Norway’s currency has weakened once again this week, in line with the North Sea oil price that still fuels the country’s economy. What’s more economically worrisome is the gloomy outlook for the entire offshore industry, as oil and gas producers cut back on staffing and face legal challenges for failing to take climate issues seriously enough.
The price of a barrel of Norway’s North Sea crude oil fell under the USD 40 mark this week, for the first time since June. That’s a break-even level that determines whether many oil and gas producers can pump up profits from their offshore oil fields. Quite a few now face costs higher than revenues.
Currency traders reacted quickly as usual. By midday on Wednesday, it cost NOK 9.13 to buy one US dollar. Last week it cost NOK 8.77. That signals a considerable weakening in the value of the Norwegian currency, even though the krone is still stronger than it was during the height of the Corona virus crisis last spring.
Lower oil prices and a weaker currency are nonetheless ominous signs for the Norwegian economy, and they come amidst of a recent rash of predictions for a gloomy future for oil and gas. Several oil majors are being blacklisted by institutional investors for being viewed as directly climate-unfriendly, and failing to move quickly enough into alternative energy projects. It’s been dubbed a “crude awakening” for companies from Shell to Norway’s own Equinor, which has lately been vigorously promoting how it’s “going green.”
On Wednesday came news that children in Portugal are suing 33 countries including Norway at the European Court of Human Rights, blaming their oil industries for the climate change and heat waves that have set off huge, destructive forest fires in their homeland. Legal challenges have already been filed over Norway’s controversial Arctic oil operations, and experts predict more will come.
Investors and several politicians don’t think Equinor or other producers on the Norwegian Continental Shelf are moving quickly enough to address climate and environmental issues. Kari Elisabeth Kaski, a Member of Parliament for the Socialist Left party (SV) wants the state-controlled Equinor (formerly Statoil) to be divided into two, with its troubled international oil and gas operations in one company and its Norwegian operations and wind energy projects in another. The international operations should eventually be sold off, Kaski claims, with the proceeds invested into more renewable energy projects.
Her proposals have been dubbed “hopeless,” with newspaper Dagens Næringsliv (DN) editorializing that state officials can never be allowed to exert such pressure on management. At the same time, however, DN and others stress that it’s high time for Norwegian politicians to recognize and discuss the huge financial risk connected to the state’s ongoing ownership of 67 percent of Equinor’s shares. Norway’s central bank has already recommended that Norway’s own Oil Fund, fueled by oil revenues over the past 25 years, should drop oil and gas companies from its portfolio.
Job cuts loom
This week’s oil price fall and weaker krone come just as the oil and gas business is already warning that it will be cutting jobs by the end of the year. The chief executive of employment agency ManpowerGroup’s operations in Norway told DN on Wednesday that the outlook for the business is gloomy indeed: Manpower’s staffing barometer reveals employment reduction plans in the fourth quarter, resulting in the weakest employment outlook for the oil sector since 2003. The hotel and tourism industry also is expected to slash jobs, but not as heavily as in oil and gas.
Knut E Sande, director of industrial employers’ group Norsk Industri, claimed that Manpower’s survey is relatively limited and that many companies are managing to maintain operations and staffing levels. He confirmed to DN, however, that “several Norwegian industrial firms are cutting back in light of weak economic prospects in several markets. We’re heading into a lower economic cycle.”