Katherine Wong

Guiding Research Questions

• What is the corporate structure of Statoil in relation to the Norwegian government?

• How has Norway’s oil industry changed over time?

• What are the actors involved beyond Statoil? How do they relate?

• Has Norway managed to avoid the “resource curse” of other countries– and if so, how?

• How has Norway’s culture and political structure shaped its energy policy?

Context: History of Oil in Norway • 1959: Oil discovered at

Groningen

– Potential for oil in the North Sea?

• 1962: Phillips Petroleum applies to explore

– Application rejected

• 1963: Norway’s government creates legal and regulatory framework

– proclaims sovereignty over NCS

• 1965: Government clarifies how to divide NCS with Denmark and Great Britain

• Clarification leads to giving licenses to drill to companies

•1970s: Exploration initially confined to area south of the 62nd parallel

• Shelf eventually opens • IOC allows for initial transfer of human capital to take place which lowers costs for government

• 1972: Statoil created – Timing allowed for govt to avoid

geological risk

• 1985: State participation in oil reorganized by conservative party – Statoil now has to compete for

reserves; lost right from 50% to 12% of any field developed

– (1) Linked to company – (2) Part of State’s Direct Financial

Interests

• 1990s: Expand internationally to Ireland, China, Angola

• 2001: 21.5% of SDFI’s assets sold – Statoil listed on NYSE and Oslo SE

Geography

Logistics

• Initially oil was loaded into tankers • Vulnerable to weather

•Today, web of submarine pipelines •8100 km natural gas pipeline

•Owned: Gassled •Operated :Gassco •Tech Service Provider: Statoil

•Langeled Pipeline: transports Norwegian natural gas to the UK

•One of the longest subsea pipelines (725 mi) •Built in 2004

Statoil

• Operates in 36 countries

• Involved in exploration, drilling, transport, refining, and marketing

• 13th largest oil and gas company; largest company in Nordic region by revenue and profit

• 80% of Norway’s oil and gas production

• Alliance with BP

– Coordinate start-up costs leading to new discoveries

Merger: Norsk Hydro

•Aluminum, renewable energy, oil, and gas •State: 43.8% ownership •Oil and gas operations merged with Statoil in 2007– Why? •Two companies owned by government competing for same acreage; inefficient

Corporate Structure

1972: private limited company owned by Norway – Shares not offered to general public

– Direct participation by Norwegian state

– 50% state participation in each production license

– Storting (Parliament) can evaluate whether state participation should be higher or lower based on circumstances

– Wanted to build up Norwegian competency in petroleum industry

Corporate Structure

• Gradually privatized over time – 1985 restructured by conservative

party

– Lost monopoly over reserves from 50% to 12%

• 2001: Public limited company – Listed on stock exchange to public;

Oslo SE and NYSE

– 21.5% of SDFI’s assets sold

– 15% sold to Statoil; transition to privatization; 6.5% sold to other licensees

Government Relationship

• State is largest shareholder with 67% of shares

– Ownership managed by MPE

• “Structured petroleum policy in a manner that serves the economy as a whole rather than the interests of a limited number of individuals”

• Allowed domestic competition from IOC and domestic firms like Saga

– Led to more efficiency

• Power struggle between labor and conservative impacts power and role of Statoil

– Today, in the center

Petoro & SDFI

• State’s Direct Financial Interest: created in 1985 – portfolio of the Norwegian

government’s directly owned exploration and production licenses for oil and gas in NCS

• Petoro: state-owned company – Manages portfolio SDFI

• Manages government holdings in ventures

• Monitor Statoil’s sale of petroleum from SDFI

Gassco & Gassled • Gassled: partnership of oil

and gas companies that owns the offshore NG infrastructure in NCS

• Gassco: established 2001 by MPE – Under direction of Gassled – State owned company that

operates gas pipes that transport NG from NCS to Continental Europe

– Administration and operation of 15% of European NG pipelines

Petroleum & Norway’s Economy • In 2005, 25% of GDP and 52%

of exports – 30,000 employees

– >1% of total employment

– Statoil employs 12,000

• Recent declines in Norwegian oil output offset by rising natural gas production

