Oil prices slump
They halved from 1985, which sharply reduced the value of Norwegian petroleum output. The country’s trade surplus became a deficit. Crude prices had long been under pressure because of over-production on a global basis, and they went into free fall in 1986.
In the mid-1980s, Norway was a small oil producer and played a minor role internationally. The general perception was that Norwegian oil policy should take account of domestic political considerations, but that the fewest possible market-related and foreign policy considerations should be taken into account.
The attitude was that Norway, as a small country, could not influence the instability which had arisen in the market and had no other choice but to adapt to market prices and rules.
This changed in 1986, when pressure from Organisation of Petroleum Exporting Countries (Opec) persuaded Norway to adopt more active market and foreign policies in the energy sphere. In order to secure control over a weak and unstable market, Opec wanted to curb production and expressed a desire for solidarity and for a collective effort to achieve a balance between supply and demand.
Norway received a request in the spring of 1986 to reduce output of crude oil from the Norwegian continental shelf (NCS). However, the centre-right coalition government under Kåre Willoch had nothing to offer Opec and refused point blank.
The Labour Party was strongly opposed to this rejection. Willoch and his government were forced to resign in May after being defeated in the Storting (parliament) over a vote of confidence on petrol price increases. Labour leader Gro Harlem Brundtland became prime minister, and her government resolved to limit crude oil exports through an extraordinary build-up of emergency stocks.
This move was followed up by a 7.5 per cent reduction in production limits on the NCS with effect from 1 February 1987. This marked the start of a number of measures to limit output, which continued until the spring of 2002.
The production cut-back applied to Statfjord as to all other Norwegian fields – particularly because it was by far the largest producer on the NCS at the time. But the UK government had no desire to reduce the country’s oil production, and refused to allow the British Statfjord licensees to participate in any diminution of the field’s output. The solution was that Statfjord was exempted from the Norwegian measure, and the cut which should have occurred there was switched to Gullfaks instead. The Gullfaks licensees would get back the production they had postponed in the years after the Norwegian measures had ended.
When the Norwegian government announced its production restrictions in June 1986, oil prices immediately rose by USD 0.50 per barrel. On the same day, Statoil had an oil cargo from Statfjord ready to depart. It was resolved to wait to sell this consignment until it was clear what the new Labour administration would do. The cargo was sold after the price had risen. With 770 000 barrels on board, the company earned at extra USD 335 000 or about NOK 2.5 million by waiting.
To learn more, see: Statfjord agreements.
Sources:
Sæter, Martin. Det dramatiske petroleumsåret 1986 . Oslo 1987, pp 25-27.
Austvik, Ole Gunnar. “Den petroleumspolitiske utfordringen” . Norwegian Foreign Policy Yearbook . March 1988.
Lerøen, Bjørn Vidar. 34/10 Olje på norsk – en historie om dristighet. Stavanger 2006: 181-185.