The Great Northern Pivot: How Norway is saving Europe from an energy crisis and why not everyone is gleeful about it

Thanks to Europeans refusing russian gas, Norway's revenues from the sale of hydrocarbons soared to $100 billion last year. The Nordic Kingdom supplied almost a third of all blue flame gas consumed by EU countries, becoming its largest supplier on the continent.

The pledge of Europe's energy security is a modest building in the city of Stavanger, where the office of Petoro is located. The company manages stakes in licences owned by the Norwegian government, issued for exploration and extraction of oil and natural gas on the continental shelf. This is about three dozen hydrocarbon deposits.

Petoro does not carry out exploration or production, although it controls the operation of the energy giant Equinor. The company accumulates profits made by the state from the sale of oil and gas, and transfers it to the account of the Sovereign Fund.

"The war and the whole energy situation has demonstrated that Norwegian energy is extremely important for Europe. We have always been important, but perhaps we did not realise it," said Christine Fejerskov Kragseth, CEO of Petoro, in an interview with The New York Times.

Many in Norway have mixed feelings about such a reliance on fossil fuels. In the last national elections in 2021, the most contentious issues were the consequences of climate change and the fate of further development of hydrocarbon deposits. But the suddenly actualised energy supplies to Europe seem to have prompted a consensus. And the belief that the country should continue extraction, at least for the next few years.

Mind investigated the latest trends in the development of Norway's oil and gas industry and found out what obstacles are preventing this country from significantly increasing gas supplies to Europe.

Why has Norway reconsidered its course to renounce fossil fuels? The war changed political moods. "Basically, Europe said: 'Hey! We need your energy," says Ulf Sverdrup, Director of the Norwegian Institute of International Relations (NUPI).

Norway is not an EU Member State, but it closely monitors events on the European continent. After the outbreak of the war, Brussels and European countries, including Ukraine, asked Oslo for help. "Our contribution to Europe has been to uphold gas exports and to increase them," said Norwegian Prime Minister Jonas Gahr Støre.

"We left no stone unturned in our searches," said Anders Opedal, CEO of Equinor.

What impact has this had on the country's profits and its businesses? Norway made a substantial financial profit from coming to Europe's aid. Similar to how energy companies Shell and BP made record profits last year, Petoro earned about $50 billion in 2022, almost three times more than the year before. Equinor reported exceptionally high adjusted profits of $75 billion. In 2022, revenues from oil and gas brought the Norwegian state $125 billion, according to government estimates, which is roughly $100 billion more than in 2021.

Oil and gas dollars are funnelled into Norway's Sovereign Fund, the value of which has increased to $1.3 trillion. The fund owns approximately 1.5% of 9000 registered companies worldwide. The government can use its annual profit to fund 20% of the state budget. This, in particular, helped support Norway's economy, which grew by 3.3% in 2022, despite volatility in the oil and gas market.

How will the Norwegian economy develop further? Whether the high profits of the Norwegian oil and gas industry will continue is an open question. European gas prices have been falling for several months. The war in Ukraine has strengthened Europeans' resolve to transition from fossil fuels to renewable energy sources and has accelerated the "green" transition. Government modelled scenarios show that oil and gas extraction in Norway will peak by the end of this decade, followed by a prolonged decline.

Nevertheless, Norway hopes to maintain high levels of gas exports to Europe in the coming years. Battling the pandemic, the government introduced temporary tax relief in 2020 to support industry investments. This led to a surge in drilling and geological exploration worth over $43 billion.

The kingdom's largest energy companies plan to resume exploration and development of new fields in the Arctic. The government is planning exploration in the Barents Sea, where  over 60% of Norway's unexplored hydrocarbon reserves are located, according to geologists' estimates. Officials explain this as a desire to maintain the country's status as a key energy supplier to Europe.

As of now, Goliath and Snøhvitare the most significant deposits in the Barents Sea. The giant Wisting deposit, where Equinor is working, is considered a promising new site. At the end of last year, all work there was suspended due to high inflation and equipment problems. According to Greta Birgitte Håland, Equinor's Vice President of Exploration and Production, a new schedule will be ready by 2026.

What obstacles are likely along the way? However, there are doubts that Norway will be able to significantly increase gas supplies to Europe. The reason is the limited free capacity of existing pipelines. The case for building additional infrastructure is weak, argues Aker BP CEO Karl Hersvik. It would take about 20 years of operation to recoup investment costs. And the pressure on the country to reduce greenhouse gas emissions and curb the development of the oil and gas industry is unlikely to disappear. By mid-century, Europe may not need Norwegian gas in significant quantities.

"Norway is locking Europe into what is really a problem for the climate," said Frode Pleym, head of Greenpeace in Norway.

Will a compromise between energy and eco-activists be possible? Analysts believe that the Norwegian government is pragmatic – so, most likely, it will adjust the country's energy sector to match the energy policy of the European Union. "For Norway to have a future, our energy policy has to be aligned with Europe," said Ulf Sverdrup, Director of the NUPI.

Like most European countries, Norway has already begun its transition to renewable energy sources. Oil and gas companies are actively investing money in the construction of wind farms and trying to reduce greenhouse gas emissions. But many experts fear that renewable technologies will not be able to create enough well-paid jobs for the 6% of the working population currently employed in the oil and gas sector.

Hilde-Marit Rist, the head of energy union SAFE that represents 12,000 energy workers, is confident that "clean" energy cannot provide as good jobs as those on oil platforms.

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