Since the 1970s, Norwegian crude oil has flowed to the market seemingly without let-up, and along with it, vast sums for the state’s coffers. The natural resources sector accounts for around a fifth of Norwegian economic output, with more than 200,000 jobs dependent on it in a population of just 5.2 million.
The outlook has changed radically since the oil price collapse. While the prospect of cheap fuel has made many happy in the West, the crisis in the oil sector is threatening the livelihoods of tens of thousands of Norwegian oil workers.
The International Energy Agency (IEA) predicts continuing global market oversupply of crude this year, attenders at a recent conference in the US oil metropolis of Houston say. But it also predicts a sharp rise in prices by 2021. Nevertheless Steinar Holden, a professor of economics at Oslo University, remains pessimistic.
“Even if the oil price recovers to a certain extent, it will never return to the levels of two years ago,” he says. Planned projects have been put on ice, with investment in oil and gas falling sharply. Norway’s Statoil, which is 67-per-cent owned by the state, has reacted to the decline by cutting costs and reducing staff, but it is a long way from being out of the woods.
In 2015 Statoil made just 19.5 billion Norwegian kroner (2.2 billion dollars) in operating profits, half the figure earned the previous year. Taking special items into account, Statoil made a loss of 37.3 billion kroner, and the aim is to shed more staff and consultants by the end of this year.
Suppliers to the oil sector are also being hit. From drilling platforms and machinery manufacturers to hotels and restaurants, everyone is feeling the pinch, particularly around Stavanger in Norway’s south-west, where Statoil has its headquarters.
According to the financial service provider DNB Markets, some 30,000 jobs have already been lost since the crude price went into a downward spiral. Norway’s jobless figure has risen to 4.6 from 3.8 per cent since the beginning of 2015. “It’s considerably higher than during the global financial crisis,” says Knut Anton Mork of Norway’s Handelsbanken.
“The economy has come to a standstill,” Mork says. The Oslo government is trying to alleviate the worst symptoms by cutting income and company taxes to boost the economy. For this it is using the state’s huge pension fund that is worth close to 900 billion dollars and derives largely from the income from the oil and gas sectors, but this can only be a short-term solution.
“There has been a readjustment, and this has been boosted by the fact that the Norwegian krone has lost value considerably,” Holden says. The salmon aquaculture sector has profited from this, and industrial sectors are finding it easier to recruit engineers and workers no longer attracted by high pay scales in the oil and gas sector. Apart from fish exports, hopes are centred on tourism.
“But even here the effects are too limited to make good the losses from oil and associated sectors,” Mork says. In any case there are relatively few new jobs on the salmon farms. The thinly populated country has to look for other ways of making its products attractive to a global market over the longer term.
“It’s difficult to predict the industries that will enjoy success in Norway in the future, but what is clear is that the future will have to rely more on human ingenuity than on natural resources,” Mork says.
Until that happens there are several challenges for Norway to overcome that can be attributed to its oil wealth. The energy boom has made it an extremely expensive country to shop in, and now the high cost of living has become a problem.
“Even with the fall in the exchange rate, Norway remains expensive. It’s expensive to take on workers, and that has to change,” Mork says. Economists are calling on the central bank to cut interest rates. “They are still higher in Norway than in the rest of Europe, and there is no sound economic reason for that,” the Handelsbanken economist says.
Nevertheless, Norwegians are not about to panic. “We cannot expect to have such high income from the oil industry in the future,” Holden acknowledges. “But we still have a rather large pension fund.” Seen as the largest of its kind in the world, the fund is invested all over the globe. On that basis, Norwegians
will not have to worry about their prosperity for a while.