Norway Snuggles Up to Other Oil Producers

Norway, shocked by a collapse in oil prices last year to below $10 per barrel, has lifted contacts with other crude producing countries to unprecedented levels, Deputy Oil Minister Erling Grimstad said. He said close contacts with producer nations, including members of OPEC, would continue even though prices have more than doubled to above $23 per barrel. But Norway has no plans for formal participation in OPEC. "Norway, after the price collapse in 1998, intensified contact with OPEC and other oil producing countries...During that period we have had closer cooperation and contact than we have had at previous times," Grimstad said. "We will continue to have close cooperation with oil producing countries...we see this as in our best interests. We have a pragmatic and practical approach to this kind of contact," he said. Norway pumped around 2.7 million bpd in August and is one of the world's top net exporters. It implemented a self-imposed 200,000 bpd cut to output in solidarity with restrictions by other major producers to bolster prices from last year's historic lows. It says the cuts were decided independently of OPEC. Although Norway insists the cuts are real, Norwegian oil production has failed to hit an average forecast for the year of 2.9 million bpd, including a reduction of 200,000 bpd. Grimstad said participation by non-OPEC Mexico, Norway, Russia and Oman, which have combined output cuts of 800,000 bpd, had been vital to ensuring that OPEC stuck by its word. Previous production curbs have proved worthless because of production leaks by different OPEC producers. OPEC has reduced supplies to the world market by around 4.3 million bpd, an agreement which will run until March 2000. Deciding Output Cut Rollover Norway's cuts are valid until the end of the year and Oil Minister Marit Arnstad has said the government would decide whether to extend them beyond that time in the autumn. Grimstad said the decision would be made "after contacts and discussions with other producing countries". Analysts said experiences from the $10 per barrel period were a strong lesson for Norwegian oil policy makers and made them aware that Norway could risk several years of very low prices. Olav Bjerkholt, professor of economics at the University of Oslo, said future decisions in the oil sector would to a large degree be influenced by OPEC. "I think policy is more and more directed to trying to stay very close with OPEC," Bjerkholt said. He said there were fears among authorities that when OPEC returned to a higher level of production, Norwegian output could lose market share. That could have disastrous consequences for new developments on the Norwegian continental shelf. Norwegian authorities are already under pressure to help ease a sharp downturn in the offshore supply sector after oil companies slashed development budgets after 1998's oil price fall. Unions claim the supply industry could lose up to 30,000 jobs, which are mainly on local communities on Norway's west coast. "I think there is a move to edge under the wing of OPEC so it won't be left in the cold when production increases," Bjerkholt said. "So there will be no unilateral abolishment of cuts to Norwegian oil production, that would surprise me very much. If there is any change I think it will be in agreement at least with Saudi Arabia." Other analysts saw little need for Norway to roll over the cuts. The country has booked solid budget surpluses since 1995 and amassed a fund of almost 183 billion crowns at the end of June from oil and gas revenues. And high oil prices often put an appreciating pressure on the crown, which hurts the competitiveness of non-oil industries. Kjell Roland, managing director at research institute Econ, said Norway's interests were better served by stability in the oil markets rather than maximizing revenues. High prices bring larger risks to the downside, he said. "It's definitely not in our interests to squeeze the oil market too far in the short term and I don't believe pushing prices far above $20 per barrel is sustainable in the medium term," Roland said. "Consumers would begin to move away from oil to alternative energy sources like they did in the 1980s," he said.