Despite the $1 trillion funds that Norway has amassed pumping oil and gas over the past two decades, the country wants out of petroleum stocks serving as the clearest signal yet that the end of oil will not be as a result of crude oil wells drying up.
It could easily come about with the diversion of critical funds needed to fund the sector. Norway’s fund, which controls about 1.5 per cent of global stocks, will dump as much as $40 billion of shares in international giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc.
According to the country’s Finance Ministry, it will study the proposal and decide what to do in “fall of 2018” at the earliest. The country’s central bank says the plan stems from a need to make the country which relies on oil and gas for about a fifth of economic output to be less vulnerable to declining crude prices. The country also seems to be voting for protecting the climate. The divestment indicates the country’s interest to stop funding activities that ruin the climate. Only recently, it sold most of its coal stocks.
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Oil majors are feeling the squeeze though the fund says the plan is not based on any particular view about the future of oil prices or the industry as a whole, it will likely add to pressure on producers already struggling with the growth of renewable energy supplies. The Stoxx Europe 600 Oil and Gas index reversed gains after the announcement, sliding 0.3 per cent according to Bloomberg reports.
Climate activists are cheering the news. After years of trying to steer the Norwegian government away from more investment in its industry, because of the damage, it can cause to the climate and environment, activists are glad politicians will take them more serious now that pipeline of funds and projects that help campaigns are threatened.
There is long been lots of resistance to Norway’s heavy investments in the oil industry. Now that the central bank is recommending how oil investment risk should be reduced, more attention would be given the plan.
“This is a very wise proposal from Norges Bank,” said Truls Gulowsen, head of Greenpeace Norway, shortly after the central bank made its oil divestment recommendation public. The central bank is in charge of managing the Oil Fund, through its unit Norges Bank Investment Management (NBIM), and it has concluded that the risks posed by the fund’s huge oil and gas stock portfolio should be reduced.
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Established over 20 years ago, Norway’s oil fund has realised over $1trillion from investments through the cyclical boom and bust of oil prices. The fund’s investment decisions are guided by ethical rules encompassing human rights, some weapons production, the environment and tobacco. Norway’s fossil-fuel investments are coming under increasing scrutiny from a public that aims to be a climate leader without jeopardizing one of the world’s highest standards of living.
The fund has doubled in value over the past five years and was just given the go-ahead to boost its stock holdings to 70 per cent of its portfolio from 60 per cent to help drive returns. The government, which also controls Stataoil and offshore oil and gas fields, was forced to withdraw cash from the fund for the first time last year to meet spending commitments after oil prices dropped, reports Bloomberg.
Environmental organizations like Greenpeace, Bellona, WWF, Fremtiden in våre hender (The future in our hands), Naturvernforbundet (Norway’s chapter of Friends of the Earth), ZERO and others have been warning of the risky economics of oil investment themselves, after failing to curb the expansion of Norway’s oil and gas industry with their anti-emission, carbon capture and other campaigns aimed at stemming climate change. Several were jubilant when Statoil’s summer drilling on controversial new oil fields in the Arctic failed to produce potentially profitable oil and gas discoveries.
ISAAC ANYAOGU
