In many parts of the world, the oil industry reigns supreme. Or nearly so — influencing everything from political decisions, to cultural moments, to the quality of the food you eat and the air you breathe.
Norway is one such place. One where the oil industry often seems to operate outside of the law and cultural norms. The most recent example of this is the plan by the government of Norway to force taxpayers to directly pay the special fees accompanying offshore production in remote parts of the Arctic, rather than the oil companies themselves.
While it should of course be noted here that the oil companies in Norway are state-owned, the move still seems to carry with it a very bad taste. To say the least.
Reuters provides more: “Norway’s government plans to make taxpayers rather than oil companies pay special UN fees for any offshore production from remote Arctic regions, according to letters sent to oil firms and seen by Reuters.
“The plan could serve as an example for other nations looking to fund exploration of the seabed ever further from land. It was criticized by opposition parties that want tighter limits on exploration in the fragile Arctic environment, days before an election in which the future of Norway’s big offshore oil and gas sector is a major issue.
“Opinion polls show a neck-and-neck race between Conservative Prime Minister Erna Solberg’s center-right block and center-left parties headed by Labour leader Jonas Gahr Stoere.”
“There is too little risk on the companies, and too much risk on the people of Norway,” commented Ola Elvestuen, the head of the Norwegian parliament’s Energy and Environment committee, and part of the Liberal Party.
“Neither me, nor the committee were informed about this,” he noted, while referencing the plans outlined in letters provided to Reuters by the Oil and Energy Ministry.
To explain the situation perhaps a bit more clearly here, the 1982 UN Convention on the Law of the Sea demands that treaty signees begin paying 1% of the value or volume of production of resources being developed outside of a country’s exclusive economic zone after 5 years (rising to 7% after 12 years).
That is to say, when resources are developed more than 200 nautical miles offshore — on/in the high seas, so long as there’s a relatively shallow continental shelf that extends beyond the 200-mile marker — then treaty signees are expected to pay into a fund that will theoretically be channeled to poor countries (through so many middle men…).
As no country has, as of yet, actually developed such resources, it remains unclear how things will work out in practice. Oil and gas development exploration is currently underway in the Arctic Barents Sea though — which is more than 200 nautical miles off the coast of Norway.
As of yet, apparently nothing of value has been found there. The first well in the Arctic Korpfjell prospect, located over 410 kilometers from land — drilled last month by Statoil, with its partners Chevron, ConocoPhillips, Lundin Petroleum, and Petoro — came up more or less empty. All that was discovered was very limited non-commercial quantities of natural gas.
Further exploration drilling is planned for 2018, though, and indefinitely into the future as well one would presume, barring major political changes.
To cap things off here, the Reuters coverage included this nice bit here: “The ministry viewed the deductions as matching Norwegian petroleum policy, which includes a principle that ‘an investment project that is profitable before tax is also profitable after tax,’ an official source said.”
In other words, as oil and gas production becomes more expensive in Norway over the coming years, it sounds like we can expect fossil fuel industry tax rates there to be regularly reduced … subsidization, in other words, since fossil fuel companies there aren’t allowed to be “unprofitable” if the market changes on them in a negative way. That might put electric car subsidies in the country into a bit more context.
And the thing that should be realized here is that Arctic oil and gas exploitation is going to be quite expensive — if it is pursued, as many countries (from Norway to Russia to the US to China) seem to desire. So expect the tax breaks to be quite large.
While it’s easy to assume that because of the high costs involved in development, and the likelihood that such development won’t be economical in a truly “free market” sense, the Arctic won’t end up being sucked dry of its fossil fuel reserves, my personal opinion on the matter is: Don’t count on it. Drug addicts don’t know when to stop.
Most governments seem to operate on inertia more than anything else, and most cultures for that matter as well, and most of those at the top of things are simply along for the ride (and the shiny things) rather than actually driving things in a new direction.
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