OIL PRICES: NORWAY THREAT
A sharp drop in oil prices since the summer is creating a heap of trouble for Norway.
Big investments in the oil sector have helped keep the Nordic country's economy humming along in recent years while many of its European peers faced sluggish growth or even recession. But signs are piling up that one of the world's wealthiest petro-economies is in for a significant slowdown.
A survey by Statistics Norway on Thursday said oil companies expect to reduce investment spending by 14% next year, which it said could drag the country's economic growth down to 1% from an estimated 2.6% this year. The dire forecast comes days after a leading sector trade union threatened to strike unless Norway's right-wing government acts to counter slowing activity and job cuts in the oil industry.
Norway's oil companies are already showing the strain. Statoil AS A, a 67% state-owned oil giant, has delayed major projects and said it will seek to slash costs by $1.3 billion a year from 2016. Last week Oslo-listed offshore rig owner Seadrill cancelled its dividend, sending its shares into a freefall.
"We're starting to get really worried," said Hilde-Marit Rysst, head of SAFE, the union that last weekend threatened to strike unless the government acted. Ms. Rysst said the union's threat was a sign of growing frustration at delayed projects, stagnating orders and layoffs.
As many as 10,000 Norwegian and foreign oil-industry workers have been laid off so far this year, analysts at DNB Markets estimate, equivalent to more than 10% of workers employed in the sector. Oil companies' spending on goods and services also generates significant economic activity in other sectors.
"You can clearly say that we're worried about the future," said Arild Jenssen, SAFE union representative at Seadrill subsidiary North Atlantic Drilling Ltd. , adding that more than 300 of his colleagues are set to lose their jobs by next summer.
Statoil declined to comment on the strike threats, but said recent oil market volatility underscored the industry's challenges. It said it would continue with aggressive measures to cut costs.
"Statoil can't sacrifice competitiveness and profitability to avoid a necessary adjustment," said Statoil spokesman Jannik Lindbæk, Jr. "We must continue our improvement work."
Norway's Minister of Petroleum and Energy Tord Lien said in an email that the government understands the concerns of the employees in the petroleum industry. He said the government's most important contribution would be to provide a stable framework for investment and the award of new drilling licenses.
The oil sector's troubles may contribute to weaker consumer sentiment and spending thanks to slower wage growth next year, Statistics Norway said.
Still, even with a downturn, Norway is doing well relative to its European peers. The country's gross domestic product per capita from its 5 million population is 91% higher than the European Union average.
"We think Norwegian growth next year will be higher than growth in the euro area, despite the shock we've had," Statistics Norway researcher Torbjørn Eika said.
As Norway's oil sector struggles, other parts of its economy could prosper. Companies that export could get support from the fall in value of the Norwegian krone, which has weakened 18% against the dollar in the last six months. That could boost the competitiveness of firms such as aluminum producer Norsk Hydro AS A and fertilizer company Yara International ASA.
In case of a deeper, more protracted downturn, the country could also draw on its $870 billion oil fund, built up over the last 18 years, which has enough cash to cover government spending for more than five years.
In the streets of Oslo, Ole Tobias Eggen, a 53-year old computer worker at an Oslo-based brokerage, said few Norwegians are worried about their jobs yet, despite the recent oil-price drop and signs of slower growth.
"We've been so incredibly lucky compared with the rest of the world that few people can imagine any other scenario," he said.
"It doesn't look too bright. But I haven't heard anybody suggesting to start hoarding canned food yet," he said.
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