Oil service and shipping companies have been among those worrying the most that Norway’s state oil company Statoil has too much market power on the Norwegian Continental Shelf. Its dominance is now being probed by competition authorities, with an evaluation due in time for parliamentary debate this fall.
Newspaper Dagens Næringsliv (DN) has been publishing a series of stories this summer on Statoil’s power in the market, at a time when the entire oil and offshore industry is struggling with much lower oil prices. Statoil launched its cost-cutting campaign even before oil prices fell dramatically in 2014, and it’s since been accused of putting its suppliers in a squeeze, in order to secure lower prices.
“We’ve been getting reports that Statoil is demanding that valid contracts be renegotiated, while new agreements are put on hold,” Line Henriette Hjemdal, a Member of Parliament for the Christian Democrats who sits on the parliament’s committee dealing with business and trade issues, told DN earlier this summer. Hjemdal was closely involved in the Parliament’s review of Statoil’s acquisition of Norsk Hydro’s oil and gas division in 2007 and warned also back then that Statoil would become a far too dominant player in the Norwegian market.
Complaints have since built up and demands made, both from politicians and market players, that Statoil must be reined in. Instead its market position was further strengthened when it recently announced that it was purchasing a bigger stake in Lundin Petroleum.
Hjemdal took the intiative to launch a debate on Statoil’s market dominance, on the basis of criticism from several key market players including the Norwegian Shipowners’ Association and former Hydro CEO Eivind Reiten. Sturla Henriksen, head of the shipowners’ association, says Statoil has forced through contracts that will be impossible for suppliers to live with in the long run. At the same time, Henriksen noted, “it’s impossible to be in the offshore business and deliver to Norwegian oil fields without doing business with Statoil. The company stands for 70 to 80 percent of all activity on the continental shelf.”
Scared into silence
While most agree it’s not unreasonable for Statoil to want to renegotiate costs after oil prices have fallen, Henriksen said the rest of the industry “has a very big challenge (in dealing with) one player that is so dominant that it can pressure the entire supply chain in a manner that’s not sustainable.” There also have been suggestions that Statoil’s suppliers are afraid to criticize Statoil publicly, for fear of retribution.
“The suppliers are given a ‘take it or leave it’ option, when ‘leave it’ will mean they have to go out of business,” Henriksen told DN. “In all my years in the business, I have never before experienced so many tough and robust business leaders being so nervous that their critical points of view will get back to Statoil.” Some shipowners doing business with Statoil, like Anne Jorunn Møkster, said the question is whether Statoil is now pressuring suppliers so hard on prices and rates that it will make the current oil industry crisis even worse. Shipping rates that don’t cover costs, she warns, won’t ensure competence and security in the field.
Neither Henriksen nor Møkster seem to be getting much sympathy from Oil & Energy Minister Tord Lien. He made it clear even before the call went out for a probe of Statoil’s role in the market that he does not favour the authorities or politicians challenging Statoil’s dominance. Nor will he criticize Statoil for putting price pressure on suppliers.
“In the (latest) licensing round, Statoil won four out of 10 operating licenses,” Lien told DN. “It’s Statoil that’s taking the big steps in the north. Many of the positive things happening in a demanding situation on the Norwegian shelf are being driven forth by Statoil.” He said that Statoil “must tolerate being the subject of debate,” but that doesn’t mean he supports the criticism of Statoil.
“We are in favour of competition, and I’m glad Lundin has become a stronger player and that Det Norske has become even stronger through the merger with BP,” Lien said. “I’m glad Statoil keep pushing through projects in a period when oil is priced at USD 50 (lower now, with trades at less than USD 45 this week). There’s considerable potential to bring costs down further.”
Probe launched with short deadline
Hjemdal, from one of Lien’s government’s two support parties, nonetheless asked the government and Norway’s competition authority (Konkurransetilsyn) to evaluate Statoil’s current position and launch proposals to prevent Statoil from exploiting its market position. DN reported Tuesday that Statoil’s position on the Norwegian Continental Shelf will now be probed by the competition authority at the request of Monica Mæland, the government minister in charge of business and trade. Mæland, who’s under pressure herself this summer in another matter, has given the competition authorities until October 1 to assess Statoil’s dominance.
That’s not much time, with the head of authority Lars Sørgard telling DN that other countries often take years to conduct such investigations. He stressed, though, that the probe is in the planning stages. “First we will describe the market overall, then evaluate ways of preventing damage in accordance with competition laws,” Sørgard told DN. “We’ll also look at legal practice, including in the EU.”
Mæland basically wants an assessment of competition and whether Statoil is abusing its power over suppliers. “The petroleum business is one of our most central businesses, and it’s important that there’s good cooperation between the players in the business and those who deliver knowledge, technology and services,” Mæland wrote in a press release.
She wants some answers from the regulators before the parliamentary debate on Statoil’s market dominance gets underway in October. “It’s positive that Mæland is now preparing to get good and thorough background information before this comes up in Parliament,” Hjemdal told DN.
Statoil ‘will of course cooperate’
Statoil spokesman Ola Anders Skauby said Statoil “will of course cooperate and give the competition authorities the information they ask for.” He told DN that Statoil purchased goods and services in Norway alone for an estimated NOK 100 billion (USD 11.6 billion) in 2015.
Skauby claimed that Statoil “works closely with the oil service and supply industry and has a common interest in maintaining competition in a demanding situation.” He said that companies who feel poorly treated by Statoil “should take contact with us” but added that it has been “completely necessary to look at the costs of maintaining competition and value creation.”
He contends that Statoil’s dominance on the Norwegian Continental Shelf has fallen in line with its share of total petroleum production. He said Statoil now controls “closer to 60 percent” of the market instead of the 70 to 80 percent described earlier. He couldn’t comment on Statoil’s share of the total purchase of goods and services, because he claimed Statoil has no insight into its competitors’ purchases.
Statoil was due to present its second-quarter earnings on Wednesday, which analysts expected to be cut in half because of the fall in oil prices and sluggish activity in the oil sector.