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Sunday, April 21, 2024

Oil policy ‘firm’ but faces EU pressure

NEWS ANALYSIS: Norwegian government officials have been stressing lately that the country’s oil policy remains firm, even though new coalition colleagues have viewed it as stimulating too much risky exploration. Now EU competition authorities have been asked to review whether refunds of unprofitable exploration costs also amount to illegal state subsidy, raising new uncertainty in an industry still adapting to lower oil prices.

The new utility and accommodation platform for the Johan Sverdrup oil field, located around 140 kilometers off Stavanger in the North Sea, will house workers on the field for the next 50 years. It’s due for completion in 2019. ILLUSTRATION: Statoil

A vast majority of Norwegian politicians on both the left, right and center have long supported and promoted the country’s oil and gas industry. In 2005 they wanted to stimulate more offshore oil exploration, and the then-Labour Party-led government ushered in Norway’s so-called leterefusjons- ordiningen. It allows oil companies to receive refunds of up to 78 percent of their exploration costs if they don’t find oil, an incentive that’s even greater than the eventual tax write-offs the companies otherwise would receive later.

The policy has attracted new players to Norway’s offshore oil fields over the years and been both furthered and actively promoted by the Conservative-led government coalition that took over in 2013. Its oil ministers have also been just as bullish on opening up new areas as their left-center predecessors, including blocs in the environmentally sensitive Arctic. That’s been controversial, as has the state support for the exploration, but climate and environmental activists have won little if any change, no matter which political parties hold government power.

‘Firm and steady course’
The recent expansion of Norway’s current conservative coalition raised some environmentalists’ hopes that the newcomer Liberal Party would rein in the government’s most gung-ho policies. The Liberals had criticized the potential for refunds of oil companies’ exploration costs, but wasn’t able to scrap them. The Liberals did secure ongoing suspension of moves to open areas off scenic Lofoten and Vesterålen to oil drilling and secured “consideration” for environmental advice in especially sensitive areas, but the Conservative and Progress parties quickly issued assurances that there would be no major changes in oil exploration or tax policy.

Oil Minister Terje Søviknes, shown here on his way out to a Norwegian oil field, insists the Norwegian government will maintain “firm” and “steady” oil policies in the years to come. PHOTO: OED

“We are furthering the strengths of Norwegian petroleum policy,” Oil Minister Terje Søviknes of the Progress Party told newspaper Aftenposten recently, stressing that it “provides long-term consistency that an industry with long lead time must have.” Søviknes added that “the most important thing you can read” out of the expanded government’s platform for the oil and gas sector “is that we’ve plotted a firm and steady course, even after the Liberals came into the government.”

‘Childish’ subsidy complaint
Environmental organization Bellona, however, has filed a complaint with European competition authorities who monitor Norway’s compliance with EU regulations. Bellona contends that a refund of 78 percent of exploration costs (meant to correspond with Norway’s high 78-percent tax rate on earnings from oil operations) violates EU subsidy regulations. If the European competition authorities agree, oil companies may need to pay back refunds they’ve received over the past 10 years.

Reaction has been predictably sharp, with Ola Borten Moe of the Center Party (a former oil minister himself who’s now among the founders of oil company Okea) calling Bellona’s complaint “childish” this week. Moe is not at all happy that one of Norway’s most lucrative tax advantages is being challenged.

“The contention that this amounts to illegal subsidy is a problem Bellona has created because it’s opposed to the entire (oil) industry,” Moe told newspaper Dagens Næringsliv (DN) on Monday. He stressed that there’s a solid majority in Parliament in favour of the refunds for exploration costs: “After (Bellona) lost through normal democratic processes, they’re trying to go through the EU competition authorities, or the courts.”

Moe, deputy leader of a party that champions subsidies for the agricultural industry, claimed Bellona and its leader Frederic Hauge are “mounting an attempt to destroy the Norwegian people’s self-rule.” Moe went on to add that “it’s childish of Bellona to file its complaint … Frederic Hauge is a bad loser.”

Exercising ‘opportunities for influence’
Hauge himself retorted that the Norwegian Parliament long ago agreed to be a member of the European Economic Area (EEA, called EØS in Norwegian) after Norway voted against joining the EU itself. The EEA membership obligates Norway to follow most EU regulations, including those applying to subsidy and competition, in return for full access to the EU market.

“Borten Moe’s comments are on a level I won’t spend much time on,” Hauge told DN. “We have agreed to be a member of the EEA, against (Moe’s) Center Party’s will, and that gives us rights and opportunities for influence that we’re using.”

DN noted that Moe’s own Trondheim-based oil company, Okea,  has received oil exploration refunds of nearly NOK 4 million, even though its business model targets oil discoveries that haven’t been developed as opposed to engaging directly in exploration itself. Moe admitted that the refund program “can become more important” for his company in the years ahead.

Potentially expensive lack of new discoveries
Meanwhile Moe and others in the oil industry call it “perhaps the most profitable measure Norway has introduced during the past 30 years.” At a time when oil prices have been rising, companies including Statoil are reporting record profits and optimism is returning to the industry, exploration may pick up.

Last summer’s exploration in the Barents Sea, however, was disappointing and the lack of new discoveries may prove expensive for the state when refunds of costs don’t eventually lead to profits that can be taxed. Statoil CEO Eldar Sætre himself said last week, after reporting a huge jump in profits on lower operating costs, that his only major concern now is the lack of new, large discoveries of more oil and gas. Even though Norway’s Johan Sverdrup field is being called “a money machine,” Statoil, other oil companies and the oil service sector need new projects for the future.

Oil Minister Søviknes shares the concern: “We must keep searching (for more oil) so that the oil service sector will have new projects to work on.” Berglund



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