Norway’s oil and gas firms have raised their investment plans for the year as they seek to benefit from pandemic-era tax incentives intended to boost activity in the sector, according to a national statistics office (SSB) survey.

The biggest business sector now expects to invest 159.5 billion crowns ($17.9 billion) in 2022, up from a projected 154.4 billion crowns in November 2021.

Meanwhile, the forecast is bound to draw criticism from environmentalists, who argue companies should cut spending on fossil fuels to curb global warming.

Norway, one of the world’s richest countries per capita, is also investing heavily in cleaner energy, but argues it would continue producing fossil fuels while there is global demand.

GDP growth — Gas flames flaring up from an off shore oil vessel

Investments are still set to decline this year by an estimated 8.1 per cent when compared to 2021, SSB said. This is due to a lingering effect of drawdowns made during the pandemic, but will likely increase in 2023 as major development projects gather speed.

Looking at the numbers, SSB said that oil investments will provisionally decline further to 131.4 billion Norwegian crowns in 2023, but this was likely to change.

“If the schedules for the expected projects are maintained, there will be significantly higher investments in field development in 2023 than what is currently included in the survey.”
National Statistics Office

Yet-to-be Approved Projects

Projects pending approval include a cluster of oil and gas discoveries in the NOAKA area by Aker BP and Equinor, as well as Equinor’s Arctic Wisting oil discovery.

The companies estimate investments in the two projects alone stand at a total of up to 165 billion Norwegian crowns. Available data shows that investments in 2021 totalled 177.7 billion crowns, down 0.9 per cent from 2020, SSB said.

Oil investments affect near-term growth in Norway’s economy as supplier industries benefit from higher orders, as well as longer-term petroleum output, predicted to rise by 9 per cent by 2024.

In 2020, Norway’s parliament approved temporary tax incentives to support oil and gas investments amid a crash in petroleum demand due to the pandemic.

While these incentives have lasted this long, they are due to end this year and companies need to approve new projects by this deadline to benefit from them.

In the meantime, demand has rebounded as pandemic-related restrictions have eased. Spurred on by geopolitical tensions, European gas prices have surged to record highs, and the oil price has climbed to its highest since 2014.

That said, Fatih Birol, the executive director of the International Energy Agency (IEA), has pleaded with OPEC+ to narrow the widening gap between its production quotas and the much lower actual supply to the market.

“It will be important for OPEC+ to narrow this gap and hopefully provide more volumes to the market,” Birol said at an energy conference in Riyadh.

With this current trend of oil prices, some analysts have projected oil prices to go beyond $125 per barrel at year-end 2022. This may worsen the already difficult state of affairs within the sector.