Norway’s love affair with Oil & Gas on the rocks?
Trouble in energy paradise as Norway’s Statoil tries to balance sustainability and profitability in the face of climate change.
As far as the economy is concerned, a conversation about Norway might as well be a conversation about oil and gas. The Norwegian government holds a 67% stake in the country’s largest oil & gas company, Statoil, and has counted on the petroleum sector for significant portion of GDP revenues since the 1970s.
Figure 1: Macroeconomic Indicators for the Petroleum Sector, 2015 .
Figure 2: Norway’s government cash flow from petroleum activities, 1971-2015 .
“We know there is a paradox. We have been living well from oil and gas. But there is no country in the world that has done more to undermine the oil and gas industry than Norway .” –Vidar Helgesen, Norway’s Minister of Climate & the Environment
Despite oil & natural gas being the largest sector contributor to Norway’s GDP, the country uses almost none of it (an estimated 99% of Norway’s energy use is hydropower). In fact, the government prides itself in its commitment to sustainability, and has gone to great lengths to reduce emissions by subsidizing innovation, implementing a carbon tax, and publicly setting a target for Norway to be 100% carbon neutral by 2030. Oh, and let’s not forget the legislation largely responsible for Norwegians becoming the #1 buyers of Tesla’s electric vehicles outside of the United States; the Norwegian government eliminated import tax on the vehicles (automotive tax in Norway is typically around 50%), parking, tolls, charging station fees, and even allowed Tesla owners to drive in bus lanes .
Demand for power caused by population growth and economic development is outpacing innovation of technology producing alternative sources of energy; although Statoil management predicts the energy mix will continue to shift gradually towards renewables and away from coal and traditional oil & gas, they argue that critics of the industry will need to get used to the idea of relying on Petroleum for at least a couple more decades if they want to keep the lights on. That being said, the firm is very much in favor of governments taxing emissions (Norway was one of the first countries to approve the climate agreement signed at the 21st Conference of Parties, COP21, in December 2015) .
“It might sound strange that an oil and gas company that kind of produces carbon is advocating ‘please put a tax on carbon’, but that’s actually what we’re doing. Last year we sent a letter to Christiana Figueres and the ones running the Paris agreement that said, ‘please introduce a CO2 tax because we need that’.” -Bjorn Otto Sverdrup, Statoil’s Senior Vice President for Sustainability, in an interview with ABC News .
Statoil has gone to great lengths to demonstrate true commitment to implementing sustainability measures, investing heavily in R&D to develop technology that reduce greenhouse emissions, while holding suppliers accountable to the same high standards. Additionally, the company has contributed over $1.3B to sustainability projects focused on planting trees and regenerating natural resources in various countries including Brazil, Indonesia, and Guyana .
Ok, so what should Statoil do next?
Innovation, innovation, innovation… but not alone. No firm is in a position to combat global warming single handedly, and even a small coalition could create a first mover disadvantage given the high costs. It was just announced this morning that Statoil is teaming up with 9 other major players in the oil industry to launch the Oil and Gas Climate initiative, a platform by which they will jointly develop carbon capture and storage technologies over the course of the next decade . The energy sector should continue building these types of partnerships to share the cost burden as well the benefits of technological advances, in order to meet the energy demands of the future.
- http://www.norskpetroleum.no/en/economy/governments-revenues/ Accessed November 2016
- http://qz.com/119662/why-tesla-is-focused-on-oil-rich-norway-as-it-expands-beyond-the-us/ Accessed November 2016
- http://www.statoil.com/no/InvestorCentre/AnnualReport/AnnualReport2015/Documents/DownloadCentreFiles/01_KeyDownloads/Annual_report_on_form_20-F.pdf Accessed November 2016
- http://phys.org/news/2016-08-paradox-nation-norway-climate-leader.html#jCp Accessed November 2016
- http://www.abc.net.au/news/2016-09-27/norwegian-paradox-fighting-climate-change-selling-fuels/7876368 Accessed November 2016
- http://seekingalpha.com/news/3221336-big-oil-invest-1b-10-years-carbon-capture-technology?uprof=45 Accessed November 2016
- http://www.statoil.com/en/technologyinnovation/researchinstatoi/pages/default.aspx Accessed November 2016
http://www.climatechangenews.com/2016/09/28/leading-scientist-tells-norway-to-stop-looking-for-oil/ Accessed November, 2016
http://www.oilandgasclimateinitiative.com/ Accessed November, 2016
http://www.statoil.com/annualreport2009/en/sustainability/climate/pages/climate.aspx Accessed November, 2016
http://www.statoil.com/annualreport2011/en/shareholderinformation/pages/majorshareholders.aspx Accessed November, 2016
http://www.offshoreenergytoday.com/norway-statoil-increases-oil-and-gas-production-by-17-pct-in-2q/ Accessed November, 2016
Student comments on Norway’s love affair with Oil & Gas on the rocks?
