Norway's wealth is built on oil. The relatively sparsely populated country in the far North of Europe, with its picturesque fjords, romantic coastal villages, azure lakes and endless forests, can consider itself lucky to sit on Europe's largest oil reserves, currently making it the world's sixth largest oil producer, according to figures from the US Energy Information Administration.
Reserves are estimated at 16.4 billion barrels of oil equivalent, the Norwegian Petroleum Directorate (NPD) said in its annual review for 2010. Last year, the country pumped out an average of 1.8 million barrels per day. The oil industry contributes around 20 per cent to the country's GDP, and the oil income is well managed in two Government Pension Funds, whose size in assets is second only to the sovereign wealth fund of the Abu Dhabi government, the world's largest.
This allows Norway's citizens to enjoy the second highest GDP per capita in the world, behind Luxembourg and ahead of Qatar, Switzerland and the UAE, according to figures released by the International Monetary Fund for 2010. Norway's government uses this considerable wealth to fund a generous welfare state for its 4.5 million citizens, pay the highest wages for its public sector workforce within the OECD countries and pursue its idea of egalitarian values in society. But the oil wealth is not going to last forever. Experts have warned that vital oil fields in the North Sea are beginning to dry up.
In January this year, the NPD slashed its oil reserve estimates after disappointing results in 2010. It said that production dropped by 10 per cent in 2010 over 2009, and unless new fields are discovered and exploited, production will sink further, the government body said.
Updating technology
NPD head Bente Nyland said that the development in the oil sector "poses a challenge" and called on the country's oil companies, which have already committed investments of around $25 billion in 2011 to develop new technologies, to increase their production rates. The country's biggest oil company, Statoil, said that it is going to raise its investment by 14 per cent to $7.5 million (Dh27.6 million) this year.
In total, Norway has 17 oil fields, of which Statfjord and Ekofisk are the largest. Energy expert Mikael Hook of the Uppsala University in Sweden said that the annual decline rates of Norway's oil fields was more than 10 per cent in recent years, which means that "Norway would barely be an oil exporter by 2030, with only a few hundred thousand barrels of oil available for export in the best case." �This would lead to dramatic consequences for the Norwegian economy. Many of the nearly 500 facilities on the Norwegian shelf are approaching the end of their planned lifetime.
"There will be a significant increase in decommissioning activities in the time ahead. This will be a very important activity that will require a lot of attention from licensees, authorities and the supplier industry," said NPD Senior Geologist Oystein Dretvik.
Expansion plans
Many hopes are now pinned on new discoveries in the Arctic regions, namely resources in the Barents Sea (see graph on page 13). At the same time, Norway's oil industry is looking to expand internationally by offering their experience and bidding for production licences.
In April 2011, Norway announced the discovery of a new 500 billion barrel oil field — the Skrugard field — in the Barents Sea, 200 kilometres off its northern coast. While not exactly a giant field, it is still the biggest discovery since the 1980s. Statoil's Katla prospect is also a recent discovery, with expected recoverable reserves in excess of 7 million standard cubic metres of oil equivalents. Production is expected to start in 2013. The government granted 12 new licenses to oil companies, most of them to Statoil. Seven exploration wells are due to be drilled in the Norwegian part of the Barents Sea in 2011, and seven more wells after 2011. "There is unprecedented interest in our northernmost seas," said Norway's Energy Minister, Ola Borten Moe, in a statement after the license round.
"Much hope must be placed on the Barents Sea," expert Mikael Hook said. "This region is less than fully explored, so it might offer a few more new giants, especially when it comes to gas. However, the geology is generally unfavourable." Environmentalists are also worried about potential damage to the Arctic region's fragile ecology.
In its bid to expand its oil service industry internationally, Norway's oil major Statoil is targeting more business in the Middle East. In the UAE, Statoil is currently positioning itself for oil and gas licensing rounds announced by Adnoc in the coming years.
"Statoil is pursuing opportunities to develop oil and gas value chains together with Adnoc," said Neri Askland, Statoil's country representative in Abu Dhabi. "With our technological competence and heritage, we believe we can be a good partner for Abu Dhabi, fostering research and development, as well as Emiratisation goals for the oil and gas sector of Abu Dhabi," he added.
Statoil is also considering bidding for licenses in Saudi Arabia and Oman, the company said.
SAFETY MATTERS
Safety is a matter of concern on the Norwegian oil shelf. In its latest report regarding the risk level on the shelf, published on April 27, 2011, the Petroleum Safety Authority Norway said that there have been "too many gas leaks and well incidents during the past year." 12 of a total of 14 gas leaks and 7 of 28 well incidents have been attributed to Statoil.
"Preventing and reducing the number of gas leaks is… a key priority for Statoil in the future. We are working with the rest of the industry to improve in this area," said Arild Haugland, vice president for health, safety and environment at Statoil, in a response to the report.
However, over a ten-year perspective, Statoil and the industry have registered annual safety improvements on shelf installations. The number of gas leaks annually on the shelf has declined from 40 to the current 14 over the last decade. From 2009 to 2010, the personal injury frequency in the Statoil group reduced by more than a third, according to Statoil's own safety reports.
Norway's sovereign wealth fund
The surplus oil wealth of Norway is deposited in two sovereign wealth funds, the Government Pension Fund of Norway - Global and the locally investing Government Pension Fund - Norway. While the latter mainly invests in local companies at the Oslo stock exchange and acts as a government stake holding body in crucial industries such as oil, heavy industry, telecom, airlines and banking with assets of around $25 billion, the global fund is a real mammoth with a total market value exceeding $525 billion as per the end of 2010, according to Norway's finance minister Sigbjørn Johnsen.
This makes the fund the second largest worldwide behind the Abu Dhabi Investment Authority's oil wealth fund. Norway's state fund is invested in more than 8,000 companies on all continents as well as a great number of fixed-income assets such as bonds and treasuries. The fund is said to hold more than one per cent of all global equities, with more than half the fund's capital invested in Europe. The fund also has a large exposure in China, India and South America.
In his report to the Norwegian parliament in April this year Johnsen said that the return of the fund, managed by Norges Bank Investment Management, was 9.6 per cent in 2010, "clearly above the benchmark." He added that current projections showed the fund might double by 2020.
Among the biggest and most valuable holdings are Siemens, Renault, Axa, Hutchison, Petrobras, China Unicom, France Telecom, Canon, Nomura, ArcelorMittal, Philips, Unilever, Gazprom, Lukoil, Sberbank, BHP Billiton, Telefonica, UBS, Credit Suisse, Roche, GlaxoSmithKline, HSBC, Deutsche Bank, Royal Dutch Shell, Apple, Caterpillar, Coca Cola, Goldman Sachs, Amazon, General Electric, eBay, Google, General Motors, Ford, Toyota, JP Morgan, IBM, Intel, McDonald's, Microsoft, Oracle, Walt Disney, Time Warner, HP, ExxonMobil, Berkshire Hathaway, ABB, Barclays, Total and Société General.
In the UAE, Norway's pension fund is holding stakes of Air Arabia, DP Word, Dubai Investments, Arabtec, Emaar, Aldar, Waha Capital and others, as well as bonds of ADCB, Mubadala and the Emirate of Abu Dhabi.
