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The Gusher That's Making Norwegians Nervous (Int'l Edition)

International -- European Business: NORWAY


Whether to cap North Sea oil production is a hot political issue

At giant North Sea platforms on the continental shelf off Norway's coast, the oil is surging up from the sea bottom at a record pace. With oil and gas expected to bring in some $25.3 billion in 1997, the country is experiencing an economic boom that most European countries would envy.

Yet Norway, the world's second-largest oil exporter, has grown surprisingly uneasy about its wealth. Worried that the country's 4.3 million population will get hooked on oil money and that the flow of petrodollars will overheat the economy, some politicians are calling for a cap on oil production at the current level of 3.1 million barrels per day. The reasoning: Putting the brakes on production now would slow the rise of the krone, help check inflation, and preserve resources for future generations.

The proposal to cap oil production is becoming a hot political issue in advance of Norway's general election, coming up in September. The leading proponent of the cap is Center Party leader Anne Enger Lahnstein, the strongest opponent of the ruling Labor Party. Along with the economic arguments, she warns as well that Norwegians are developing dangerous, "yuppie" high-spending habits. Her party, which has a populist bent, scored well against the ruling Labor Party in a 1994 referendum on European Union membership.

The Labor government of Prime Minister Torbjorn Jagland says no to capping output. But Jagland enjoys nothing like the popularity of his predecessor, Gro Harlem Brundtland. He heads a minority government now and could lose more clout in this fall's vote. Even if he retains his job, he could be forced into a coalition or into making concessions to Lahnstein.

Meanwhile, the talk of production limits is making the oil industry nervous. Executives are lobbying hard against any cap of wells already under production. Harald Norvik, chief executive of state-owned behemoth Statoil has blasted the proposal because of its likely impact on profits. "You would kill industrial dynamism," argues Oystein Noreng, professor of petroleum politics at the Norwegian School of Management. Adds Anders Utne, executive vice-president at Saga Petroleum: "It's extremely difficult to cut production once you've started."

Companies such as Saga are taking precautionary steps. Late last year, Saga surprised the industry by acquiring Santa Fe International Corp., a production and drilling company, from Kuwait for $1.2 billion. By buying Santa Fe, which has substantial reserves in the British North Sea, Saga seemed to be hedging against actions of its own government. "As a Norwegian company, it's not good to have all our eggs in one Norwegian basket," Utne explains.

Most industry sources doubt the government will push through the production caps. There could, however, be a slowdown on awards of new acreage for exploration. Even so, production on the continental shelf is expected to grow by 20% over the next 10 years, to more than 4 million barrels.

SPENDING SPREE. Despite the worries of the Center Party's Lahnstein, Norway seems to be suffering from few short-term problems. The economy is growing 4% annually. Government spending is under control, economists say. The trade surplus last year totaled $15 billion. In addition, the government is channeling surplus oil revenues into a Petroleum Fund, which will support the government budget after the oil runs out. That fund, now at $15 billion, will likely grow by another $8 billion this year.

But some observers fear that inflationary pressures are rising. With joblessness down to 4%, the labor market is tightening. Last year, workers won their biggest wage increases in 20 years--a 4% gain. Hermod Skaanland, a former Central Bank governor and a senior Labor Party figure, argues that inflation, now 3%, could pick up next year. To cool down the economy, he proposes slowing the pace of oil exploration.

As the election campaign heats up, so will the debate over oil production policy. But with purchases of luxury cars and summer houses soaring, the general public is unlikely to strongly support the Center Party's production cap proposal. Out on the North Sea, the oil pumps won't be slowing down anytime soon.By Ariane Sains in Oslo and Stanley Reed in LondonReturn to top

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