Norway's Offshore Energy Boom Tailing Off
Norway's energy boom is tailing off years ahead of expectations, exposing an economy unprepared for life after oil and threatening the long-term viability of the world's most generous welfare model.
High spending within the sector has pushed up wages and other costs to unsustainable levels, not just for the oil and gas industry but for all sectors, and that is now acting as a drag on further energy investment. Norwegian firms outside oil have struggled to pick up the slack in what has been, for at least a decade, almost a single-track economy.
How Norway handles this "curse of oil" - huge wealth that bring unhealthy dependency in its train - may hold lessons across the North Sea in Scotland, which votes on independence from the United Kingdom later this year, relying at least in part on what it sees as its oil revenues.
The fortunes of the oil industry, which accounts for a fifth of Norway's economy, have shifted abruptly as the global oil sector slammed on the brakes.
Costs are spiking and capital spending has been so high that energy firms are selling assets to pay dividends. With oil prices seen falling this year and next, appetite for capital expenditure is low.
Investments, which tripled over the past decade, are now seen declining in the years ahead, confounding earlier expectations for a steady increase, while oil production remains flat, despite years of heavy spending.
Energy companies are cutting some of their most innovative projects, a big worry as the sector has relied on cutting edge innovation to offset its high costs.
The government puts the best face on this, but admits times are changing. "The boom is probably over. But we're not looking at a steep decline in investment or production," says oil minister Tord Lien. "The costs are rising too high and too fast. The Norwegian costs have risen a little bit more than elsewhere."
(By Balazs Koranyi)