How Norway’s Political Turmoil Impacts Oil Drilling and Budgets

(Bloomberg) -- The power dynamics in Norwegian politics changed this week when Erna Solberg’s center-right coalition lost its majority.

The new government will be forced to navigate a more hostile parliament after Norway’s main populist party quit the cabinet with the declared goal of seeking fewer compromises.

Here’s how the new situation will affect key issues in the Nordic region’s richest economy and western Europe’s biggest oil and gas producer.

Arctic Drilling

It was already going to be one of the most contentious issues in Norwegian politics in the coming months: the government is due to update a management plan for Arctic waters, which in effect will set a boundary for how far north oil companies can drill for oil.

With the pro-oil Progress Party out of government, the smaller centrist parties now ruling with Solberg may push the coalition to seek a broad compromise on a restrictive definition of the so-called ice edge (which is a band of water and sea ice and a rich and vulnerable ecosystem bordering the polar cap).

The Progress Party, which is seeking to brand itself as the last unconditional defender of an oil industry under pressure, fears an outcome whereby already-awarded exploration and production licenses could be canceled, lawmaker Terje Halleland said in an interview.

How Norway’s Political Turmoil Impacts Oil Drilling and Budgets

Oil Industry

Solberg’s Conservative Party is a traditional ally of the oil industry and is likely to take over the Petroleum and Energy Ministry from the Progress Party. While that’s unlikely to cause any major policy shifts, observers may notice changes in rhetoric.

Norwegian media reported on Thursday that lawmaker Tina Bru, 33, will take the position. Bru last year said she wanted oil operations in Norway to become carbon neutral by 2035 -- a more ambitious goal than was subsequently announced by the industry itself this month.

Power Link

The tide was already turning against the planned Northconnect power cable between Norway and the U.K. The opposition Labor Party has now presented a bill that would make sure the project’s not given a green light before it’s owned by public grid operator Statnett SF, and at the earliest after the impact of two other new interconnectors have been assessed. The Progress Party and the Center Party, another opposition group, are against it and have a majority in Parliament with Labor.

A report by Norway’s power regulator recently said Northconnect, owned by Vattenfall, E-CO Energi, Agder Energi and Lyse, was socio-economically profitable but would likely lead to higher power prices in Norway. The Energy Ministry is due to decide on the application for the project later this year.

Fiscal Policy

Just minutes after Progress said it would leave the government and become an opposition party, Solberg signaled she still planned to cooperate with her former ally in Parliament. If her minority deviates from that plan and finds too many compromises on the political left, it might become harder for it to strike a deal on the annual budget, which is presented in October.

“If we get a good relationship with the government and it remains in power, it might be problem-free,” Progress’s Halleland said. “We don’t expect them to be loyal. But the more loyal they are to us, the more loyal we will be to them.”

In her years in power since 2013, Solberg has been able to smooth over differences between her allies through generous oil-wealth spending. With Progress no longer in government, she might be forced to increase expenditure even more, Nordea analyst Joachim Bernhardsen said this week.

©2020 Bloomberg L.P.

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