Oil crisis shows richest Nordic country remains a crude addict

Image: Equinor

Norway has been talking for years about weaning itself off oil, but the Covid-19 crisis has revealed how far it has left to go.

Norwegian politicians this week sweetened a package that will delay more than $10 billion in taxes for oil companies and make projects more profitable after even the country’s industry-friendly prime minister implored lawmakers to show some “spine.” Critics say that could lead to loss-making ventures and slow down the necessary shift to a greener economy.

The powerful oil lobby and the industry’s most influential executives put massive pressure on politicians for the changes, arguing that thousands of jobs at suppliers companies were at stake if more wasn’t done to stimulate investments after a deep rout in commodity prices.

And the broad agreement in Parliament, where the Conservative-led government lacks a majority, essentially gives the oil industry what it asked for. While that was expected, given the severity of the crisis, it contrasts with a sense that the political momentum in recent years was slowly turning against the industry as climate change concerns grow deeper.

“This illustrates how oil dependent we are,” said Kari Elisabeth Kaski, a lawmaker from the Socialist Left Party who didn’t back the temporary changes.

Kaski and Silje Ask Lundberg, the head of the Norwegian Society for the Conservation of Nature, both described the aid to the industry as “shocking.” “This package tells us that Norway is nowhere near ready to switch from oil and gas,” Lundberg said.

The government’s initial proposal was meant to increase tax income by 14 billion kroner ($1.5 billion) in the long term, even if companies profited from a boost in short-term liquidity. Lawmakers turned that to an 8 billion-krone loss for the state.

Less than 24 hours later, top producers Equinor ASA and Aker BP ASA confirmed investments in several projects.

It’s complicated

The discovery of crude off the coast in the late 1960s made it western Europe’s biggest oil and gas producer and one of the world’s richest countries. It’s racked up a $1 trillion sovereign wealth fund that’s come in handy in softening the impact of the pandemic.

Yet Norway also prides itself on being a leader in the green transition. It’s got the biggest share of electric cars per capita, sponsors rainforest preservation across the globe and even claims its oil is just about the cleanest in the world thanks to low emissions in the production phase.

Public debate about oil’s role in Norwegian society has intensified in past years. The industry’s contribution to the economy also dropped to 13% last year from 20% in 2013. But the “excessively generous” terms now granted to oil companies could prolong Norway’s reliance on oil, regardless of what most politicians aspire to, said Kari Due-Andresen, chief economist at Handelsbanken.

“You’d be better off spending the money you have on long-term jobs — I think this is extremely short-sighted,” she said. “This can clear the way for investments that might not be profitable otherwise.”

The package agreed to by Norwegian politicians this week also forces more ambitious emission-reduction targets on the industry, and saving jobs in the industry may help recycle know-how into offshore wind, carbon capture and other climate-friendly ventures.

The oil lobby disagreed that Norway had just proven how oil-dependent it is, and said it was a “misunderstanding” that all the industry does is look for more oil.

“The supplier industry is building up a totally unique competence, which we will depend on to reach the green transition,” said Tommy Hansen, a spokesman for the Norwegian Oil and Gas Association. “We’re an industry that’s in the middle of a transformation, both on the supplier and oil-company side.”

© 2020 Bloomberg L.P.