Norway Is Walking Away From Billions of Barrels of Oil

(Bloomberg) --

Western Europe's biggest petroleum producer is falling out of love with oil.

To the dismay of the nation's powerful oil industry and its worker unions, the opposition Labor Party over the weekend decided to withdraw its support for oil exploration offshore the sensitive Lofoten islands in Norway's Arctic, creating a solid majority in parliament to keep the area off limits for drilling.

The dramatic shift by Norway's biggest party is a significant blow to the support the oil industry has enjoyed, and could signal that the Scandinavian nation is coming closer to the end of an era that made it one of the world's most affluent.

Oil companies led by state-controlled Equinor ASA, the biggest Norwegian producer, have said that gaining access to Lofoten is key if the country wants to maintain production as resources are being depleted. Estimates suggest that 1 billion to 3 billion barrels could be hiding off the archipelago, which is also considered a natural wonder.

“The whole industry is surprised and disappointed,” said Karl Eirik Schjott-Pedersen, head of the Norwegian Oil and Gas Association. “It doesn't provide the predictability we depend on.”

Yet Labor's decision wasn't a big surprise. Norwegians are starting to question their biggest export and source of wealth amid growing concerns over climate change. Even some oil executives had already given up on Lofoten, which has been kept off limits for years thanks to political compromises.

But the battle will now likely move on to whether drilling should continue in the Barents Sea. The oil industry also fears that Labor now could be willing -- or forced -- to compromise on other issues the next time it takes the reins of government, such as petroleum taxes and an attractive exploration refund for companies that aren't profitable.

Angry Union

Norway's biggest oil union, Industry Energy, a long-time ally of Labor, lashed out at the party's new stance on Lofoten, which was adopted less than two years after an internal party compromise on the issue.

“It creates imbalances in the policy discussions for an industry that's dependent on a long-term perspective and we can't accept that,” Frode Alfheim, the union's leader, said by phone on Monday. “There's probably a lot of people in the industry who are wondering what Labor actually stands for.”

Labor leader Jonas Gahr Store said Labor will continue to be a supporter of the oil industry and to back the existing tax system.

Yet he last week also said that he wants oil companies in Norway to commit to a deadline for making operations completely emissions free, an ambition the country's top oil lobbyist called “very demanding.”

Industry Energy's Alfheim still expects Labor and other big parties to protect the terms for oil companies, and said tougher requirements for emissions could be a good thing for the industry. But Norwegian authorities need to use both “stick and carrot,” he added.

“There needs to be a balance,” Alfheim said.

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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