Oil and gas in the capitals

Norway faces some important dilemmas and awkward policy trade-offs concerning the petroleum industry. Even if the country has a robust economy, it is sailing into more risky waters. Lower oil prices change the macroeconomic framework. In 2014, Norway had a trade surplus equal to 30% of GDP. Oil and gas, as well as refined products, accounted for 45% of total exports. Without petroleum exports, the trade deficit would have been 9% of GDP. Even at prices at one-half of the 2014 level, Norway would still have a comfortable trade surplus, but critical issues appear on the political agenda. The key question concerns Norway’s economic strategy and the trade-off between continued petroleum investment and diversification. Over the past 10 years, exploration and development have boomed, thanks to tax breaks and high oil prices, driving costs up. As a rule, the government takes 78% of net income, but companies can deduct 90% of capital investment. The service/supply sector has benefited greatly, due partly to bottlenecks and imperfect competition. In Norway, industry factors have driven costs, not geology.

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