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Kingdom oil fjords and economic analysis
Material posted: Publication date: 06-05-2013

On one of the international meetings, the head of the Central Bank of Norway øystein Olsen devoted his speech to the prospects for the Norwegian economy is now showing impressive results, however, depends on many external factors.

The early period of the First world war was a time of unprecedented economic boom for the young of the Kingdom, barely having gained independence from Sweden. However, the period of growth, accompanied by mass exchange speculation, was soon replaced by an acute crisis, which was due to the difficult economic situation in post-war Europe and a sharp fall in Norwegian exports.


Hidden unemployment

Today, the financial welfare of the Country of fjords, like a hundred years ago, largely determined by the current state of Affairs in other European countries - its basic trading partners. The share of the EU in the last five years consistently accounts for over 80 percent of Norwegian exports.

Its volume last year amounted to 92.4 billion euros, returning to almost pre-crisis level: 97,3 billion in 2008. The Kingdom is the fifth largest trading partner of the EU after the USA, China, Russia and Switzerland. One of the main directions of economic policy of the country in recent years can be considered a policy of reducing dependence on the European market using all advantages of huge outdoor market of a United Europe. Probably not coincidentally, Norway is not in EU, but is member of the European free trade Association, EFTA.

This sort of behavior often results in a conflict situation. The most recent example was the introduction of the Norwegian government a prohibitive tariff on the importation of most imported varieties of cheese, and also beef and lamb from January 1, 2013, which caused outrage in Sweden and Denmark, who accused the neighbors in violation of the rules of the EFTA in favor of the interests of local farmers. Compared to many other European countries current economic situation in Norway looks quite attractive.

Despite a 30% drop in exports in 2009 and reduced GDP by 1.4 per cent, Norway was able quite easily to cope with the consequences of the crisis largely due to the favorable dynamics of demand for hydrocarbons. In 2010, GDP growth was 0.4 percent in 2011 and 1.7, and in 2012 by 3.2 percent. In terms of per capita GDP of Norway is the highest in the world - more than 100 thousand dollars. In 2012 the budget was balanced with a surplus of 12 percent. Highest sovereign credit rating of Norway and the lowest in the world indicator of the probability of default makes the country more attractive for investors interested in the security of their investments.

However, the Norwegian economy is also very specific problems that are not so obvious at first glance. As it may seem, the question of unemployment in the Kingdom is not urgent: reaching in 2008 a record low of 2.3 percent, the past three years it fluctuates around the level of 3.2 percent. But behind the facade this is quite favorable figures of many unaccounted factors, such as the high proportion of part-time employment, and significant level of hidden unemployment among highly educated young professionals, many of whom continue to study, because I can't find a use for their skills in the labour market. According to experts, the problems in the labour market Norway can even force the government to reconsider quite liberal immigration laws.

However, policy can not in the short term to change the fact that the country is experiencing a shortage of qualified personnel in key areas, such as the oil and gas industry. Almost two-thirds of new jobs in the country gets the immigrants, and it's not only the young Swedes, who traditionally come to the neighbors for "a long Norwegian Krone", but also professionals from different countries. The minimum level of wages for unskilled workers in areas such as agriculture and construction, under the condition of full employment is, respectively 2.9 and 4.1 thousand dollars before taxes, which is significantly higher than in most countries of the world. At the same time experienced specialists in Norway will receive slightly more than in the UK, Germany or the United States, however, have to pay more taxes. Excluding part-time work is now provided only 61 percent of the working-age population of Norway.

And it's not just the lack of employers that can offer employees full-time, but in the fact that in recent years, the Norwegians began to work less, and the prevailing level of wages, many of them don't see the point to spend at work the greater part of his time. Norway faced the same problem, which is now highly topical for the Russian economy - low productivity. Experts note that the increase in the number of working hours per year by 10 per cent, from 1014 to 1120, would help Norway to increase GDP by at least five percent. Otherwise, to maintain your current standard of living, the government will soon have to tap the financial reserves.


Saving the shelf

Another important commonality between Norwegian and Russian economies: their dependence on hydrocarbon resources. The "dark" and "bright" sources of easy money - hidden under the bottom of cold seas Norwegian oil and gas - for the past 40 years contributed significantly to the growth of the local economy and the prosperity of the Country of fjords, became the epitome of the social democratic dreams of free education, health care and the highest level of social protection. Proceeds from the sale of oil and gas currently provide a quarter of the total revenues of the country.

In 1963 the Norwegian government proclaimed sovereignty over the continental shelf of the country and began issuing licenses for exploration to foreign companies interested. The first large Deposit was discovered in 1969, a year later, on the Norwegian continental shelf was first started oil production. In 1972 was established the state company Statoil and established the principle of broad public participation in projects for the extraction of hydrocarbons. Currently managing the state share in deposits has been the company", Petoro", however, the state still owns a 67 percent stake in Statoil".

For 43 years from the bottom of the North, Norwegian and Barents seas was recovered about 44 percent of oil and gas resources of the state, nearly 38 billion barrels of oil equivalent. Undiscovered oil and gas reserves are estimated at around 18 billion barrels. Thus, to say that hydrocarbon reserves on the Norwegian shelf comes to an end, that is not necessary, although there are now gas is still considerably more than oil production which really falls for the past 10 years.

