Many holes in Norway fairytale

NEW ZEALAND OR NORWAY? Actually, it's Fiordland, New Zealand. We may look similar, but we can never get rich through oil and gas exploration the way Norway did. PHOTO/DEREK ONLEY

WE COULD be like Norway, say oil industry proponents. Norway is rich because of oil and gas. If New Zealand wants a model from a similar-sized country, they say, it need look no further than Norway.

I'm reminded of a childhood fairy tale; remember the goose that laid the golden egg? Jack's mother was aghast when he exchanged their cow for a few useless beans, but the beans were magic. After a number of near-misses, not without their health and safety risks, Jack got the goose, became wealthy beyond his wildest dreams and he and his mother got bigger digs and reportedly lived a happy, high-consumer lifestyle ever after.

Simon Bridges thinks oil and gas are going to be New Zealand's golden goose, the way it was for Norway.

But he's too late. Back in the 1970s the Norwegian Government made a calculated decision to tax the oil companies at 90 per cent. To their surprise, the companies paid the high taxes and kept coming. Norway got rich.

Norway still charge one of the highest tax rates, around 78 per cent, while New Zealand charges oil companies 42 per cent tax - one of the lowest tax takes in the world.

What Norway did in the 1970s is impossible to achieve today. Saudi Arabia and other Middle Eastern countries still have large reserves of "easy" oil. Their production is not at full capacity, so they still have the ability to influence world oil prices. Ramping up Middle East production volumes can bring prices down and make unconventional and marginal oil production uneconomic. This is far from the full explanation of the current oil price crash, but it's been cited as a part of the puzzle.

Even before the 50 per cent drop in Brent Crude (the North Sea oil pricing benchmark), no oil company today could afford the royalties/taxes that Norway demanded back then. For deep sea drilling in New Zealand, described by the industry as a "frontier" region, margins are tight.

Back in Norway, it's not all golden eggs. At current prices, more than half the offshore fields being developed along the Norwegian continental shelf are uneconomic [1].

In the past six months Norway's kroner has dropped 20 per cent against the dollar. Norway's partially state-owned oil companies Statoil and its service companies have cut thousands of jobs, and Norwegian unions are calling for government measures to protect the industry [2].

The fairy tale is ending, but Hilde Opoku of Norway's Green Party says Norwegians are still blind to the coming change. "When we wake up from this oil bubble," he said, "we will realise we will never have a fairy tale like this again."

No one will. Climate change now dictates our future, a future where, if we are to keep global warming to the agreed 2C limit, most of our known reserves of oil and gas cannot be burned. Why on earth are we looking for more? Oil and gas will never be New Zealand's golden goose. It's time to stop believing in fairy tales.

References:

1) www.ctvnews.ca/business/oil-price-plunge-leads-to-lifestyle-shift-in-norway-1.2250550

2) /www.bloomberg.com/news/2015-01-08/norway-on-alert-as-oil-losses-have-government-exploring-options.html

-Rosemary Penwarden is a freelance writer and member of several environmental and climate justice groups. In between projects, she divides her time between her 3-year-old grandson and elderly mother.