Richard Milne in Oslo and Christopher Adams in London
AFP PHOTO / MARCEL MOCHET (Photo credit should read MARCEL MOCHET/AFP/GettyImages)
Senior members of Norway’s government and central bank will hold a crisis meeting on Friday to discuss a possible stimulus package as western Europe’s biggest petroleum producer is hurt by a fall in oil prices and investment.
Erna Solberg, prime minister, and Siv Jensen, finance minister, will meet Oystein Olsen, the central bank governor, in the first such meeting since the 2008 global financial crisis as the centre-right government weighs how to respond to the sharp decline in crude prices.
The meeting comes as the Norwegian Petroleum Directorate (NPD), the oil industry regulator, said it expected oil investments in the country to fall by more than a fifth over the next three years. The decline would be bigger if oil prices remained at such low levels, it said. Brent crude was trading at $49.20 on Thursday, less than half its level of a year ago.
Norway’s economy is one of the world’s most oil dependent. However, it is cushioned by the government having squirrelled away most of its petroleum revenues in the world’s largest sovereign wealth fund.
The government is allowed to use up to 4 per cent of the $850bn oil fund each year in its budget. It plans to use a record amount in 2015, but the proposed sum only amounts to about 3 per cent of the fund, giving significant room to boost public spending.
“Probably there is a bit of panicking here from the government,” said Thina Saltvedt, analyst at Nordea, the bank. “I think it is a bit too early to start with [extra stimulus]: it is not a crisis yet. is putting the brakes on for sure, but we need the oil industry to become more competitive.”
Ms Solberg said she wanted Mr Olsen to brief her on the state of the Norwegian economy, given the “significant challenges” the country faced because of the oil sector’s woes.
Her concerns were underlined by NPD forecasts that oil investments would total NKr147bn this year, down from a forecast of NKr180bn a year ago. The NPD expects them to fall to NKr135bn by 2017. But the drop could well be more, as the estimates were based on the oil price during the autumn. “If the oil price stays in the $50-$60 range, investments could fall further,” said Beate Nyland, head of the NPD.
"Probably there is a bit of panicking here from the government . . . it is not a crisis yet. is putting the brakes on for sure, but we need the oil industry to become more competitive"
- Thina Saltvedt, analyst at Nordea
Norway’s oil production has been consistently falling for more than a decade and is now half its level in 2000. However, the trend was previously masked by high oil prices.
The central bank cut interest rates at the end of last year and is expected to do so again at or ahead of the next rate setting meeting in March. The krone has fallen to multiyear lows against the euro and dollar, which will help the competitiveness of exporters but could also lift inflation.
Wood Mackenzie, the energy consultancy, warned that investments would fall by about a quarter this year in Norway even as production rose slightly. “The current uncertainty over the oil price and future project returns means that cuts in exploration, deals and development spend will be unavoidable,” said Malcolm Dickson, an analyst at the consultancy.
Perhaps the greatest uncertainty surrounds projects in the Arctic where several oil discoveries have been made in the Barents Sea. Analysts expect Statoil to delay the development of its Johan Castberg field there for a third time, but the Norwegian state-controlled company this week said only that it was working “to make a positive investment decision — with a timeline towards the summer”.
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