Economy
Whether the exploration of oil in the Barents Sea is profitable has been discussed for a long time.
In 2012, the Oil- and Energy department and Petroleum Directorate published two conflicting reports on the potential profit.
Here we will dive into the financial aspect of oil exploration in the Barents Sea, and also explain why the reports are conflicting with each other. This is also mentioned in the lawsuit.
Funfact
The Norwegian Government usually funds the exploration after oil and new potential areas of oil and gas. This is a huge expense for the Norwegian state.
But when the companies are extracting oil, the state taxes their income with around 80%, provding the state with high income and profit.
The oil- and petroleum industry has played a large role in the Norwegian economy, and provided the state and inhabitants with extreme wealth.
It has contributed to shape the welfare state, Norway and it's society, and Norway should be grateful of the oppertunities it has given us.
Ever since the mid 90´s when Norway started generating profit that could be put into our state-owned fund, our income has increased even more from the returns from the fund. So in all the earnings from the industry has been a vital part of our economy.
When opening the new Barents Sea fields, a lot of questions arised concerning the financial aspects of it.
Before the opening of the new licensed fields, there was already a concern of how profitable it would be. In the initial reports from the Oil- and Energy departmen, results showed that there would be a profitable project.
However, the Oil Directorate published reports stating a much lower profit from oil and gas production in the Barents Sea.
Let us explore the numbers and differences together.
In the graph to the right, you can see the difference in calculated financial profit from each report
The Oil- and Energy department also estimated that the extracting would employ 1200 people in the best scenario and 500 in the worst scenario. The Oil Directorate does not include numbers on this.
Why these differences?
Click here for the answer!
The Oil- and Energy department did not correct for future demand for oil and gas, and did not account for changes in price and inflation, hence the large numbers.
The Oil Directorate accounted for these factors in their calculations, causing much lower profit.
The report from the Oil Directorate shows that socio-economic effects were not taken properly into account, and that the given income was not applied with a discount. The nombers are just estimates, but its quite extreme how one can come up with so majorly different results.
It also shows the risk involved in the process of projecting and estimating the cost involved in the oil industry. Which brings us to the protestors point of view. At what cost do or can we tolerate this risk?
Updates
Hover over to read the updates.
As of writing this, the oil and gas price have sky-rocketed due to the rising concerns in the market because of the war actions happening in Ukraine. This is, of course, something out of the ordinary, and not something that is usually taken into consideration, and most definitely not when projecting back in 2012. This is a great example of how volatile the marked could be, and how events around the world might affect the supply and demand. One of the world's leading oil and gas exporters, Russia, is now being sanctioned from the rest of the western society. Its not only the oil and gas market that is affected, but the market in general is being punished.
09.03.22
Now, one week later the price of oil has settled a bit from its last peak but still higher compared to the last 7-8 years. There is still a lot of questions regarding the “crisis” we are in. No one knows for sure how long the sanctions against Russia will remain. And with Russia out of the western market, some people would argue that it is a kind of responsibility laying on Norway when it comes to providing EU with oil and gas. The demand is still out there, but the supply is somewhat cut short. Some experts argues that the question and debate now has shifted from the climate debate to whether or not its responsible to have that debate when Norway sails up as one of the main suppliers.
16.03.22
The General Secretary of UN (United Nations), António Guterres, announced that the war in Ukarine must not stop the world from taking climate action during a press conference arranged by the Economist.
The increased use of fossil fules due to the reduction of Russian oil and gas is a threat to the 1,5 degre goal.
“This is madness. Addiction to fossil fuels is mutually assured destruction.", Gueterres states during the interview.
