Norway’s Shift From Oil on Bumpy Road With Few Growth Engines
Norway’s prime minister is fond of saying the nation is facing a “new normal” as a decade-long boom in its petroleum industry starts to fade. Erna Solberg has given little explanation of what that means, except to say that “knowledge is the next oil” and “fish will be Norway’s Ikea,” ideas she echoed in a speech on Friday at her party’s annual convention in Oslo.
It’s no wonder then that economists are scratching their heads as to what will fill the gap in the economy once oil takes up less space.
The biggest element crippling the oil and non-oil industry is the exorbitant price of labor. Average hourly wage costs in Norway were 47 percent higher than those in the European Union last year, according to government statistics.
“And that’s after taking into account the considerable weakening of the krone through 2013 and 2014,” said Kari Due-Andresen, chief economist at Svenska Handelsbanken. “This is hardly a good starting point for a major transition.”
Rising oil and gas prices over the last 15 years kept Norway afloat, even during the financial crisis when the rest of the world was suffering. As western Europe’s biggest crude producer, the country relies on oil and gas for more than one-fifth of its gross domestic product.
With oil investments set to drop and Brent crude stuck around $65 per barrel, politicians, economists and the central banker agree the nation’s economy needs some remodeling.
So if the oil economy is slowing, what’s Norway left with?
Due-Andresen and her colleagues break down the prospects in their latest report:
1. Wood products: Norway’s Norske Skogindustrier captured some of the global demand for paper and pulp products, but, like everyone else, it’s now struggling in a paperless world. Production levels in Norway were already lower last year than what they were 20 years ago.
Norske Skog on Thursday said the “market remains challenging,” even after making a series of production cuts as it struggles with its liquidity.
2. Aquaculture: Norway has seen decent growth in this industry, but it’s from such a small starting point that it’s not nearly big enough to become a source of real growth. The country exported a record 67 billion kroner ($8.6 billion) worth of fish last year, according to Statistics Norway. Oil, gas and condensates exports added up to 503 billion kroner, the data show.
Marine Harvest, the world’s largest fish farmer based in Norway’s west coast, predicts it will harvest more salmon this year, so the growth continues.
3. Oil services: The drop in exploration and production spending in Norway mirrors what is happening globally, where it will drop by 20 percent this year, according to the International Energy Agency. That means Norwegian oil and gas suppliers will face aggressive competition for contracts everywhere.
That will add pressure to companies like Aker Solutions, an Oslo-based offshore engineer, which is already seeingless demand for its services.
Bloomberg Business
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