Norway Destabilizes Europe’s Energy Security

Norway is western Europe’s biggest petroleum producer where oil and gas account for more than half of the country’s exports. Last week, the opposition Labor Party withdrew its support for oil exploration in the Lofoten islands in Norway’s Arctic, which contains an estimate of 1 to 3 billion barrels of oil, creating a strong majority in Parliament opposed to offshore drilling. The significant shift by Norway’s biggest party is a substantial blow to support of the oil industry and potentially signals the end of an era for the Scandinavian nation that made it one of the world’s most affluent.

The decision was met with opposition by Norway’s powerful oil industry and its worker unions. Oil companies led by state-controlled Equinor ASA, the biggest Norwegian producer, have said that gaining access to Lofoten is key if the country wants to maintain production as resources are being depleted.

Head of the Norwegian Oil and Gas Association Karl Eirik Schjott-Pedersen said, “The whole industry is surprised and disappointed. It doesn’t provide the predictability we depend on.” Some oil executives had already given up on Lofoten, which has been kept off limits for years due to political compromises as Norwegians are starting to question their biggest export and source of wealth amid growing concerns over climate change.

Norway’s biggest oil union Industry Energy has been a long-time ally of Labor but harshly criticizes the party’s new stance on Lofoten, which was adopted less than two years after an internal party compromise on the issue. The union’s leader Frode Alfheim said, “It creates imbalances in the policy discussions for an industry that’s dependent on a long-term perspective and we can’t accept that. There’s probably a lot of people in the industry who are wondering what Labor actually stands for.” Mr. Alfheim still expects Labor and other big parties to protect the terms for oil companies and said tougher requirements for emissions could be a good thing for the industry.

The battle between Norway’s government and industry will now likely move on to whether drilling should continue in the Barents Sea. The oil industry fears that Labor will now compromise on other issues the next time it takes the reins of government, such as petroleum taxes and an attractive exploration refund for companies that aren’t profitable.

Labor leader Jonas Gahr Store said Labor will continue to be a supporter of the oil industry and to back the existing tax system. However, last week he also said he wants oil companies in Norway to commit to a deadline for making operations completely emissions free, an ambition the country’s top oil lobbyist called “very demanding.