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Norwegian Oil & Gas Market Slows

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Norwegian-owned Statoil has posted it first quarterly loss since 2001, when it was first floated on the stock market. Losing almost $711 million, the company blamed its losses on the recent dramatic fall in oil prices.

The price of oil has fallen by almost 25% since June, and further falls are thought likely.

Statoil is one of the world’s major oil and gas companies and is 67% owned by the Norwegian government.

Minimal Sovereign Wealth Fund Returns

To compound Norway’s problems, its sovereign wealth fund of $838 billion achieved only the slimmest of returns on investment during the third quarter of this year, at 0.1%. Norway’s sovereign wealth fund is the largest of its type in the world because it has been continually boosted by healthy oil revenues.

Rise in Unemployment

Norway’s retail sales have also declined in recent months and unemployment has risen. Consequently, Norway’s currency, the krone, is at an eight-month low against the euro.
The news comes as a shock to a country that has long been used to strong growth and high living standards. Norway has Europe’s second-highest gross domestic product per head after Luxembourg. Norway’s economy grew during 2012 and 2013, by 3.4% and 2% respectively.

The downturn has made it very clear just how pivotal the industry is to Norway’s economy.

Kyree Aamdal, an analyst with DNB Markets, said that it is likely that Norway will start to resemble other European countries if it loses its increased revenue from the oil and gas sectors.

Investment Freeze

Statoil’s loss of $711 million has led it to freeze its investments in new projects. Consequently, new technologies and investments are likely to have a much higher fiscal cost for the oil and gas industry as Statoil seeks to cut costs. The company announced a cost-saving programme as early as February of this year, which led to a loss of jobs at major companies within Norway such as Aker Solutions, Bilfinger and Aibel.

The acting head of Statoil, Eldar Saetre, said that in his opinion good times may not return for a while and that prices may drop still further and stay there for some considerable length of time.

Norway’s gas and oil industry invested as much as $31.88 billion (212 billion krone), around 10% of the country’s GDP. Kyree Aamdal thinks it likely that the industry will cut its spending for the next three years.
About 12% of the Norwegian government’s annual spending comes from revenue raised from oil and gas, which is known as the oil fund. However, the fund’s manager, Yngve Slyngstad, said that the fund will continue to invest in other sectors that are not reliant on the price of oil.

Non-Oil Industries May Benefit

Other analysts are arguing that Norway may also benefit from the fall in the value of the krone against the euro. Non-oil export companies are likely to see a boost in profits. Included among these are fertilizer producer Yara International and aluminium producer Norsk Hydro.

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