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 15 400 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 2020-NOK)
|Environmental taxes and area fees||6.9||7.3|
|Net cash flow from SDFI||96.5||42.3|
|The net government cash flow||256.9||97.8|
(Source: Revised National Budget 2020)
Norway’s tax revenues from petroleum activities are estimated to NOK 32.5 billion in 2020. The net cash flow from direct ownership in fields through the SFDI system is estimated to around NOK 42 billion. The government has additional income from fees and Equinor dividend. Estimated total net cash flow from the petroleum industry in 2020 is close to NOK 98 billion (2020-NOK).
The estimate for 2020 has been adjusted down by around NOK 159 billion compared with 2019. This is mainly due to significantly lower oil and gas prices and the impact of the Covid-19 pandemic. The total revenues from the industry is estimated to amount to around 10 % in 2020.
The net government cash flow from petroleum activities, 1971-2020
2020 are preliminary numbers from the Revised National Budget 2020. 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 october in 2019 had 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 2019, about one in six NOK spent over the fiscal budget came from the Government Pension Fund Global.
Macroeconomic indicators for the petroleum sector, 1971-2020
Source: Statistics Norway (National accounts), Ministry of Finance (The Revised National Budget 2020)
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 2020, Norway’s tax revenues from petroleum activities is estimated to NOK 32.5 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), 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 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. Today the state have direct financial interests in 214 production licences, 35 producing fields and holdings in 15 joint ventures that own pipelines and onshore facilities.
Net cash flow from SDFI in 2020 is estimated to around NOK 42 billion.
The Norwegian state owns 67 % of the shares in Equinor, and receives dividends in the same way as other shareholders. In 2020, expected dividend paid to the state is NOK 15.7 billion.
The area fee is intended to ensure that awarded acreage is explored efficiently. In 2020, 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 Activites. For 2019, the tax rate was NOK 1.08 per standard cubic metre of gas or per litre of oil or condensate. For combustion of natural gas, this was equivalent to NOK 462 per tonne of CO2. For emissions of natural gas, the tax rate was NOK 7.41 per standard cubic metre. In 2020 the tax rates increased respectivly to NOK 1.15 (491 per tonne) and NOK 7.93.
The expected total tax levied is NOK 5.7 billion in 2020.
See article about emissions to air from petroleum activities for more information.