Government Petroleum Revenues

The petroleum activities have been crucial for Norway’s financial growth and in financing the Norwegian welfare state. Over more than 40 years, petroleum production on the shelf has added more than NOK 9000 billion to the country’s GDP. In 2010, the petroleum sector represented 21 per cent of the country’s total value creation. Value creation in the petroleum industry is more than double that of the landbased industry, and about 15 times the total value creation in the primary industries.

The petroleum activities have been crucial for Norway’s financial growth and in financing the Norwegian welfare state. Over more than 40 years, petroleum production on the shelf has added more than NOK 9000 billion to the country’s GDP. In 2010, the petroleum sector represented 21 per cent of the country’s total value creation. Value creation in the petroleum industry is more than double that of the landbased industry, and about 15 times the total value creation in the primary industries.

Figure 3.1

Figure 3.1 Value creation in selected industries 2011
(Kjelde: National accounts, Statistics Norway) 

The largest oil exporters (oil includes NGL and condensate) in 2011 and gas exporters in 2010

 The largest oil exporters (oil includes NGL and condensate) in 2011 and gas exporters in 2010

Figure 3.2 The largest oil exporters (oil includes NGL and condensate) in 2011 and gas exporters in 2010
(Source: KBC Market Services)

 

Currently, 70 fields are in production on the Norwegian continental shelf. In 2011, these fields produced more than 2.0 million barrels of oil (including NGL and condensate) per day and a total of about 100 billion standard cubic metres (Sm3) of gas, a marketable petroleum production totalling 229.7 million Sm3 of oil equivalents (o.e.). Norway is ranked as the seventh largest oil exporter and the fourteenth largest oil producer in the world. In 2010, Norway was the world’s second largest gas exporter, and the world’s sixth largest gas producer.

The State receives substantial income from the petroleum activities. Tax from the production companies and direct ownership (SDFI) ensures that the State receives a large share of the values created by the petroleum activities.

 

Macroeconomic indicators for the petroleum sector 2010 

Macroeconomic indicators for the petroleum sector 2010


Figure 3.3 Macroeconomic indicators for the petroleum sector 2010
(Source: Statistics Norway, Ministry of Finance)

 

The State’s income from the sector amounted to about one-fourth of its total revenues in 2010. Figure 3.4 shows the payments from the industry. In the 2011 national budget, the value of the petroleum resources remaining on the continental shelf is estimated at NOK 4 124 billion. The State’s income from the petroleum activities is transferred to a separate fund, the Government Pension Fund – Global.

 

The net government cash flow from petroleum activities

Figure 3.4 The net government cash flow from petroleum activities
(Source: Norwegian Public Accounts)

 

In 2011, transfers to the Government Pension Fund – Global totalled approx. NOK 271 billion. At the end of 2011, the fund was valued at NOK 3 312 billion. This corresponds to more than NOK 650 000 for every Norwegian.

In 2011, crude oil, natural gas and pipeline services represented nearly half of Norway’s export value. The export of petroleum products amounted to almost NOK 500 billion in 2010. This is nearly ten times the export value of fish.

Since the start of the petroleum activities on the Norwegian continental shelf, vast amounts have been invested in exploration, field development, transport infrastructure and onshore facilities. The investments in 2010 amounted to as much as 26 per cent of the country’s total fixed capital investments.

 

The net government cash flow from petroleum activities in 2010

Figure 3.5 The net government cash flow from petroleum activities
in 2010 (bill. NOK)
(Source: Norwegian Public Accounts)

 

Fact box 3.1 An industry for the future

A key precondition for further developing the petroleum resources is that we have a resource base to exploit. During the past 40 years, we have extracted around 40 per cent of the expected recoverable resources. We have produced a larger percentage of oil than of gas. Sixty per cent of our resources remain in the subsurface. In addition come parts of the previously disputed area to the west of the demarcation line in the Barents Sea and the areas around the island of Jan Mayen. The Government presented the oil and gas white paper, An industry for the future – Norway’s petroleum activities in the spring of 2011. An abitious and feasable long-term prouction plan is presented in the white paper.

A steady activity level must be maintained in order to achieve the goal of long-term management and value creation from the petroleum resources. This can best be facilitated through a parallel and active commitment in three areas:

− Increase recovery from existing fields and development of commercial discoveries.

− Continue active exploration of opened acreage, both in mature and frontier areas.

− Implement the opening processes for Jan Mayen and the part of the previously disputed area to the west of the demarcation line in the Barents Sea South, which can provide a basis for new economic activity in Northern Norway.

 

The road ahead

It is expected that petroleum production will remain relatively stable over the next few years. The production of oil and other liquids will gradually be reduced. However, gas sales will increase to between 105 and 130 billion Sm3 over the next decade. Over the longer term, the number of new discoveries and their size will be decisive for the production level. So far, about 43 per cent of what are considered to be the total recoverable resources on the Norwegian continental shelf have been produced. The remaining recoverable resources on the shelf constitute a significant potential for value creation for years to come.

The investment level on the Norwegian shelf has been very high in recent years. In 2011, more than NOK 125 billion was invested, including exploration. The operating costs in 2011 amounted to almost NOK 60 billion. Both the investments and the operating costs are expected to remain high in the years to come. In particular, investments will increase considerably. The activity volume on the shelf will represent a significant market for the supplier industry for many years.

