petroleum management: the norwegian model · world energy outlook 2018. iea. paris. nordhaus,...
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NAME, title
Petroleum management:The Norwegian Model
KLAUS MOHN, professor, University of Stavanger Business Schoolhttp://www.uis.no/MohnTwitter: @Mohnitor
Lecture for visiting students from University of WisconsinStavanger, 18 March 2019
• Brief retrospect• A small, open petro economy
Endowments and institutions Clever policy design Accomodating technology Supportive markets
• Resource revenue management
• Opportunities and challenges
Petroleum management:The Norwegian Model
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Conversion of natural capitalFrom below-ground resources to financial resources
0
50
100
150
200
250
1985 1995 2005 2015
Pipeline transportDecommisioningProcessingProductionDevelopmentExploration
0
1
2
3
4
5
1970 1980 1990 2000 2010 2020 2030
Yet to findDiscoveriesDevelopmentsProducing fieldsProduced
0
2
4
6
8
10
1970 1980 1990 2000 2010 2020 2030
Cumulated returnsCumulated deposits
Extractionmmboepd
InvestmentNOK bn (nominal)
Revenue managementOil fund, NOK trn
Petroleum management in NorwayThe core of the matter
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High-quality resource potentialLarge discoveries gave rise to a new domestic industry
Cumulated discoveriesNCS creaming curve 1967-2015 (M SM3 oe)
Accomodating technology developmentInternational technology lab facilitated by tax system
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Favourable marketsDemand could be taken for granted
0
20
40
60
80
0
200
400
600
800
1971 1981 1991 2001 2011
GasOilShare of total export (%, rhs)
0
30
60
90
120
150
1970 1980 1990 2000 2010
Oil price reviewBrent blend 1970-2019 (USD/bbl at 2018 prices)
Norway’s oil and gas exportNOK bn (nominal)
The interest of the peopleNatural resources were integrated in the national strategy
1. National supervision and control must be ensured for all operations on the NCS
2. Petroleum discoveries must be exploited in a way which makes Norway as independent as possible of others for its supplies of crude oil
3. New industry will be developed on the basis of petroleum
4. The development of an oil industry must take necessary account of existing industrial activities and the protection of nature and the environment
5. Flaring of exploitable gas on the NCS must not be accepted except during brief periods of testing
6. Petroleum from the NCS must as a general rule be landed in Norway, except in those cases where socio-political considerations dictate a different solution
7. The state must become involved at all appropriate levels and contribute to a coordination of Norwegian interests in Norway’s petroleum industry as well as the creation of an integrated oil community which sets its sights both nationally and internationally
8. A state oil company will be established which can look after the government’s commercial interests and pursue appropriate collaboration with domestic and foreign oil interests
9. A pattern of activities must be selected north of the 62nd parallel which reflects the special socio-political conditions prevailing in that part of the country
10. Large Norwegian petroleum discoveries could present new tasks for Norway’s foreign policy
National supervision and control
New industryNature and environment
State involvement
Foreign policy
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Institutions, regulation, and policiesBest practice developed from research and international experience
Resource revenue managementStriking the right balance: Three main options
1. Current consumption2. Investment in the domestic economy3. Investment in foreign assets
Saving
Spending
• Saving support national wealth and economic growth• Success stories most often imply high rates of saving
• Failures do not
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Framework and organisationsTriad of fiscal instruments and institutions
Government Pension Fund - Global
Petroleum taxation
The State’s Direct Financial Interest
Oil fund mechanism and fiscal policy ruleSeparation of accrual and spending of oil and gas revenues
Government net cash-flow……from petroleum activities (NOK bn)
-100
0
100
200
300
400
500
1971 1981 1991 2001 2011
Statoil dividendNet cash flow from SDFITaxes
Oil Fund(GPF)
Governmentbudget
Net cash flow
Return
Fiscal policy rule
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An industry that makes a differenceA significant role in the Norwegian economy
GDP14 per cent
Total export40 per cent
Government revenue17 per cent
Total fixed capex19 per cent
Oil price reviewBrent blend 1970-2019 (USD/bbl at 2018 prices)
Investments: 2x Russia Football World CupEvery year
Modest recovery offers reliefCost improvement is now paying off
Oil price reviewBrent blend 1970-2019 (USD/bbl at 2018 prices)
0
30
60
90
120
150
1970 1980 1990 2000 2010
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Clouds on the horizonConstraints resource mobilisation and demand
0
100
200
300
400
500
600
1990 1995 2000 2005 2010 2015
Resource additions Extraction
Resource scarcity…… raises challenges for reserve replacement
Climate policy uncertainty…… raises raises risk around demand and prices
0
30
60
90
120
150
2025 2040
Current PoliciesNew PoliciesSustainable Development
Fossil fuel markets at climate riskSuccessful climate policies will dampen demand – and prices
CO2-prices in EU in IEA’s scenariosUSD/tonne (2016-prices)
64 USD/bbl
112 USD/bbl
Global CO2 emissions towards 2040…… and oil price implications
International Energy Agency. 2018. World Energy Outlook 2018. IEA. Paris.Nordhaus, William, and Andrew Moffat (2017). A Survey of Global Impacts of Climate Change: Replication, Survey Methods, and a Statistical Analysis. NBER Working Paper 23646.Nordhaus, William (2014). Estimates of the social cost of carbon: Concepts and results from the DICE-2013R Model and alternative approaches. JAERE 1 (1/2), 273-312.Pindyck, Robert S. (2013). Climate change policy: What do the models tell us? Journal of Economic Literature 51 (3), 860-872.
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0 100 200 300
Chevron
Exxon
ConocoPhillips
ENI
Equinor
Shell
BP
Total
Climate
Carbon
More words about climate and CO2Indicators of climate risk: Word counts from annual reports
Word counts from annual reports 2017
0
20
40
60
80
2000 2002 2004 2006 2008 2010 2012 2014 2016
Eight international oil companies
Five European oil companies
Three US oil companies
Average frequency for ‘climate’
Oil company responseCaution and diversification
• Adjustment of operations• Adjustment of investments• Adjustment of business plans• Adjustment of strategy• Adjustment of corporate
control
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Conversion of natural capitalFrom below-ground resources to financial resources
0
50
100
150
200
250
1985 1995 2005 2015
Pipeline transportDecommisioningProcessingProductionDevelopmentExploration
0
1
2
3
4
5
1970 1980 1990 2000 2010 2020 2030
Yet to findDiscoveriesDevelopmentsProducing fieldsProduced
0
2
4
6
8
10
1970 1980 1990 2000 2010 2020 2030
Cumulated returnsCumulated deposits
Extractionmmboepd
InvestmentNOK bn (nominal)
Revenue managementOil fund, NOK trn
• Brief retrospect• A small, open petro economy
Endowments and institutions Clever policy design Accomodating technology Supportive markets
• Resource revenue management
• Opportunities and challenges
Petroleum management:The Norwegian Model
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Thank you for your attention