Friday, Dec 15, 2017
Industry & Trade | Europe | Norway

Stability and predictability: hallmarks of the Norwegian model for resource management


5 years ago

Ola Borten Moe, Norway¹s Minister of Petroleum and Energy (Photo: Berit Roald / Scanpix)
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Ola Borten Moe

Norwegian Minister of Petroleum and Energy

Norwegian Minister of Petroleum and Energy Ola Borten Moe explains how historically the government in Norway has “used the State as a tool to meet objectives for society as a whole” and how it is making sure that it continues “to be what government should be – open, accountable and a tool for developing society.” He expresses the nation’s dedication to continue with its prudent resource management with a long-term perspective and investment in research and development, and the Minister also discusses the hot topic of increasing competitiveness.

What do you think are Norway’s underlying values, the real pillars that are setting Norway aside in the midst of the economic crisis in Europe?

Let me start with the past, because to understand Norway today I believe you need some historical background. The fact is that Norwegian people have always been used to handling rich natural resources throughout history, which is probably important to be aware of and understand. The first things we exported were fish and timber. Then we learnt to use the energy in our waterfalls, and industrialise the country with hydropower. This led to the development of a competent metal industry. We have some paper mills as well, and other power-intensive industries. That was the situation when we found oil and gas in the late 1960s. We were already a developed country, which was used to handling natural resources. It was a big part of Norwegian history, and society as such was very aware of the role that natural resources played. 
 
Just to give you an example, we had big debates 100 years ago as to who was going to own it and control our natural resources and what role they were going to play in our society and economy. Because of this, our focus for a long time has been to develop the necessary regulatory framework and legal system to ensure that our national resources should be of benefit to society as a whole. When it comes to hydropower, laws were introduced to ensure that you had nationally controlled ownership. The same thing happened when it comes to land for agricultural purposes, forest industries, and for minerals. There was always a strong regulatory framework, encouraging foreign investments, but at the same time ensuring that the supernormal profits were invested back into society. The other part of it was that rich natural resources are not just a way of making money for society – there is also potential to develop human resources and create industries. This competence and expertise has manifested itself for instance in the power-intensive and fishing industries. And over the past 40 years, we have built a very competitive oil and gas industry.
 
When we found oil and gas in 1969, the public awareness and regulatory framework with regard to natural resources was already well developed. In Norway in particular, the State plays a central role. We have used the State as a tool to meet objectives for society as a whole. The State owns majority shares in a lot of the big companies that are listed on the stock exchange. It has been a national strategy to keep control over basic infrastructure, and also develop human resources. However, we have also encouraged foreign investments.
 
How independent are the boards of different state owned companies in Norway?

They are highly independent. This is also part of the Norwegian model, which is very important to be aware of. The companies we are talking about here need to have their headquarters in Norway, but it is up to the directors and the board how to conduct business. We do not mix business and politics. If you look behind the model, it is important to underline that this would not have been possible at all without the people’s trust in the government and the State. The State plays a vital role in Norwegian society, and I would say that most Norwegians’ perceptions of the State are positive and built upon trust. 
 
It is part of Norwegian society to debate and be open about and discuss issues, and provide a solution for the future. We need to keep on working and developing our society in order for our society to improve. Our wealth of natural resources and otherwise are not here forever. For society to move forward, you need reform and development, and you need to prove every day and year that you are on the right track. You have to be accountable. We do not abuse the trust the people have in us. Norwegian society is undergoing big changes, so we need to work continuously. 
 
Are we witnessing a transition point at this moment in Norway?

I think so. We have an active State and a high level of taxation, and we have a democratic, open society where the State controls the largest sovereign wealth fund in the world. In many countries, this would be unheard of, because people would say that the State should not be rich on the people’s behalf, and where the people would like to manage those resources themselves. That is another example of what is possible when you have this degree of trust between the government and the people. It also underlines how important it is for the Norwegian government to continuously prove that this is a good way of organising society. Also that we manage the trust in a good way and renew and reform our ways of doing things to the betterment of society. And that we continue to be what government should be – open, accountable and a tool for developing society.
 
I am looking on the map, and I see that there are some areas that have not yet been fully explored for oil and gas. I know that there has been a lot of interest in exploring this area, and there is a lot of opposition and controversy. From your perspective, what is the best choice for Norway?

We should continue with our prudent resource management with a long-term perspective. When it comes to resource management and political risk, and putting the framework in place for investment and development, this is one of the most important points. Especially when it comes to energy, be it renewables or offshore investments. It is extremely long-term and capital intensive. Several of the projects we have received in recent years entail investments for NOK 10 billion ($1.81 billion) or more each, which is a lot of money. They are also intensive when it comes to technology and know-how, so you need a long-term, stable framework on top of resources to make it happen. You need stability, not just resources. 
 
This is one of the strengths of our model – we offer stability and predictability, and there is no reason for you to feel that you do not know what to expect from the Norwegian authorities. This has made it possible for us to develop parts of the Norwegian Continental Shelf, which probably would not have happened if the conditions had been less favourable. This is one of the most important things when it comes to getting private capital to invest in the country.
 
