The discovery of a big fat store of oil is always good news. On Tuesday, Statoil upgraded expectations for an oil discovery announced just last week. It is now Norway’s biggest since the 1980s and could hold as much as 1.2bn barrels. Norway’s biggest producer of oil and gas has a 40 per cent share – equivalent to about 9 per cent of the company’s total proved oil and gas reserves.
Pleased investors added 2 per cent to Statoil’s share price. But even better for Statoil is the location: on the Norwegian continental shelf under just 100 metres of water. For an area thought to be draining fast, this is a huge relief, and not only because recovery will be cheaper than for deepwater wells or the Arctic extraction for which Statoil holds high hopes.
It is also a fillip for a declining sector. Oil production in Norway peaked 10 years ago at 3.4m barrels per day. Now, it pumps almost two-fifths less. Gas production, too, has declined one-eighth since the peak in 2004. Statoil’s new discovery could be equivalent to about two-thirds of the production from the continental shelf over the past decade.
The new find, however, only slightly delays the challenge the Norwegian government will face when the oil and gas does run out. It has built up a €395bn sovereign wealth fund, perhaps the second-largest globally, for the purpose. The fund keeps growing, not least from its two-thirds share of Statoil, which will earn roughly €9bn this year. Still, oil and gas contribute 22 per cent of the country’s gross domestic product – about €73bn this year. At the government’s targeted 4 per cent return, the fund needs to more than quadruple in size (in today’s terms) to compensate for the full depletion of this resource rent. So while Statoil’s latest find will benefit international investors, future generations of Norwegians now rely on Statoil to produce even more.
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