A government report late last month slowed down some of the momentum for Norway’s US$1-trillion sovereign wealth fund to divest its oil and gas stocks, worth more than $40 billion.
The fund had earned support from top Norwegian economists and academics in May for an initial proposal to dump the stocks, and the government was expected to make a final decision this fall. Now, though, a government-appointed commission has concluded that “such a move will have little effect on protecting Norway against falling crude prices and alter what has so far been a successful investment philosophy,” Bloomberg reports.
“This investment strategy is simple, well founded, and has served the fund well,” the three-member commission concluded. “If energy stocks are excluded from the fund, the composition of the investments will differ from market weights, and the fund will be expected to either achieve lower return or higher risk.”
Commission Chair Øystein Thøgersen of the Norwegian School of Economics opined that oil demand will remain high, even if the world hits a 2.0°C target for average global warming. “We don’t see that stock prices will just fall to zero in the whole sector,” he told Bloomberg. “That’s completely unrealistic.”
Sony Kapoor, managing director of think tank Re-Define, was not impressed with the report. “The argument that divestment will not be ‘enough’ is simply not a sound financial or public policy argument, and borders on being irresponsible,” he said. “It would seem that political considerations and the oil and gas lobby have won the day and basic risk management, sound economic analysis, and common sense have lost.”
Finance Minister Siv Jensen said the government would now conclude its own assessment ahead of a final decision by the national parliament, using the commission report, the fund’s own advice, and the results of public consultations as “a solid foundation for decision-making”.
In its original proposal last November, “the fund argued that Norway as a whole was over-exposed to oil price volatility as both western Europe’s largest crude exporter and an investor in the industry,” Bloomberg recalls. It concluded that “cutting oil stocks would make the country less vulnerable to a ‘permanent fall’ in crude prices.”
Key political blocs in Norway still appear to be partial to that advice. The opposition Labor Party, the country’s single biggest party, declared itself “positive” to the fund’s initial report, but said it would await the government’s analysis before confirming its position. “A broad agreement on the management of the fund is an advantage,” said Svein Roald Hansen, the party’s point person on the wealth fund. “I believe we will find our way to that.”
Kari Elisabeth Kaski of the opposition Socialist Left said latest the report “has a very, very narrow and short-term view on climate risk and the global development in financial markets in terms of handling climate risk. That gives the report limited value.”
Meanwhile, much of the late August news in Norway stressed the strength and scope of the country’s current oil and gas industry, with Stavanger-based fossil Equinor estimating that its Johan Sverdrup oil field, the largest new North Sea discovery in three decades, could hold the equivalent of 2.1 to 3.1 billion barrels. “Johan Sverdrup is on track to deliver vast volumes of energy with high profitability and low emissions for many decades to come,” said CEO Eldar Saetre, adding that the field could produce 660,000 barrels of oil per day at a cost of less than $20 per barrel.
Petroleum and Energy Minister Terje Soviknes, who represents the Progress Party in the Conservative-led government, argued against extending the current effort to ban oil drilling in the ecologically sensitive Arctic waters off Lofoten, Vesterålen, and Senja. “If the environmentalists win this one, the focus will quickly move to the Barents Sea,” he said.
“The warning comes amid increasing signs that Labor, the nation’s biggest party and a long-time friend to the oil industry, is starting to give in to a push to shield the sensitive islands from exploration,” Bloomberg reports. “Oil companies such as Equinor ASA have said access to the area, thought to hold about 1.3 billion barrels of oil and gas, is vital to prolonging Norway’s oil age.”
The news agency states that drilling off Lofoten “has been one of the most deadlocked issues for years” in Norway, and “should Labor flip on the issue, there will be a solid majority in parliament for closing off Lofoten permanently.”