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 to more than NOK 15 700 billion in current NOK to Norway’s GDP. This does not include related service and supply industries. Yet so far, only about 48 % 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 expected net government cash flow from petroleum activities (in billion 2021-NOK)
|Environmental taxes and area fees||7.4||7.6|
|Net cash flow from SDFI||40.8||75.1|
|The net government cash flow||86.7||98.5|
(Source: The National Budget 2021)
The total payment form tax revenues and fees from petroleum activities are estimated to NOK 15.9 billion in 2021. The net cash flow from direct ownership in fields through the SFDI system is estimated to around NOK 75.1 billion. The government has additional income from Equinor dividend at around NOK 7.5 billion in 2021. Estimated total net cash flow from the petroleum industry in 2021 is close to NOK 99 billion (2021-NOK). The total net cash flow from the industry is estimated to amount to around 10 % of the government's revenue over the 2021 fiscal budget.
The estimate for the net government cash flow 2020 has been adjusted down by around NOK 170 billion compared with 2019, which was at around NOK 257 billion. There are multiple factors explaining this reduction. Oil and gas prices have fallen significantly as a result of the Covid-19 pandemic and it's effect on demand. The pandemic has also had effects on the activity on the Norwegian continental shelf. The temporary tax changes enacted by the Parliament in June 2020 also result in significantly lower tax revenues in 2020. For a given level of investment activity on the Norwegian continental shelf, most of the reduction in tax revenues in 2020 due to the temporary tax changes will be offset by increased revenues in later years. Read more about the petroleum tax system here.
The net government cash flow from petroleum activities, 1971-2021
2020 og 2021 are preliminary numbers from the National Budget 2021. 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 during the autumn 2019 surpassed holdings with a total value of NOK 10 000 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 2020, about one in five NOK spent over the fiscal budget came from the Government Pension Fund Global.
Macroeconomic indicators for the petroleum sector, 1971-2021
Source: Statistics Norway (National accounts), Ministry of Finance (The National Budget 2021)
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 22 %, and the special tax rate is 56 %. In 2021, Norway’s tax revenues from petroleum activities is estimated to NOK 8.3 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 Equinor (Statoil). From 1985, these were split in two: one part became the State’s Direct Financial Interest (SDFI) and the other part remained with Equinor.
When Equinor was listed on the stock exchange in 2001, the responsibility for managing the SDFI portfolio was transferred from Equinor to a new state-owned management company, Petoro. At the end of 2019 the SDFI portfolio consisted of financial interests in 200 production licences, 35 producing fields and holdings in 16 joint ventures that own pipelines and onshore facilities.
Net cash flow from SDFI in 2021 is estimated to around NOK 75 billion.
The Norwegian state owns 67 % of the shares in Equinor, and receives dividends in the same way as other shareholders. In 2021, expected dividend paid to the state is NOK 7.5 billion.
The area fee is intended to ensure that awarded acreage is explored efficiently. In 2021, a total of NOK 1.6 billion is expected 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.
Norway was one of the first countries in the world to introduce a carbon tax, in 1991. This is levied on all combustion of gas, oil and diesel in petroleum operations on the continental shelf and on releases of CO2 and natural gas, in accordance with the CO2 Tax Act on Petroleum Activities. For 2020, the tax rate was NOK 1.15 per standard cubic metre of gas or per litre of oil or condensate. For combustion of natural gas, this was equivalent to NOK 491 per tonne of CO2. For emissions of natural gas, the tax rate was NOK 7.93 per standard cubic metre. In the National Budget of 2021 the tax rates are proposed to increase to NOK 1.27 (543 per tonne CO2) and NOK 8.76, respectively
The expected total tax levied is NOK 6 billion in 2021.
See article about emissions to air from petroleum activities for more information.