When the first production licences were awarded in the mid-1960s, hardly anyone realised what the industry would mean for the Norwegian economy. Fifty years later, it is more important than ever.
The industry plays a vital role in the Norwegian economy and the financing of the Norwegian welfare state. The oil and gas sector is Norway's largest measured in terms of value added, government revenues, investments and export value. Long-term perspective in the management of the government's petroleum revenues ensures that they benefit Norwegian society as a whole, and that future generations will benefit from Norway’s petroleum wealth. This has been a key principle in developing the financial and legal framework for the sector.
Since production started on the Norwegian continental shelf in the early 1970s, petroleum activities have contributed more than NOK 13 000 billion in current NOK to Norway’s GDP. This does not include related service and supply industries. Yet so far, under half of the estimated recoverable resources on the Norwegian shelf have been produced and sold.
One of the overall principles of Norway’s management of its petroleum resources is that exploration, development and production must result in maximum value creation for society, and that revenues must accrue to the Norwegian state and thus benefit society as a whole. The main reason for this is the extraordinary returns that can be obtained by producing petroleum resources. Since these resources belong to society as a whole, the Norwegian state secures a large share of the value creation through taxation and the system known as the State’s Direct Financial Interest (SDFI) in the petroleum industry.
The net government cash flow from petroleum activities in billion NOK, 2016
|Environmental taxes and area fees||6,6|
|Net cash flow from SDFI||55,8|
|The net government cash flow||124,5|
Source: The Ministry of Finance - the National Budget 2017
Norway’s tax revenues from petroleum activities were about NOK 51 billion in 2016 The net cash flow from direct ownership in fields through the SFDI system was NOK 56 billion.
The government’s total net cash flow in 2016, including the dividend from Statoil and various fees, was NOK 124,5 billion, or about 13 % of total government revenues in the National Budget. By comparison, the net government cash flow from petroleum activities was in 2015 NOK 218 billion. The net government cash flow is expected to be around NOK 138 billion in 2017.
The net government cash flow from petroleum activities, 1971-2017
2016 and 2017 are preliminary numbers from the national budget 2017. Paid taxes are adjusted for repayments and numbers are inflated using CPI Norway.
Source: Ministry of Finance, Statistics Norway
Government revenues from petroleum activities are transferred to the Government Pension Fund Global, which at the end of 2016 had holdings with a total value of NOK 7 510 billion. Under the fiscal rule, transfers can be made to the fiscal budget from the Fund to finance important public goods without drawing on the Fund’s capital. In 2017, about one in seven NOK spent over the fiscal budget will come from the Government Pension Fund Global.
Macroeconomic indicators for the petroleum sector, 1971-2016
Source: Statistics Norway, Ministry of Finance (national budget 2017)
The petroleum taxation system is based on the rules for ordinary company taxation and are set out in the Petroleum Taxation Act (Act of 13 June 1975 No. 35 relating to the taxation of subsea petroleum deposits, etc). Because of the extraordinary returns on production of petroleum resources, the oil companies are subject to an additional special tax. The current ordinary company tax rate is 24 %, and the special tax rate is 54 %. In 2016, Norway’s tax revenues from petroleum activities is estimated to about NOK 51,3 billion.
See article about the petroleum tax system for more information.
The State’s Direct Financial Interest (SDFI) is a system under which the Norwegian state owns holdings in a number of oil and gas fields, pipelines and onshore facilities. For oil and gas fields, the proportion is determined when production licences are awarded, and varies from field to field. As one of several owners, the government covers its share of investments and costs, and receives a corresponding share of the income from production licences.
The SDFI system was established on 1 January 1985. Before this, the Norwegian government only had ownership interests in production licences through Statoil, which was wholly state-owned. From 1985, these were split in two: one part became the State’s Direct Financial Interest (SDFI) and the other part remained with Statoil.
When Statoil was listed on the stock exchange in 2001, the responsibility for managing the SDFI portfolio was transferred from Statoil to a new state-owned management company, Petoro. Today, the state has direct financial interests in 190 production licences, 43 producing fields and holdings in 17 joint ventures that own pipelines and onshore facilities.
Net cash flow from SDFI in 2016 is estimated to NOK 55,8 billion.
The Norwegian state owns 67 % of the shares in Statoil, and receives dividends in the same way as other shareholders. In 2016, the dividend paid to the state was NOK 10,8 billion.
The area fee is intended to ensure that awarded acreage is explored efficiently. In 2016, a total of NOK 1,7 billion was paid in area fees.
The carbon tax and the NOx tax are important environmental taxes in the petroleum sector. The petroleum industry is also included in the emissions trading system. Companies that are licensees on the Norwegian shelf must therefore purchase emission allowances if their greenhouse gas emissions exceed their allocated amount for the year. In 2016, the average cost of an emission allowance entitling the holder to emit one tonne of CO2 eq was EUR 5,3, corresponding to NOK 50.
Norway’s carbon tax was introduced in 1991 and is another instrument for reducing CO2 emissions from petroleum activities. The tax is levied on combustion or direct release of natural gas and on combustion of oil and condensate. In 2016, the tax rate was NOK 1,02 per litre of oil or condensate and per standard cubic metre (Sm3) of gas. For combustion of natural gas, this is equivalent to NOK 436 per tonne of CO2. The tax rate has been raised to NOK 1,04 per litre or Sm3 in 2017. A tax for direct emissions of natural gas has also been introduced from 2017. The tax rate is NOK 7,16 per standard cubic metre.
The total tax levied was NOK 5,4 billion in 2016.
See article about emissions to air from petroleum activities for more information.