• 2nd largest NG exporter

• 6th largest oil exporter

• Statoil participates in majority of oil and gas fields in NCS

Petroleum & Economy • Norway is not in EU and

OPEC – Keep own energy prices in

line with world market – But is a part of European

Economic Area

• Critics point out that Norway is dependent on natural resources that are vulnerable to fluctuations in demand – Norway starting to

encourage new, high-tech industry

Energy production and consumption

• Oil: – Produces 2.134M bbl/day – Consumes 221,300 bbl/day

• 6th largest producer of natural gas and hydroelectricity

• Biggest consumer of hydro (95.7%) in 2009

• Biggest trading partners: – UK 26.7% – Netherlands 12.1% – Germany 11.4% – Sweden 7% – France 6.6% – US 5%

Electricity and Energy Comparison

• MTOE: Million tons of oil equivalent (107 kcal)

• Norway exports most energy

• Much lower CO2 emissions

• Consumes much more energy

Region Pop GDP

(2000

USD)

Energy

Prod

(MTOE)

Net

Imports

(MTOE)

CO2

emissions

(Mt of Co2)

CO2/pop

(t

CO2/capita)

Elec

cons./pop.

(kWh/capita)

Norway 4.83 M 195.96B 213.64 -185.51 37.31 7.73 23,558

US 307.48 M 11357.07B 1686.4 559.01 5195.02 16.9 12,884

Statoil CSR and Environmental Impact

• How to deal with poor governance, inequality, and poverty in areas of investment? – Human rights, anti-corruption

• “We believe that ethical conduct is a necessary condition for a sustainable business.”

• Carbon capture and storage

• Investments in Canadian tar sands – Shareholders voted to continue

– Reaction by Greenpeace and WWF

Norway’s Current Oil Situation • North Sea wells have drying up

– Companies have to explore further north for new reserves

– Oil production has fallen by 48% from 2000 peak

• Oil wealth has protected Norway from 2008 recession – “Kept wheels of country’s

economy turning”

• Skrugard: Arctic find – Possible yield of 500 million

barrels – Relief to investors

• Increasing natural gas production

Anticipating Resource Curse • Minister Trygve Bratteli of Labor Party

(1974) – Warned Norway’s undersea blessing

could become a curse; oil must be handled judiciously

– Do not let petroleum displace traditional export industries like shipbuilding and forestry and leave Norway vulnerable to fluctuations in demand for energy

• Oil Minister Ingwald Ulveseth (1974): – “It is not our aim that every Norwegian

have big automobiles. This is not the Norwegian way.”

• Dutch disease: high revenue from oil industry creates inflationary pressures that stile economic development in other sectors

Ways Norway has avoided Resource Curse

• Policy focus on long-term wealth management – Awareness of resource curse

– Successful transition from infant industry

• Limited non-commercial policy interference in Statoil’s operations – Manage to keep Statoil free from political

entanglements

– Statoil is relatively professional

• Allows for some competition to add efficiency

• Government recognized evolution of Statoil in changing energy sector – Recognizes eventual declines in oil

and gas production

– Saves state revenue from petroleum in wealth fund valued at $500B

• Norway’s culture – Patience, self-discipline, efficiency,

pragmatic socialism

• Government has tried to protect Norway from energy bubble – Virtually no employment and high

wages

– But strong currency which weakens competitiveness

• 5.432 KOR to 1 USD

Shareholders

Government (MPE)

SDFI

International Competition

Norwegian Political Culture

Movements & NGOs

Consumers

Citizens (Taxpayers)

merged

portfolio of govt shares of Statoil

owns monitors

Licenses for oil in NCS

Directs through Gassled

Operates NG pipes

IO’s (OPEC, EEA, EU)

Concluding Questions

• Given that Norway has for the most part avoided the resource curse, will it be able to make a successful transition away from oil?

• How can other countries model Norway’s economic success?

• What will Norway’s future economy look like (NG, renewables, etc.)?

• As Statoil expands internationally, how it will respond to increased scrutiny from international non-profits and other organizations? How it will fare economically and otherwise against BP, Exxon, and others?