One farmed Norwegian salmon weighing around 4.5 kilos was worth more than a barrel of Norway’s North Sea crude oil at the end of this week, after oil prices fell once again. No worries, claims one local economist: Norway’s economy, he claims, can tolerate oil prices down to zero, at least for a while.
Harald Magnus Andreassen, chief economist at Swedbank and an active participant in economic debate in Norway, told Norwegian Broadcasting (NRK) on Friday that Norwegian leaders’ decision in the 1990s to stash away the vast majority of the country’s oil revenues in a sovereign wealth fund known as the “oil fund” will help save the economy, as will other export industries like seafood.
Oil prices, which fell under USD 30 for the first time in more than a decade this week, are now well under the level used in Norway’s state budget for 2016. Andreassen isn’t losing any sleep over that, and suggests there’s no reason for panic.
“Norway has done what no other country in the world has done before,” Andreassen told NRK. “We’ve saved nearly all revenues from oil operations in the oil fund.” It’s not the ongoing revenues flowing into the fund that finances the state budget, he said, but the relatively small portion of the fund itself (4 percent of less) transferred into the budget every year, along with tax revenues.
Fund still growing while oil price dips
The fund, now worth a dizzying 7,000 billion Norwegian kroner, also keeps growing despite the currently low oil prices, because of its return on investments. “The oil price influences the fund somewhat, but even if the fund doesn’t grow as much as we thought it would, there’s no point in really tightening the state budget,” Andreassen said. He noted that the amount of money transferred into the state budget this year is well under the 4 percent rule, even though the krone amount itself is more than ever before.
Andreassen believes the state budget will tolerate oil prices lower than current levels, “even down to null,” at least in the short term. Hilde C Bjørnland, a professor of economics at the Norwegian Business School BI, agrees that the sheer size of Norway’s oil fund already has saved the Norwegian economy, but cautions that Norwegian leaders can’t expect such growth forever.
“We’re reaching a peak much more quickly now,” Bjørnland told NRK. The fund was also set up primarily to fund pension obligations when or if Norway’s offshore oil resources run dry. “When we see the oil price fall as drastically as now, we’re in a situation where we must examine what we’re using the money for,” she told NRK.
Salmon value soars
Meanwhile, Norway’s salmon industry is booming, with prices reaching record levels of up to NOK 75 per kilo. That means the value of a standard-sized salmon from one of Norway’s many farming facilities is currently worth around NOK 330, compared to NOK 270 for a barrel of North Sea crude oil.
“The prices are fantastic, I have never experienced this before,” Anja Strand, sales chief for salmon producer Nordlaks, told newspaper Dagens Næringsliv (DN) on Thursday. She has sold salmon for more than 15 years and prices are now running 50 percent higher than what analysts had predicted for this year.
Demand is running higher than supply, sending the prices up, but ironically enough, that’s also forcing temporary layoffs on the production line at Strand’s own company and at others. There’s a shortage of salmon ready for slaughter, so even though buyers are clamouring for the fish and willing to pay high prices, there’s simply not enough fish to process.
The lack of salmon is partly a seasonal shortage in the winter, partly because some producers needed to slaughter salmon early to fend off threats of salmon lice, and partly because of new regulations concerning the quantity of fish allowed in farming installations.
“Nearly all the producers are now cutting back staffing because there’s fewer fish to process,” Strand told DN. Cermaq, Marine Harvest, Salmar and Lerøy have all been reducing operations temporarily until seasonal supplies pick up, probably in the second quarter of this year.