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Businesspeople are gathering in Tromsø for the annual Arctic Frontiers conference at a difficult time. The price of oil has fallen to levels not seen since 2004. This is a bitter pill to swallow for a country that depends on oil for half its revenue.
So bad has the situation become that the Norwegian hosts have taken to making light of it; it has become something of a running joke that the price of a barrel of oil costs the same as a 5kg salmon, another of the country’s big exports.
The situation indeed poses a challenge for the industry, admitted Erna Solberg, the prime minister (pictured above) in an address to the gathering on Tuesday (in which she herself repeated the joke). Still, she remained bullish about the outlook for the industry, and the economy as a whole.
There are several reasons for this: firstly, new oil production is still coming on-line. Eni, an Italian firm, is said to be nearing production in its Goliat field, in the Barents Sea. Meanwhile Statoil, a state-controlled firm, recently announced it would begin exploring the Castberg field, also in the Barents. Licences for new exploration blocks are due to be awarded this spring.
Another reason is the expectation that the downturn is only temporary. “Even if the price of oil goes down further, there will be an upward movement in the future. Offshore it s a long-term opportunity,” Ms Solberg said.
Thirdly, oil’s losses, she underscored, provide impetus for building up other parts of the economy, particularly those in the Arctic. Some 30,000 people in the industry are estimated to have been laid off as firms scale back projects, or put others on hold, but these extra hands, according to Kristin Skogen Lund, the head of NHO, a business lobby, can help other industries expand. This would make the economy more diverse, reducing the dominance of the oil industry.
A diversified economy will include land-based jobs in the mining and tourism industries, but Oslo is putting much effort into promoting maritime businesses, such as aquaculture or maritime maintenance – known, together with offshore oil, collectively as its ‘blue economy’.
Among those on the lookout for new opportunities is Sevan Marine. Currently a maker of drilling rigs, the firm, says Fredrik Major, the managing director, would like to begin building equipment that can be used for other maritime industries.
One thing is to see opportunity, another is to land the necessary investments to make them happen. For the time being, money for new projects is at an all time low, according to Anders Blom, a member of the Global Agenda Council on the Arctic, which has been established to draw up a code of conduct for Arctic investments.
The lack of investment is due to low commodity prices, but demand, he reckons, is bound to return, and when it does, so too will the investments. “We’ve had busts in the past, and they are followed by booms. Investments follow the market,” he says.
Mr Blom is also the chair of Project Sápmi, a Saami advocacy group. In that capacity, what occupies him more than whether investments will be made is what the impact will be on communities.
“We can’t stop investment from happening, and neither should we. A certain amount of economic development is necessary, but it needs to be sustainable, according to us, the people of the Arctic, not according to what firms consider sustainable.”
Now that the guidelines for what constitutes good investment practices have been drawn up, the group will now turn to identifying what types of investment is necessary. Once that is complete, it will work to establish a ‘dedicated sustainable investment vehicle’, a type of investment bank.
Should such a bank ever see the day of light, it will have plenty to take care of. Guggenheim Partners, an investment firm that has been one of the drivers behind the work of the Global Agenda Council on the Arctic, calculates that as much as $1 trillion in infrastructure investments may be necessary in order for the region.