However, we must recognize that the most convenient for the extraction of climatic conditions and distance from shore plots really are depleted. In already well-studied and mastered the areas of Northern and Norwegian seas continue to be perpetrated the biggest find, however, mining areas are shifted farther to the North, where the cost of doing the work and the associated risks are significantly higher, and the time since the opening of the field to the start of production longer. Despite the fact that the country and the world continue to develop technologies to produce reserves previously considered unrecoverable, as well as successfully operate in high latitudes, to the fore the question of profitability of implementation of such activities.

So Statoil is now actively involved in various international projects demonstrating a strong interest in the development projects of unconventional resources such as shale oil and gas.


Ode diversification

In conditions when in the world there is a high demand for black gold and blue fuel, long-term and extremely costly projects can be realized, however, the reduction of demand and falling prices can be a major blow to the Norwegian economy. In his speech, said the chief banker of the country, Olsen, a sharp decline in oil prices even in the most favorable situation will lead to higher unemployment and a sharp depreciation of the Norwegian Krone, which is now greatly overvalued.

"In a situation when the country will have to resume economic growth, we first of all will need an effective business sector that can adapt to the changing situation," said Olsen. - At the same time, we see a clear flaw in the Norwegian investment projects, except for oil, which in the future will be able to make a profit".

It is to protect the economy from hard shocks at the time in Norway created the State petroleum Fund, which in 2006 was renamed the Government pension Fund global. Thanks to a widely diversified investment its revenue in 2012 was 13.4 percent, and the total size of assets reached 3.8 trillion kronor, or about 651 billion dollars. His example is one of the most successful in the world and demonstrates a focus on the long term. A distinctive feature of the Norwegian Fund is that it funds at the moment, rarely go for funding any national projects, unlike similar Russian Reserve Fund, the volume of which in 2012 declined. The Norwegian government, as well as Russia, concerned by the diversification of its economy, is needed to protect it from changes in world market prices for oil and gas. And also focuses on the innovative path of development.

The largest funds are now invested in areas such as medicine and development of equipment for oil production, although total funding in recent years has declined. Traditionally strong shipbuilding industry, which also actively apply new technologies and solutions, in particular, on more effective transportation of liquefied natural gas and improving efficiency of Maritime transport. Norway has unique experience in the field of aquaculture - the breeding and cultivation of aquatic organisms by a human. Length rugged fjords of the Norwegian coast exceeds 25 thousand kilometers, according to this indicator, the Kingdom ranked seventh in the world. Natural bays and cold waters create the perfect conditions for the cultivation of salmon and trout that are actively exported.

It is noteworthy that by the end of 2012, the main buyer of Norwegian fish was Russia, surpassing France. Some fish farms the Norwegian coast are also engaged in cultivation of cod, halibut, and various shellfish. Thus in the future it is possible the emergence of a large number of new farms that are focused on very different products. In Norway now in the early stages of development are several projects, which aim to expand and make economically viable production of biofuels from non-food resources such as algae, phytoplankton and fish waste.

Well, Norwegian energy sector in the near future, can fully justify the catchy nickname given to him in some of the continental media: "the green battery of the EU." In Norway, concentrated half of the storage capacity of all hydroelectric power stations in Europe. In an average year on 1250 hydro power plants in Norway produced about 125 terawatts of energy. Its reception is possible thanks to the mountainous landscape of the country, which greatly complicates communication and agriculture, however, provides broad opportunities for using the energy of waterfalls, natural reservoirs - lakes overflowing in the spring, and steep rivers.


"Green battery"

Commitments to a significant reduction in greenhouse gas emissions by 2020 and 2050, undertaken by many European countries now fuels the market for green energy, a major supplier which is already Norway. At a recent meeting of the head of the Norwegian government Jens Stoltenberg and German Chancellor Angela Merkel in Oslo discussed the issue of laying a new undersea power cables from the UK to Germany, which plans to decommission its nuclear power plants. Traditional areas of "green" energy - hydro and wind turbines - are widely used in the Country of fjords, however, the Kingdom's stock has more cards to play, which in future can transform the country-exporter of hydrocarbons in one of the largest exporters of renewable energy. State company "Statkraft" at the end of March he received permission to build the world's first complete osmotic power plant, the principle of which is based on diffusion of liquids with different salt concentration.

Such stations can only work in places where fresh river water mixes with the sea, however, have considerable potential. In the long term, Norway also has a chance to become a world leader in the creation of thorium nuclear reactors, which are theoretically able to solve the problem of shortage of energy resources, becoming more economical and safe source of nuclear energy.

At the end of last year, Norway has started testing an experimental reactor, operating on a mixture of uranium and thorium found in the earth's crust is several times higher than its neighbor on the periodic table of Mendeleev. And here also nature has not deprived the inhabitants of the Country of fjords: in explored reserves of thorium Norway ranks third in the world after Australia and India.


Yuri Mikhailenko


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