It is great to hear that Statoil is embracing a low carbon future. It might sound strange that an oil and gas major likes the idea of “putting tax on carbon”, but in reality it also drives the company’s strategic decisions. For example, it may consider entering into carbon trading and build expertise in this area. It may also consider change the structure of its portfolio, for example divesting old oil fields in north sea and exploring for more gas fields. By doing so, Statoil will be able to better cope with changes in climate change and its own low carbon initiatives.
I agree that innovation is needed from all the companies in this sector jointly. Because there is the possibility of a first-mover disadvantage, I believe initiatives like the Oil and Gas Climate initiative are crucial to make progress. Based on my understanding of the oil and gas sector, there are high enough barriers to entry, that if all firms worldwide can agree to join together in such an initiative, they can affect significant change without fear of being undercut by competition.
In the recent election cycle, many candidates (including those in the primaries) cited the benefits of Nordic countries and how Americans should look into the government programs they have and mimic them. I appreciate how the author has shined a light on why these Nordic countries, especially Norway, is able to support these programs (on top of having low population density) and I criticize politicians who think that success in another country could be automatically applied in ours. I agree that Norway is able to fund its generous benefits and promote many of the tax credits on eco-friendly matters due to a much less eco-friendly piggy-bank, StatOil. But I disagree with the author that Norway’s future should be to push StatOil to innovate. If Norway truly cares about climate change, then it should realize that no matter how clean they could make the oil extraction and refining process, this finite resource will be burned. I would instead challenge the Norwegian government to implement sustainability goals by becoming more self-sustainable and curtailing exports of oil, keeping it in the ground, even at the cost cutting funding of its current government programs.
I share the cynicism of the earlier commenters. It is easy to lobby for a carbon tax when you have a large quantity of captive reserves that can be accessed quite inexpensively (https://www.ft.com/content/ca7bb39a-6dd9-11e6-a0c9-1365ce54b926 — Statoil’s most recent major development project has a $25/bbl breakeven). I wonder if Statoil would be as progressive if it had a less impregnable competitive position and had to manage the needs of a more fragmented and more short-term focused shareholder base
I question whether Statoil can truly be committed to sustainability as an oil and gas company. While it is admirable to a certain degree that Statoil is investing in sustainability projects, that does not change the fact that it is still an exporter of oil and gas that is being used around the world and producing greenhouse gas emissions. I also question the motivation behind Statoil advocating to “please put a tax on carbon” – the cynic in me is inclined to believe that their lobbying efforts on this topic and specifically related to the COP21 agreement are primarily motivated by a desire to reduce uncertainty about climate change regulations and legislation (similar to a large portion of the business community). Perhaps I would be more persuaded by their actions if it was accompanied by a long-term transition plan that would demonstrate how they plan to move away from oil and gas production to the production of clean energy as a significant portion of their business.
Unfortunately, as of right now, there is no universally agreed-upon source of energy capable of meeting the globe’s growing energy demands with the technology and infrastructure available in 2016 – nor is there a company or governing body able or willing to assume sole ownership of such an endeavor. Hence, the need for networks of global industry leaders to be established with defined goals and shared responsibility.
Although it’s easy to point fingers at the oil companies – and I absolutely feel it’s important that we continue to do so, as relentless pressure will leave the industry no choice but to improve and innovate – we need to be realistic about what we are asking for and within what time-frame. The only way Statoil and other firms can generate the funds required for the capital-intensive R&D required to develop ways to reduce and/or eliminate the role of traditional oil & gas, is if there’s a revenue stream enabling them to pay for it. Additionally, placing restrictions on just one firm or country is unlikely to produce any of the changes we’re looking for on a global scope, as business incentives are necessary for this type of initiative to be successful. Not to mention, we’d still like to keep our lights on in the meantime!
For more info on Statoil’s energy perspective and plans: http://www.statoil.com/en/NewsAndMedia/News/2016/Pages/EnergyPerspectives2016.aspx