Not So Pretty In Norway, Victim Of Plummeting Oil Prices

The oil tanker Sten Frigg moored in Bergen, Norway - Petr Smerkl

The sinking cost of crude has disrupted the Scandanavian country's national economy. Norwegians now start to ask how wide the hardship will spread.

2015-10-08

STAVANGER — Of course, you can find small souvenir bottles of crude oil. But there are also model offshore platforms, a quiz on Norway's energy resources and a simulated helicopter ride. But it's only at the end of a long hallway recounting the country's oil history — at Norway's Petroleum Museum in Stavanger — that there is a mention of the recent per-barrel price collapse.

The last sign of the visit says "Vanskelige Tider," or "difficult times." It reads, "The global oil markets have been through fundamental changes since the 1970s. Prices have risen, fallen, and risen again — several times. Norway is very vulnerable to these fluctuations and has little chance to influence them."

Petroleum provides jobs, directly or indirectly, to about 300,000 of the 5.2 million Norwegians. And since the world's most-used raw material has lost 60% of its value in one year, the local daily Aftenbladet has already counted 22,879 layoffs in the country.

"Almost all the private companies are, one way or another, linked to the oil industry," says Swiss ambassador Rudolf Knoblauch. "Here, when petroleum goes badly, it's the whole economy that goes down." Knoblauch, who receives us in a small lounge of his home in the outskirts of Oslo, explains that the country is currently thinking about how it's fundamentally changing. "But the question is: Is there a Norwegian economy beyond petrol?"

He's not the only one to wonder. After running through the streets of the capital, swept up in the frozen rain, Simen Sætre warms his hands around a large cup of tea. The author of Petromania, a book that studies his country's dependence on the black gold, says Norway's challenge is diversification. "Everybody's talking about it, but nothing is being done," he says.

In Stavanger's historic center. Photo: Andrea Heck

Like many Norwegians, Sætre believes his country's future involves exporting know-how and technologies that were initially linked to jobs around petroleum but that are transferrable to other industries. "We'll have to wait and see what goes on in Stavanger," he says. "For the moment, that's where it's the most complicated."

Rising unemployment, declining real estate

Stavanger, precisely. Set on the country's southwest coast, the Norwegian oil capital is being hit full force by the plunging prices. The most obvious signs are the rise in unemployment (from 2.1% to 3.6% between August 2014 and 2015) and the decline of real estate prices (-3.7% for the second quarter of 2015). And there are others. Since last summer, it's impossible to connect Stavanger to Frankfurt or Paris with a direct flight. Launched last year, the connection between Stavanger and the Texas oil capital of Houston will stop running this fall.

Another example is that the number of foreign students at Stavanger's international school has fallen. "When there's a drop in the petroleum industry, there's an impact on the enrollment projections," the school's director says.

Ole Soeberg offers a metaphor. The chief investment officer of Skagen Funds, whose office is in a tower in Stavanger's city center, believes the Norwegian energy industry must now rethink its purpose. "The situation is the same as for the horse carriage manufacturers in the early 20^th century," he says. "Even though the tractor had just been invented, they kept on investing in carriages, when the number of horses used in fields had dropped by 80%." Like Sætre, he believes the country must build on its expertise in certain advanced technologies and export them abroad.

Drilling, from the sea to Mars

Or even to Mars. Zaptec, a startup with about 30 employees based in the Stavanger Innovation Park, managed to convince NASA to collaborate with it. Its techniques in plasma-based drilling, initially designed for the oil industry, could be used on the Moon, asteroids or the Red Planet. For now, Zaptec's first customer is the car manufacturer Renault, which is interested in its electrical car loading stations. Nils Christian Lærdal, the company's sales manager, briefly summarizes the benefits of being based in Stavanger: "Oil isn't doing so well. We see here a great opportunity to hire talented people."

But the oil industry hasn't had its last say because not all companies are affected in the same way by the drop in price. Erik Sverre Jenssen, the head of operations for Lundin Norway, a local branch of the Geneva-based oil company, explains that his company hasn't planned any layoffs. "We have frozen hiring since last summer," he says. "And the Christmas party might be a bit smaller than expected, that's all."

Turning his back to the stunning view of his office located in the Lysaker fjord, on Oslo's outskirts, he explains why Lundin has escaped the storm when layoff announcements have been multiplying in the industry over the past few months. "First, it's thanks to our success," he says. "We had nine employees in 2014, and we now have 350. But also because we employ almost 250 advisors. We will end two-thirds of these contracts, which is a more flexible solution."

Erik Sverre Jenssen says it's mostly subcontractors that are suffering from the current situation. "They've had to lay people off," he says. "And even if the price per barrel goes back up again, 2016 will be a very difficult year because the decisions made today are so radical that their impact will still be felt next year."

With or without petrol, Norway's economic future is hard to outline. But the Norwegian Petroleum Museum in Stavanger is ready: At the end of the hallway, and of its chronology, there's still space for a few more signs.