We have seen how Norway ranks number 15 in the world in the World Forum Index for Global Competitiveness, which is actually a very good position. However, when it comes to Scandinavia, we have Sweden, Finland and Denmark in much higher positions. A lot of emphasis has therefore been placed on the fact that Norway needs to be more competitive. We understand competitiveness to be related to a high level of innovation and allowing foreign companies to come and invest. From your perspective, what does competitiveness mean in the oil and gas sector?

This is a hot topic in Norwegian society at the moment, and I think it is very important. From my perspective, it is important to ensure that we remain competitive and attractive, for the same reasons as anyone else. We have some challenges that are probably the complete opposite of what countries such as Spain are facing. There are still challenges, but better challenges. We should be humble about this. We have an economy with good growth, full employment and increasing salaries. Everyone gets a job if they want one, but I think that Norwegian society and Norwegian people need to understand and relate better to the reality in Europe, especially in countries like Spain, parts of Italy, Greece and Portugal. It puts things into perspective, which is very important. That is not to say that we should not be proud of doing well, but we need to understand and relate to the size of the economic disaster that has struck parts of Europe. 
 
We should also underline the fact that this could be us in 15 to 20 years, if we do not constantly ensure that our development is sustainable. We have to increase our competitiveness by developing new technologies, changing and being innovative.
 
We have high salaries, and some people may say that this is a big problem. But the level of costs in Norway is a bigger problem for many industries, particularly those that sell their goods on the European market, where purchasing power is declining, and at the same time meeting competition from abroad with lower costs, whereas our costs are still going up. But at the same time, it is also important to understand that a high level of costs increases incentives for efficiency and innovation, as well as development. It works both ways. So it is far too easy to just say that salaries are too high here or that things are too expensive and that this is the big problem. It is important to remember that we also distribute wealth through high salaries. The alternative would be higher salaries but a lower return on capital, which of course would increase differences radically within Norwegian society. I personally think that high salaries are good – and in the extension of this high cost levels, but we need to do it within the framework of sustainable competitiveness. 
 
The gas sector is growing and is helping Europe reduce carbon emissions. Could you give an overview of the big breakthroughs in terms of technology?

The recent technological breakthrough will change Norway, Europe and the world. Gas is a very important energy source, and will remain important for a long time. At the same time, gas reduces CO2 emissions by replacing coal as a principal energy source.

However, if you look at the UN and the EIA numbers, you are going to need carbon capture and storage (CCS) to curb global emissions to a sustainable level. Last May we opened up the Technology Centre Mongstad (TCM), which is close to Bergen. It is worth visiting if you are in the area. It is basically a huge test facility for different kinds of CCS technology. We spent NOK 1 billion on building the test centre. We have invested a lot of resources in CCS, but it has turned out to be more challenging than we first thought. Still, with regards to the battle against climate change, I think the most important reason is the lack of progress when it comes to negotiations on a global treaty, for the entire system, and also when it comes to the expectations of problems in the future.
 
In a few years’ time we will probably face a global reality where there will be a price on carbon, tied to the fact that you are polluting the environment. I think that in relation to the Copenhagen summit a few years ago, there was anticipation in the market that such a price would become a reality. Now I think that anticipation in the markets has disappeared. The prices of carbon in Europe are very low, and there is nothing in the political system or economy in Europe that tells us that there will be a higher price on carbon in the near future. We had an extension of the Kyoto deal in Doha, but only for about 30% of the global economy. This is too little in my opinion. Therefore, the need CCS to become more important as a measure to curb emissions. 
 
We are allocating a lot of resources to the CCS project, and we are moving forward with it. But this is a global problem, and we are losing a lot of time and momentum for a number of reasons. In my opinion, Norway is doing a lot to mitigate this problem, but we cannot solve it by ourselves.
 
The UK has a very strong partnership with Norway, with a third of oil in the UK coming from Norway and long-term plans to interconnect the energy grids of both countries and boost investment in renewables. We have many bilateral cooperation frameworks in place. Where do you plan to take UK-Norway relations over the next few years?

The cooperation between our countries is extremely strong. I think it will develop in all aspects of society. Norway is, and always has been, a small, open economy and society, and this development is going to continue. 
 
Our relationship with the UK is strong. You will find many examples of this. Of course you have the Christmas tree on Trafalgar Square, which has been a gift from Norway and Oslo since the Second World War. But on a more serious note, just look at the number of direct flights there are now from various parts of Norway to the UK. Norwegian businesses are increasingly entering the UK markets and vice-versa. Basically, we will get more and more integrated, which is a natural development 
The Norwegian state-controlled sovereign wealth fund has also invested heavily in Britain. I think that something like 23% of Oxford St is owned by the sovereign wealth fund. 
 
When it comes to the energy sector, last year we made a deal between Norway and the UK to install the world’s longest cable to connect our energy markets. It is a multimillion-dollar project and it is going to be finished in 2020. 
 
Norwegian companies are also getting involved in offshore wind farms in the UK, for example the Sheringham Shoal project. When it comes to oil and gas, cooperation is very close. This cooperation has taken place for decades, and it is good for us and the UK. I hope this will continue and I hope that Norwegian gas will play a big role in the UK’s energy supply. There are a lot of initiatives and development, and it is a steady process of increased bilateral cooperation and partnership. 

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