the Ekofisk oil field (among others) will be expanded came on the same day that Norway was criticized by NASA's James Hansen, and just a day before the news that the country's sovereign wealth fund is now the world's biggest. PHOTO: Kjetil Alsvik/ConocoPhillips
Here’s where it all began: Oil was discovered at the Ekofisk field on the Norwegian Continental Shelf four years after exploration licenses were advertised in April 1965. The field has later been expanded, and may produce oil for another 40 years. PHOTO: Kjetil Alsvik/ConocoPhillips

At last weekend’s annual national meeting of the Liberal Party (Venstre), an ardent group of environmentally oriented politicians sought to declare the Arctic free of oil industry activity and cut the industry’s tax advantages. They won support from party fellows for refusing to open new areas of the Arctic open to oil and gas exploration.

The Liberals are one of two small parties that Norway’s minority government coalition needs to win support in Parliament, so they enjoy power that’s arguably out of proportion to their size. They’re also not the only ones advocating measures to let the oil and gas remain in the ground. They think that’s important, not least as a means of cutting the industry’s carbon emissions.

‘Completely unrealistic’
Their Arctic proposal isn’t likely to get much farther, though: “It’s completely unrealistic to keep the Arctic free of oil and gas activity,” declared Øyvind Korsberg of the Progress Party, which shares government power with the Conservatives. He told newspaper Dagsavisen that putting the Arctic off limits would be a step in the wrong direction: “What the oil industry needs now more than ever is predictability,” he said. “The world needs energy and Norway runs oil and gas operations with the world’s strictest environmental demands.” Korsberg noted that the Liberals already have prevailed in keeping the seas off Lofoten, Vesterålen and Senja free of oil activity, at least through the current parliamentary period that runs through 2017.

The issue, though, is an example of the political and environmental challenges faced by the oil industry at a time when its financial challenges are daunting. The industry does retain strong support within other parties like Labour and the otherwise environmentally oriented Center Party because of the jobs it generates. Politicians like Ola Borten Moe, a former oil minister for the Center Party in the last Labour-led government, has even publicly bashed the criticism and pessimism currently directed at the oil industry, claiming it needs support and reassurance instead.

Historic advertisement
It was on April 9, 1965 that the government ministry known as Industridepartementet at the time first released 278 “blocks” on the Norwegian Continental Shelf for exploration. A small advertisement then ran in an industrial magazine exactly 50 years ago this week, proclaiming that the “Royal Ministry for Industry and Trade” was accepting applications for exploration and extraction of petroleum on the continental shelf. Deadlines were set for May 1 and June 15.

That set Norway’s offshore oil operations in motion in the North Sea. “There were some visionary politicians at the time who made some sensible decisions,” current Oil & Energy Minister Tord Lien of the Progress Party told newspaper Aftenposten over the weekend.

Lien noted that Norwegian politicians already had 80 years of experience in managing the country’s hydro-electric resources for the common good. There had been attempts by private business to secure the rights and profits from Norway’s waterfalls, just like oil companies tried to secure rights to oil fields in Norway’s portion of the North Sea in return for covering the costs of exploration and production. Phillips Petroleum Co of the US approached the Norwegian government as early as 1962. Instead of taking the bait, however, the government began to think about how they should manage potential offshore oil and gas resources.

‘Privilege’ to earn money
Lien claims it should still be viewed as a “privilege” to earn money off the Norwegian Continental Shelf. He concedes it can sound “strange” to hear an anti-tax Progress Party minister such as himself praising a strong state and high taxes on the oil companies, but claims the oil industry is a special case.

It has undoubtedly made Norway a wealthy nation despite the current downturn in fortunes. Lien recently wandered around Oslo’s  waterfront Aker Brygge residential and commercial complex, built on the site of the former Aker Shipyard, and remarked that “this is where the oil fairy tale began!” In the beginning, Norway relied on technology and expertise from abroad, but it didn’t take long for the country to build up its own, and it was at Aker that some of the first oil platforms were built. The industry then spread to the west coast, and Stavanger emerged as Norway’s oil hub after Phillips Petroleum did discover oil at the Ekofisk field in 1969.

The “big money” came later with the Statfjord, Gullfaks and Troll fields. “It was here that Norway and Norwegian companies developed Norwegian oil competence,” oil historian Helge Ryggvik told newspaper Dagsavisen this week. “That was possible because we a bit later in the Norwegian Oil Age were in a much stronger negotiating position than in the beginning. From 1974 Norway raised the tax on oil (extraction) to nearly 80 percent. That’s when we became the oil nation we know today, a strictly regulated state that makes sure nearly all the oil income goes to the state.”

Boosting pride
Today, around 40,000 jobs in the Oslo metropolitan area alone are directly tied to the oil industry, accordig to Lien. He thinks Oslo residents should be more proud of the oil industry, and supportive as the industry enters harder times. In Stavanger, residents arguably have been, given the enormous economic contribution that oil and oil services make locally. It’s in Stavanger where Norwegians are especially feeling the bite of current cutbacks.

“We are undoubtedly in a demanding period right now,” Stavanger Mayor Christine Sagen Helgø told Aftenposten. “As an energy capital, we’re especially vulnerable to business cycles. We just have to roll up our sleeves and adapt. I’m optimistic. We have had strong growth for many years and I think everyone is prepared to face this together.” Berglund



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