The last day of trading prior to Norway’s five-day Easter holidays ended with the Oslo Stock Exchange’s main index falling 1.34 percent, to 734.38. The Norwegian market once again was influenced by an oil price drama that wasn’t resolved by closing time, and also involved controversial calls for tax breaks from the country’s biggest and most profitable oil companies.
“The state should not contribute to higher oil risk,” editorialized newspaper Aftenposten earlier this week, after Equinor CEO Eldar Sætre and several other oil industry representatives asked the Norwegian government for tax relief to maintain activity on the Norwegian Continental Shelf.
The request comes at a time when the Norwegian government otherwise is doling out huge amounts of money to bail out businesses and laid-off employees hit hard by the Corona virus crisis. Norway’s oil industry, which boomed for more than a decade and has recently recovered from a oil price collapse in 2014, now seems to want its own piece of the cake. It’s being hit by both lower demand for oil and gas, because of the Corona-induced world economic slowdown, and an oil production and price conflict involving Saudi Arabia, Russia and the US.
It’s all brought oil prices down into the low USD 20s per barrel, spooking investors and prompting the call for tax breaks and postponements to boost offshore oil investing in Norway. The Norwegian Parliament decided last week that the government must respond with yet more measures to keep oil and gas activity high, as part of the revised state budget to be presented later this spring at the latest.
That’s set off debate on two fronts, from those contending that keeping oil activity and production high will only contribute to keeping oil prices low, and that’s rarely if ever good for the Norwegian economy. And should Norway encourage more oil production? Environmentalists and climate activists answer with a firm “no,” while increasing numbers of analysts and economist warn it’s risky. The cost of investing in new projects at today’s oil prices may never generate returns
Some analysts and economists also warn that oil prices could fall back to just USD 10 a share or even lower. Oil veteran Erik Haugane of oil firm Okea told newspaper Dagens Næringsliv (DN) Wednesday that he’s positive to cuts in production.
“If all the oil producers that export oil would cut production by 10 percent, it would balance the market,” Haugane told DN, “but then everyone would need to contribute, including Norway and all other oil producers.”
He said that if only Saudi Arabia and Russia agree to cut production, “it would only be a signal effect.” The two producers were due to meet on Thursday in an effort to agree on a production cut to prop up prices, but many worry a higher price may be short-lived. The highly volatile price of Norway’s own North Sea crude at present was down 0.88 percent when the Oslo exchanged closed down on Wednesday, but then moved back up, to around USD 32 a barrel an hour later.
State asked to order cuts
Haugane hoped the Norwegian government itself would move to cut production, calling that “a sensible strategy. It’s better if it happens in an organized manner based on an analysis from the state oil bureacrats’ perspective, rather than from individual oil companies’ perspectives.”
Norwegian state oil company Equinor can keep turning profits on most of its fields at current price levels, meanwhile, and was hailed last week at being among the best-equipped of all companies to ride out the current oil market storm. Equinor’s Sætre is also bracing, along with other analysts like Bjørnar Tonhauge at Rystad Energi in Oslo, for more falls in the oil price even if production is cut. Demand for oil is simply too low at present, and may remain so for quite awhile as the world continues to be mostly shut down to limit the spread of the Corona virus. Recovery, once the virus is under control, can take a lot of time, too.
With airlines grounded and people all over the world told to stay home and work from home, and Russia and Saudi Arabia flooding the market with oil, “it’s a very serious situation,” Sætre said on state broadcaster NRK’s morning political talk show late last week. “We have to handle the Corona situation, we see a major recession taking hold worldwide and it1s an exceptional situation in the oil market that’s hit very abruptly.”
Broad calls for tax relief countered by warnings
That’s all led to the calls for tax relief from both trade union confederation LO and national employers’ organization NHO, in another new if rare show of solidarity. Industry organization Norsk Olje og Gass wants changes that mostly involve temporary tax deductions for what’s invested at the time of investment this year and next, instead of over a current six-year period. The organization fears job losses in the oil industry if oil prices stay low and profits fall. Tax postponement would at least allow the oil firms to retain more money within the company.
Objections came swiftly, and not just because last year was a record year for many Norwegian oil companies, with strong profits, high executive salaries and bonuses to match. Newspaper Aftenposten editorialized that the oil business is in a different situation than other businesses hit by the Corona crisis. Many were forced to shut down almost over night, Aftenposten noted, losing all their revenues and earnings, while that’s not the case in the oil and gas business.
The oil industry’s biggest problem is that its market is out of balance while the world already is moving towards energy restructuring away from oil and gas. Demand for oil may never return to former levels, and Norwegian taxpayers shouldn’t have to take on more risk than it already has, argue opponents like Aftenposten and the Socialist Left party (SV).
The industry nonetheless wants state help to maintain oil investments at a time of falling oil demand. That’s not something Finance Minister Jan Tore Sanner of the Conservative Party may be keen to do when he’s already spending unprecedented amounts trying to help hard-hit businesses survive, but he will be under intense political pressure to do so.
newsinenglish.no/Nina Berglund
