A future without hydrocarbons: Norway’s post-oil world
Karen Marie Oseland
New York University
The light flickers and darkness approaches. The promise of oil seems to be coming to an end.
Norway was one of the few countries to remain resilient and largely untouched during the global financial crisis; oil and the investment of those revenues provided an immunity to more challenging global ills. The country’s immunity is now threatened.
Norway’s rise as an oil giant began in the North Sea in the 1960s, and production generated a vast amount of wealth. A new chapter is being written with prices falling under $30 a barrel. The country has been hit hard. The Norwegian currency has weakened rapidly, to the point where the U.S. dollar is at its strongest against the Norwegian krone. This has not occurred since 2002. Unemployment is rising and house prices are falling. The unemployment rate is now 4% compared to 2.7% during the financial crisis.
Norway’s oil capital Stavanger represents the shift in fortunes and illustrates the plight of a newly vulnerable population. The city accounts for almost ¾ of the country’s rise in unemployment. This is due to suppliers cutting costs and workers being fired. Statoil lost 37 billion NOK ($4.3 billion) in revenues in 2015. The business-class only route between Stavanger and its oil cousin Houston in Texas has been dropped.
The latest development in this area is that the government made its first withdrawal from its $856-billion sovereign wealth fund in January. The country’s warning lights are flashing red, red, red, but is it too late? We are now witnesses to the devastating impacts on a country that has a heavy reliance on oil.
How does Norway restore the light? First Norway must diversify its economy. Prime Minister Erna Solberg is hinting to diversification. Solberg has said that “knowledge is the next oil” and “fish will be Norway’s Ikea,” but she has given little explanation beyond this. Let’s be real here. Knowledge and fish alone are not going to work for Norway.
On the knowledge front there is potential, but there are limitations. Norway has fewer people than New York City, and the birth rate is continuing to decline. Norway has only had 12 Noble Prize winners since the country launched the prestigious prize. Today no Norwegian universities are considered top universities in the world.
When it comes to fish, it is said that a 4.5 kg salmon, once packaged and processed, is worth more than a barrel of oil at January prices. Despite 2015 being a record year for Norwegian fish exports, it only generated 74.5 billion NOK ($8.8 billion) compared to 450 billion NOK ($52.9 billion) for crude oil and natural gas. In order to compensate for the revenues of oil and gas, it means fishing six times more than this record level. This will lead to overfishing and the destruction of natural habitats.
Norway must think beyond knowledge and fish insurance for the future. It should seek to focus on its renewable energy sector. There are about 2,000 companies and 50,000 employees in the Norwegian renewable energy sector, and the most recent number posted shows revenue of 200 billion NOK ($24 billion). There is potential in this sector for growth and expansion.
Norway has an excellent opportunity to expand its exports of electricity to markets in Europe by focusing on hydropower. At home, 99% of its electricity is derived from hydropower. It has 1,393 hydropower stations and is considered the largest producer of hydropower in Europe and sixth on the world stage. The country has a huge potential to continue focusing on hydropower because of its easy access to natural reservoirs that enable lower investment costs and more profitable production and operation and the extensive expertise it has developed in the field over a hundred years.
Norway also has the potential to expand its wind power. Currently only 856 MW of wind power are acquired from sites on land. However, due to its long coastline and high wind speeds, Norway has some of the greatest wind conditions in Europe. The world’s first floating wind turbine was put in operation near Stavanger. This is a clear sign of how Norway has technology and expertise to continue to develop wind power. In fact, Statoil is in the process of building the first floating wind farm in the world.
Norway can help combat climate change by relying on renewable energy. High temperatures and drought decrease performance of European nuclear, gas, and coal power plants. Norway can step in with hydro production to make up for these problems. A warmer and wetter climate for Norway means that the annual water run-off to hydropower reservoirs in the country may increase up to 11 percent during the 21st century. This means an increased ability to generate more surplus electricity that can be exported.
The lights may be flickering in Norway, but if it acts now and pays attention to the warnings, it can prevent future calamity. Expanding Norway’s renewable sector, while also increasing fish exports and investing in knowledge, creates the diversity that the country needs to keep the economy strong.
Karen Marie Oseland is a Norwegian graduate student from Stavanger, Norway. She is currently enrolled in a master’s program in Global Affairs at the School of Professional Studies at New York University where she specializes in Energy and Environment Policy.
This article originally appeared in the April 22, 2016, issue of the Norwegian American Weekly. To subscribe, visit SUBSCRIBE or call us at (206) 784-4617.