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Friday, June 21, 2024

Oil Fund ‘sell-off’ sends mixed signals

NEWS ANALYSIS: Political intrigue fueled the Norwegian government’s decision just before the weekend to sell off stock in companies devoted to oil exploration and production. The decision grabbed lots of attention it may not have deserved, and sends mixed signals about how top Norwegian politicians evaluate the risks of being as involved in the oil business as they are.

Norway’s state oil and energy company Equinor is not affected by the government’s decision to sell off shares in 20 percent of the Norwegian Oil Fund’s energy portfolio, nor are any of the oil majors. Meanwhile, the Norwegian government continues to issue licenses for more oil and gas exploration and production on the Norwegian Continental Shelf. PHOTO: Equinor/Ole Jørgen Bratland

The timing of the government’s announcement highlighted the intrigue behind it. It came just two hours before the embattled leader of one of the government’s small but important parties would open its annual national meeting.

The Liberal Party has been wanting the government to instruct Norway’s huge pension fund known as the “Oil Fund” to dump oil stocks, just like it wanted the fund to sell off shares in coal companies. Finance Minister Siv Jensen could therefore give her crisis-ridden government colleague, Trine Skei Grande, a token victory of sorts: evidence that the Liberals do have some influence over government policy.

“This wouldn’t have happened without the Liberals,” Grande declared to newspaper Dagens Næringsliv (DN).

Her party fellow Ola Elvestuen, who serves as environment minister, further claimed that the decision was “the most important climate decision we have made in this government,” claiming that it sent “a clear message to the world … about which way we have to go and how we will use our investments.” Elvestuen admitted that the actual climate effect of selling off oil stocks was “difficult to measure,” but still an “important signal … that we’re doing this to reduce the risk Norway has regarding a fall in oil prices,” and send a signal about the importance of renewable energy in the future.

Other oil-skeptical parties tried to take credit as well, with the Socialist Left party (SV) claiming it was “historic” for the Norwegian government to pull its huge Oil Fund “out of fossil energy.” The Greens Party also was elated, calling it “fantastic that the finance minister finally admits there is financial uncertainty tied to oil and gas. This is a major breakthrough for the Greens, which proposed pulling the Oil Fund out of all fossil investment as early as 2014.”

Limited ‘sell-off’
The actual “sell-off,” however, is much more limited than most politicians were willing to acknowledge. As commentator Bård Bjerkholt stressed in DN on Saturday, only around 20 percent of the Oil Fund’s energy portfolio will be on the block, comprising a relatively small NOK 70 billion (USD 8 billion) worth of shares. Only so-called “upstream”companies that concentrate their operations on exploration and production are being targeted.

The Oil Fund’s shares in all integrated oil and gas companies that also have refineries, sell products through petrol stations and are involved in renewable energy will be retained. “To put it simply, stock in all oil companies that most folks know the names of, like Shell, Exxon, BP and Total (and Norway’s own state oil company Equinor) will be kept,” Bjerkholt wrote.

It’s believed that Finance Ministry officials prevailed in their desire to only unload sales in the upstream companies that can be most affected by any new dive in oil prices and are therefore “most scary” to own if they also own lots of oil. The “Big Oil” companies are also viewed as most likely to eventually become major players in the renewable energy sector, Bjerkholt noted, citing a study by consulting firm McKinsey, and best positioned to profit on the so-called “green shift.”

Otherwise bullish oil policy ‘stands firm’
Finance Minister Jensen firmly denied any “political play” behind her announcement, saying she was “glad that Trine Skei Grande (of the Liberals) is satisfied with the decision, but this is something the entire government stands behind.” Jensen cited advice received from Norway’s central bank, which administers the Oil Fund, back in 2017, when the risk of oil investments was first hitting the politial agenda.

“This is solely based on a financial evaluation of risk and how we manage the Oil Fund,” Jensen said, stressing that the government’s otherwise bullish oil and gas policy, which keeps opening up new oil fields and encourages oil companies to explore and produce, remains firm.

And therein lies the biggest paradox of all: Norway has now officially claimed that investing in oil and gas exploration and production is too risky for its huge pension fund, yet Norway itself continues to grant new exploration and production licenses on the Norwegian Continental Shelf at a record pace. Norway also accepts much of the risk of exploration costs when no oil or gas is found. Go figure.

Not saving the world
Newspaper Aftenposten trumpted in its own commentary on the announcement that “Norway is selling oil shares out of pure self-interest, not to save the world.” If Norwegian government officials really wanted to cut carbon emissions at home and “save the world,” they never would have opened up so much of the sensive Arctic to oil exploration, and they would have started trimming oil and gas production long ago.

There are simply too many jobs at stake to do that. The Liberals are claiming a “climate victory,” but it’s questionable at best. The government in which it sits instead acknowledged that it simply has too many eggs in the same basket, through its 67 percent ownership of state oil company Equinor (formerly Statoil), its ownership stakes in oil fields, its reliance on all the petrokroner pumped into the state treasury by companies to which it has granted licenses and its shares in oil and gas companies. “A rather little egg has now been taken out of the basket,” wrote commentator Øystein Kløvstad Langberg in Aftenposten.

The Oil Fund had also dumping some other companies recently, selling off shares in 30 companies that failed to meet its demands for ethical or responsible management. The companies, according to DN, simply weren’t good enough in terms of managment or sustainability. The companes weren’t identified.

DN could report over the weekend, meanwhile, that the Oil Fund is flying high indeed on its investments in companies that, among other things, produce cannabis. Profits are “growing like grass,” DN noted, with the Oil Fund seeing gains of NOK 446.2 million just since January 1. Companies in which the Oil Fund has invested include Aphria Inc, Aurora Cannabis, Canopy Growth Corp, Insys Therpeutics and Scotts Miracle Go. Berglund



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