New oil projects are being scrapped in Norway amid falling production and low oil prices. Long held up as the model for managing oil abundance, Norway has painstakingly sought to prevent the problems that occur with other natural resource-based economies, such as corruption, slow economic growth, currency appreciation, and subsequently, deindustrialization.
Since 1990, Norway has diverted much of its oil earnings to a sovereign wealth fund, which has become the world's largest, according to Oil & Gas Daily. The money, reaching $890 billion as of June 2014, amounts to $178,000 for every Norwegian citizen.
The sovereign wealth fund helps Norway avoid some of the problems associated with the "resource curse" by investing capital abroad. But more importantly, the money is set aside to be saved and invested to help the country plan for the eventual decline of oil production, with the intention of transitioning to a more diversified economy that can take oil's place. The early cracks in Norway's petrol-based economy are beginning to show, perhaps quicker than many predicted.
Not Immune
The ongoing decline in oil prices - down 40 percent since June – will not only affect oil exporting countries like Russia, Iran, and Venezuela, but even Norway as the model for using natural resources to build a modern wealthy economy is not immune to the falling prices fall. Statoil, mostly owned by the government, has seen its share price cut in half since July 2014. It is idling several offshore rigs as oil prices drop. Three rigs - the COSL Pioneer, Scarabeo 5, and Songa Trym - will be suspended until the middle of 2015 because of lower profitability.
"This situation is unfortunate, and we are doing what we can to minimize the extent of the suspensions," Statoil procurement head Jon Arnt Jacobsen said in a statement.
To make matters worse, costs of developing new fields have been steadily rising. "The boom is probably over. But we're not looking at a steep decline in investment or production," Norway's oil minister Tord Lien told Reuters in May 2014.
"The costs are rising too high and too fast. The Norwegian costs have risen a little bit more than elsewhere." Since those comments, oil prices have tumbled. Norway may in fact see a steep decline in investment. Lower oil prices could force more than $150 billion worth of investments to be put on hold worldwide, according to an assessment by Norwegian firm Rystad Energy.
The decline in investment is already pinching the labor market. Around 10,000 Norwegian oil workers have been laid off as the industry pares back spending, accounting for 10 percent of the sector's total workforce. And the way forward is murky. Despite its best efforts, Norway's economy is overwhelmingly dependent on oil, which accounts for more than half of the country's exports.
