Norway is a significant player in international oil and LNG markets. It is Europe’s largest oil producer, the world’s third-largest natural gas exporter after Russia and Qatar, and an important supplier of both oil and LNG to the European continent.1 Norway also manages the world’s largest sovereign wealth fund, which totals around $900 billion.
In 2011, Norway and Russia reached a historic agreement that granted Norway ownership of 54,000 square miles of continental shelf and stipulated that both countries would jointly develop any oil and gas deposits straddling their shared land and maritime boundaries. All of Norway’s oil reserves, which are the largest in Western Europe, are located on its offshore continental shelf.2
While the bulk of Norway’s oil production takes place in the North Sea, new exploration and production activity is centered in the Barents Sea.3 Created in 2007, Statoil ASA (of which the Norwegian government owns 67%) controls 70% of the country’s oil and gas production.4 Subsidies and tax abatements, however, ensure that international oil companies like ExxonMobil, ConocoPhillips, Total and Shell maintain a significant presence in Norway.
Norway exports most of its oil to Europe, with only 14% of its oil exports going to the United States and the rest of the world.5 However, its exports have been decreasing over time as production has steadily decreased since 2000. Lower oil prices seem to have only accelerated the decline in output.6 Shrinking oil revenues could increase Norway’s reliance on the good management of its sovereign wealth fund to keep its economy afloat.
Norway is a prominent exception to the “oil curse:” it has high-quality governance, low corruption and strong democratic institutions, despite the huge oil and gas revenues it has accrued. Many analysts believe that the key factor explaining Norway’s seeming immunity to the resource curse is that its political development predated the discovery of its hydrocarbon resources. Many other countries hoping to boost their national incomes through oil and gas production strive to emulate Norway’s good governance. The Norwegian government manages it sovereign wealth fund as many such funds are meant to be used, but often are not — by investing abroad and saving a large portion of the earnings.