x Abu Dhabi, UAE Thursday 20 July 2017

Norway's model works in both snow and sand

The roads are crowded in this boom town, but the drifts blowing across the motorway are snow, not sand, and this is not Abu Dhabi or Doha, but Norway's oil capital, Stavanger.

A Statoil-operated North Sea gas platform. Statoil has recently found huge offshore gasfields in east Africa. Chris Ratcliffe / Bloomberg News
A Statoil-operated North Sea gas platform. Statoil has recently found huge offshore gasfields in east Africa. Chris Ratcliffe / Bloomberg News

The roads are crowded in this boom town, and it's hard to find affordable housing. A new port has been built to meet the industry's needs. The national oil company, working with international partners, has just found a multibillion-barrel field offshore.

But the drifts blowing across the motorway are snow, not sand, and this is not Abu Dhabi or Doha, but Norway's oil capital, Stavanger.

The "Norwegian model" of petroleum-backed development is often cited as the gold standard. It has certainly achieved impressive results. Norway is the world's third-richest country per person, and the economy has grown steadily, with just one year of decline, in 2009, in the past decade. It expanded 3.5 per cent this year and is set for 2.4 per cent growth next year.

Furthermore, Norway has succeeded in transforming this money into the well-being of its citizens: it has the fifth-highest income equality between its people, and the world's highest human development index, a measure of standard of living, education and health. At seventh place on Transparency International's list of the least corrupt countries, it has avoided the misgovernment often associated with natural resources.

Yet the components of the Norwegian model are often misunderstood, or seen in isolation. The model can be seen in two halves: how the oil sector itself is managed, and how its revenues are used by the country.

Norway recognised early on that it had to combine controlling the petroleum industry, and maximising earnings from it, with encouraging international investment and leading-edge technology.

At the same time, it needed exceptionally strong environmental protection, given the country's fisheries and delicate marine and Arctic habitats.

A minority share of the national oil company, Statoil, is traded in Oslo and New York, keeping it commercially focused. Renowned for technical excellence, it competes on a (more or less) even basis with international oil companies in the country - giants such as Shell and ConocoPhillips, but also small companies adept at high-risk exploration or exploiting mature fields.

Statoil has increasingly ventured abroad with mixed results, but it has had success in east Africa, where it has found huge offshore gasfields, and with developing shale oil and gas in the United States.

Taxation on oil production is high, at 78 per cent, but consistent and stable, and designed so that marginal or high-risk fields are still commercially attractive. The state's share is boosted by Statoil's participation and a direct equity stake in many fields.

This system, along with awards and research grants, encourages world-leading technology. World-leading companies, such as Aker in engineering, PGS in geosciences and Seadrill in drilling, employ 85,000 people while oil services have become a major export industry.

The overriding principles for the use and management of oil revenues are transparency, healthy debate in a broad national consensus and a strong role for civil society. Macroeconomic stability is a priority: excess revenues are saved to dampen volatility and provide for future generations.

Norway, which has earned some US$1.6trillion (Dh5.87tn) from oil and gas since 1971, now has $685 billion in its sovereign wealth fund. It spends generously on human development, infrastructure - such as dramatic tunnels under the western fjords- and overseas aid.

Of course, Norway began with many advantages: it was a developed democracy even before oil was discovered in the 1960s, with a strong shipbuilding and hydropower industry.

Its model cannot be simply transplanted to very different countries. Even in Norway, some citizens now worry about high costs and a loss of competitiveness.

The key is, not so much the details of the "Norwegian model", but the principles underlying it. Those fundamentals apply to both fjord and wadi, snowdrift and dune.

Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis and Capturing Carbon