Page 8 - Euroil Week 14 2020

EurOil COMMENTARY EurOil
Norway open to playing
role in global cuts
Norway has said it will consider a unlateral cut in a deal is reached
NORWAY
WHAT:
Norway has said it may cut output if a global suppliers’ pact is reached.
WHY:
Oslo says it would consider a unilateral
cut if a deal goes ahead, suggesting it will not agree a set quota and will avoid close co-operation with the OPEC cartel.
WHAT NEXT:
Norway’s future production is already at risk because of spending cuts.
NORWAY has suggested it is open to doing its part to reduce global oil supply and prevent a further rout in prices.
The biggest producer in Western Europe has not taken part in co-ordinated international cuts since 2002, a year when oil prices averaged just $22.80 per barrel, or $32.70 when adjusted for inflation. Brent is currently trading at around $32 per barrel, as the coronavirus COVID-19 crisis continues to cut deeply into fuel demand.
OPEC is holding an emergency meeting on April 9 to discuss a potential agreement. Norway has been invited to attend as an observer country.
“We have a dialogue with key stakeholders, including other producing countries,” Norwe- gian Petroleum and Energy Minister Tina Bru said in an emailed statement to Bloomberg. “If a broad group of producers agree to cut produc- tion significantly, Norway will consider a unilat- eral cut if it supports our resource management and our economy.”
Using the word unilateral, Norway seems to suggest it will not be part of a formal agreement that might involve supply quotas. It may also be seeking to distance itself from accusations of market collusion. After all, OPEC is a cartel. Norway’s involvement in output restrictions would violate the antitrust rules of the Organi- sation of Economic Co-operation Development (OECD). It is true that, given the hard and fast impact of the COVID-19 crisis on oil markets, these rules may be temporarily overlooked, however.
Officials in the US, despite the country’s free market philosophy, are also talking up the pros- pect of joining OPEC+ in a supply cut. The head of the Texas Railroad Commission, an energy market regulator, Ryan Sitton, has had talks with
the energy ministers of Russia and the Canadian state of Alberta this month to discuss this.
How exactly Norway and other countries with liberalised oil industries would be able to enforce a cut is unclear. Saudi Arabia’s national oil company (NOC) has a monopoly over pro- duction, while Russia has the centralised power to impose quotas on its producers. Norway’s upstream sector, on the other hand, consists of independent oil companies, making production caps difficult to implement. Even its majority state-owned oil firm Equinor only accounts for around 30% of national output.
Norwegian upstream
The next question is whether an enforced pro- duction cut would even be necessary. Russia, Saudi Arabia and other OPEC members con- cern themselves greatly with market share, at times prioritising it over profit. For Norwegian producers, on the other hand, the focus is natu- rally on margins.
Despite Norwegian gas being highly compet- itive in Europe, producers held some supply back last year because of low prices. Some higher-cost oil production is also likely to be cut if current prices persist.
This said, the vast majority of Norwegian out- put is still profitable, even under current market conditions. Aberdeen-based Westwood Global Energy estimates that only 2% of the country’s oil is extracted at an operating cost of above $20 per barrel, and only 0.6% above $30 per barrel. The government’s concern, though, is that cur- rent prices are impeding investment in future production.
Whilst able to cover their operating costs, Norwegian producers have announced steep
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w w w . N E W S B A S E . c o m Week 14 09•April•2020