In 2006, the world's consumption of oil amounted to some 84,5 million barrels per day (bpd). This equals 35 percent of the world's total energy consumption. USA and China are the largest oil-consuming countries with together one-third of the world's consumption.
In 2006, Norway produced 2,8 bpd of oil or 3.5 percent of the world production, whereas exports amounted to 2.5 bpd. This makes Norway the world's tenth-largest oil producer and fifth-largest oil exporter.
An important characteristic of the oil market is that the oil resources to a great extent are concentrated in the Middle East. The producing countries in this area, together with some other oil exporting countries, have formed a producer organisation, the Organisation of the Petroleum Exporting Countries (OPEC). Through production regulation, OPEC has historically had a substantial influence on the development of the oil prices.
OPEC's 12 member countries possess approximately two-thirds of the world's oil resources, and account for more than 40 percent of the world's oil production. OPEC's market share is expected to increase in the long term.
Historically, the oil price has varied much from year to year. In recent years, the oil price has increased substantially. In 2006, the average price was approximately USD 65 per barrel (Brent quality), and at the highest, the price reached almost USD 80. This is the highest level ever registered. Nevertheless, measured in real prices, the oil price was at the same level in the early 1980s.
As an important net exporter of oil, Norway has common interests with OPEC in the oil market, but an OPEC membership has not been an issue for Norway.
Norway is a member of the International Energy Agency (IEA), which primarily serves the oil importing countries' interests in the oil market. In the last few years, there has been increasing cooperation and dialogue between the IEA and OPEC. Both IEA and OPEC have common interests in stability and predictability in the oil market, with oil prices on a level that makes it profitable to invest in new oil production capacity, and that not harms world economic growth.
Sales of Norwegian crude oil
A main principle in Norwegian marketing and sales policy has been that the sale of Norwegian oil shall be carried out by commercial companies, and be based on business criteria within the general framework set down by the authorities. This means that the producers on the shelf sell crude oil at market conditions.
The oil is transported in pipelines to on-shore terminals or buoy-loaded to tankers. The price depends on the situation in the oil market and the quality of the oil that is sold. The crude oil price is normally based on a reference price in the spot market. The price of oil from the British Brent field is a reference for crude oil from the North Sea basin. In 2006, the price for Brent Blend averaged USD 65.
The different oil types are often marketed together as a blend, out of commercial and technical considerations. Both oil quality and flexibility as regards loading and storage influence the actual sales price. The Norwegian authorities stipulate a norm price, based on the companies' sales, that is used in the calculation of the petroleum tax.
Norm price
Most oil companies on the Norwegian continental shelf are parts of corporations with a diversified global business portfolio. Produced petroleum is therefore largely sold to associated companies. It can often be a difficult task for the petroleum tax authorities to assess whether prices agreed between two parties are equal to what two independent parties would have agreed upon jointly for each individual sale. In order to avoid this problem, Section 4 of the Petroleum Tax Act states that norm prices may be stipulated and used in the calculation of taxable income, instead of the actual sales price. The methods for stipulation and use of norm prices are described in regulations. The norm price is fixed by the Norm Price Board, and should be equivalent to the price paid for the petroleum had it been traded between independent parties.
Petroleum Price Board (PPB)
PPB have six members, four of them are independent while Ministry of Finance and Ministry of Petroleum and Energy have one member each. The Ministry of Finance also have a deputy and The Ministry of Petroleum have two deputies. The leader of PPB is selected among the independent members.
The PPB meets quarterly to set norm prices for the last quarter. Actual sales prices reported by the companies and price indicators from different publications are important sources of information to the PPB. However, the normprice is a discretionary set price. The companies receive a letter regarding the preliminary norm prices. In this letter the companies are also invited to meet with the PPB, usually 2-3 weeks later, where the companies may put forward their point of view. After meeting with the companies, the PPB determines the final norm prices. The final norm prices are also communicated to the companies in a letter.
Refinery activities
The Norwegian refinery industry consists of two refineries, Mongstad and Slagen. The Mongstad refinery is owned by Statoil (79 percent) and Shell (21 percent), whereas ExxonMobil owns the Slagen refinery.
The two refineries' capacities total approximately 300 000 barrels per day. Production at Mongstad is approximately the double of the Slagen capacity. The two refineries buy crude oil and sell products at the world market, thus the refineries do not necessarily process Norwegian oil. Most of the refineries' production is exported.
(published 19 October 2007)