 

Fact box 3.2 The Government Pension Fund - Global

The Government Pension Fund - Global (SPU) was established in 1990 for the purpose of ensuring a long-term perspective when using the Government’s petroleum income. The first transfer to the SPU took place in 1996. The State’s total net cash flow from the petroleum activities is transferred to the Government Pension Fund - Global. In addition, the fund receives income through return, including interest and yield on the fund’s investments. The petroleum revenues are gradually phased into the economy by covering the structural non-oil deficit in the national budget. It is phased in approximately in line with the development in the fund’s expected real return.

Net cash flow from the petroleum activities
– Non-oil deficit in the national budget
+ Return on the fund’s investments
= Revenues for the Government Pension Fund - Global

 

The size of the Government Pension Fund – Global

Figure 3.6 The size of the Government Pension Fund – Global at 31.12.2011 and as a share of GDP
(Source: Statistics Norway, Norges Bank)

 


Nationwide employment

The demand from the petroleum industry has been and is very important for the activity in several industries around the country. Statistics Norway has analysed the effects of this demand, for example on employment in Norway. On the basis of direct and indirect deliveries to the petroleum industry, the agency has prepared an estimate of the scope of employment that can be related to the direct and indirect deliveries to the petroleum industry. For 2009, the estimate is 206 000 employed. The deliveries to the petroleum industry come from various parts of Norwegian industry and commerce. The employment effects therefore cover a broad range of industries.


Ripple effects of the petroleum activities

The development of new discoveries must create the largest possible values for the nation. It will also provide local and regional ripple effects.

When developing discoveries, it is important to find good development and operation solutions. The experiences from developments such as Skarv, Ormen Lange, Snøhvit and Goliat show that new, larger developments provide ripple effects locally and regionally, regardless of development solution. One important condition for achieving good ripple effects is for local and regional industry and commerce to utilise the business opportunities offered by a development in the vicinity.


The Norwegian supplier industry

The petroleum resources on the Norwegian shelf have laid the foundation for a highly competent and internationally competitive oil and gas industry. Today, the supplier industry delivers advanced technology, products and services for the Norwegian shelf and international markets. The industry is active within exploration activity, new developments, operations, maintenance, modifications and abandonment of fields. Some companies concentrate on one of these markets, while others have activities in several parts of the value chain. The Norwegian service and supply industry increased its turnover from NOK 195 to 248 billion from 2007 to 2009. This corresponds to a growth of 25 per cent. The petroleum industry also provides a strong impetus to innovation and technological development within other Norwegian industries.


Successful international industry

Over the last decade, several Norwegian suppliers have gained a strong international position. This is a direct result of the will to develop and use new technology on the Norwegian shelf. The interaction between the oil companies on the shelf, the supplier industry and the research environments has yielded good results.

From 1995 to 2009, the Norwegian supplier industry has increased its international sales more than fivefold. In later years, the growth has been greatest in China, Southeast Asia and Australia. Figures from Menon Business Economics indicate that, in 2009, Norwegian petroleumrelated companies had sales totalling NOK 118 billion abroad, compared with NOK 15.5 billion in 1995.

To strengthen the Norwegian petroleum industry internationally, the INTSOK foundation was established by the authorities and the industry in 1997. Together, they work to ensure that Norwegian suppliers win assignments in international markets.


The energy market

Secure access to energy is important for all countries. Through increased use of energy, manpower can be released from lowproductive manual labour. The most important driving forces behind the increased energy demand are economic and population growth. In the future, the increased demand will mostly come from countries outside the OECD.

Oil accounts for about one-third of the world’s total energy consumption and more than half of the oil consumption takes place in the transportation sector as fuel for various types of motor vehicles. Oil is also used as a raw material in industry and to a lesser extent for combined heat and power production. The demand for oil is rising, particularly in the developing countries, such as China, India and countries in the Middle East. The world’s largest oil producers are Saudi Arabia, Russia and the US. Much of the remaining oil resources are located in the Middle East, where the largest producers have joined forces with some other producing countries in a production cartel, OPEC. The price of oil is determined by supply and demand on the world market. To a certain degree, OPEC can influence the prices by increasing or decreasing supply. We also see that oil prices are now increasingly affected by the development in the international financial markets.

Natural gas accounts for more than 20 per cent of the world’s total energy demand. The most important markets for natural gas are in Europe, Asia and North America. Solutions for transporting gas as LNG (liquefied natural gas – refrigerated gas) on ships have made the market for natural gas more globalised. Natural gas is generally used in the household sector for heating and cooking, in industry and for production of electricity. Over the last ten years, the gas market has undergone significant changes. The possibilities for recovering unconventional gas have considerably increased the world’s gas reserves, and the growth in LNG supply has made gas available in new markets.

 

Fact box 3.3 Subsea technology

Development and use of new subsea technology is an important focus area on the Norwegian shelf and internationally. Using subsea facilities, small fields can be tied into larger facilities and field centres. The useful life of existing platforms and infrastructure is extended, and in such cases, subsea technology will contribute to recovering more resources from the field areas. The advances within subsea technology also facilitate development in very deep waters. The subsea segment has been a business area where the Norwegian supplier industry is an international leader in technology.

Subsea technology

 

Historical production of oil and gas and production forecast for the coming years

Figure 3.7 Historical production of oil and gas and production forecast for the coming years
(Source: Norwegian Petroleum Directorate)

 

 

 Production forecast

Figure 3.8 Production forecast
(Source: Norwegian Petroleum Directorate/ Ministry of Petroleum and Energy)

 

 

 

 Historical investments

Figure 3.9 Historical investments (exploration costs not included)
(Source: Norwegian Petroleum Directorate/Ministry of Petroleum and Energy)

From Facts2012