Prime Minister Erna Solberg pledged to protect Norway’s oil industry from political interference as the central bank warned it may cut interest rates to save western Europe’s biggest crude producer as investments slump.
The 53-year-old premier, who has warned the country faces a “hard landing” unless it can boost productivity and lower costs in its oil industry, said investors don’t need to fear more delays caused by political wrangling, in an interview yesterday.
The comments come amid signs that firms are reluctant to pour more cash into their operations. A survey last week showed oil companies plan to cut investments by as much as 21 percent in 2015 from a record this year, as high exploration and development costs, as well as political interference, make projects less profitable.
Solberg’s government is hoping that Johan Sverdrup, the biggest discovery off Norway in at least 30 years, will help revive production. Her comments, which include a discussion of opening new oil fields, serve to temper talk that Norway needs to wean itself off reliance on its petroleum industry.
“We know that Johan Sverdrup is going to be built” she said. “Of course the companies have to make sure they can maintain focus. They know there will be no new policies that will affect the first phase.”
The development of the field, which may produce 650,000 barrels a day at its peak and cost more than 100 billion kroner ($16.6 billion) to start, became uncertain after the opposition and government allies tried to force more climate-friendly modes of crude extraction for surrounding facilities.
The central bank responded today, saying it may cut rates for the first time since 2012 to help the economy after predicting oil investments could drop 10 percent next year. The bank rates unchanged for a 14th meeting at 1.5 percent.
“We’re looking in particular at the drop in oil investments,” Norges Bank Governor Oeystein Olsen said at a press conference. “The overall economic growth continues at a moderate pace and we do see some improvement, however oil investments will fall in 2015.”
The governor said that “at least for now” he wouldn’t comment on “discussions on future developments of the oil industry.”
“We stick to the information that we collect through different sources from oil companies, and stick to their plans,” he said in an interview. “ The discussion typically relates to developments further ahead in time.”
Solberg this month struck a compromise with the opposition that would allow for so-called electrification of three North Sea oil fields by 2022 while avoiding a delay to Sverdrup. Norway gets more than 20 percent of its economic output from oil and gas. The country has seen crude production fall about 50 percent since the last decade as North Sea deposits dwindle.
Statoil ASA (STL), the government-controlled producer that’s the leading developer on Sverdrup, said this year it will reduce planned investments by 8 percent over the next three years after it explored even deeper cuts. Solberg’s government has said that planned projects must go ahead, even as it pledges to prepare for a future without oil and gas revenue.
Solberg said she’s in no doubt that Sverdrup will boost investments that will filter through to the rest of the economy.
“The impact of the oil industry is not just on investment and new fields,” she said. “It’s also about service and maintenance. We’ll see that part of the large activity along the coast is maintenance and services -- that will increase. We will make sure that new oil fields can be developed, that our cost levels make it possible to produce more. The work we have to do to get our competitiveness up is even more important.”
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