The Norwegian challenge

Like Canada and the United States, the Norwegians have every reason to look north and do everything they reasonably can to stake their claim in disputed areas of the Arctic. This is because they too have to resolve a huge and growing tension between what they want to spend and how much they can earn.

Since its discovery in the 1960s, North Sea oil and gas has provided Norway, like the United Kingdom, with vast revenues. Its output began to seep into the global market in the early 1980s, and Norway eventually became the second-largest supplier of natural gas to Europe and the world's fifth-biggest oil exporter, pumping out around 4.5 million barrels every day at the peak of its production in the 1990s. In this time its earnings from the sale of oil and gas have constituted one-third of government revenue, as well as providing jobs for nearly a quarter of a million people who were employed not just in the energy industry but in providing the vital infrastructure - the ships, buildings and essential services - that is needed to support it.

The trouble for the Norwegians is, like many other key oil producers (notably those of the Middle East) they have become heavily dependent on maintaining this high level of output. The proceeds of North Sea oil and gas have allowed them to subsidize benefits and privileges - benefits such as free universal health care and sick and disability allowances - with a generosity that other countries would consider excessive or even unrealistic. This has meant raising public expectations so high that any cutbacks would prove painful not just to those who are used to being recipients, but also to the politicians who are deemed responsible.

Norway seems well prepared to survive the global economic slowdown that began in earnest in the course of 2008. Over the preceding few decades it has acquired the reputation of being one of the best-managed economies in the world, having carefully used its oil revenues to finance its non-oil budget deficit and invested the rest overseas into a 'Global Pension Fund', better known as its 'Oil Fund'. This acts as a form of insurance to guard against harsh economic times, restricting how much the government can spend at home by ensuring that 'over time, the non-oil budget deficit does not exceed the expected real rate of return of the fund, estimated at four per cent'. This allows Norway's leaders to sound upbeat over the prospect of encountering any short-term difficulties. 'We have held back and been restrictive in our use of oil revenues in strong times', as Prime Minister Jens Stoltenberg told one newspaper, 'but we can start to spend more now that we see a downturn coming.'1

But although Norway is one of the best-placed governments in the world to spend its way out of an economic downturn, its longer-term outlook appears increasingly doubtful. After enjoying almost 40 years of virtually uninterrupted growth, oil and gas production reached a plateau in 2001, and although it is expected to remain at this level for a few more years, most analysts anticipate a gradual, steady and significant decline after about 2015. 'Between 2009 and 2013 we expect significantly reduced oil production', as Bente Nyland, head of the Norwegian Petroleum Directorate, told a press conference in early 2009.2 This is essentially because the largest, most productive fields are well past their best (the once giant deposits at Gullfaks and Statfjord, for example, are thought to be largely exhausted) and many others are depleting at an annual rate of between 13 per cent and 40 per cent. At the same time, Norway's economy has failed to diversify away from its dependency on oil and gas exports, and will have little else to depend on besides fishing and tourism when these energy reserves eventually run out.

It is in this context that the Arctic's natural resources become so important for the Norwegian government, which is stepping up its search for undiscovered reserves. One of the most promising areas is believed to be around Lofoten, which lies just above the Arctic Circle on the west coast of the mainland. The Norwegian Petroleum Directorate is currently in the process of arranging surveys in these waters, and also thinks that two-thirds of its undiscovered resources are located in the Norwegian and Barents Seas. 'We are still confident that there are a lot of resources to be found on the Norwegian continental shelf, especially in the deep-water part where we have the new licenses', as Henrik Carlsen, a director of Statoil, the state-owned energy giant, argues. 'We think it is important that the government releases as much as possible, and we want the Lofoten area to be opened.'3

The government that was elected to power in September 2005 quickly showed a strong interest in the energy resources that lay north of the Arctic Circle but within its territorial borders. One of the central features of its 'High North' policy has always been to recognize that 'the focus of Norwegian energy policy is thus continuing its historical shift towards the north'. This involves undertaking 'an active licensing policy that takes into account the need to follow up exploration results and the need to open up new areas for exploration'.4

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