Norwegian Oil Policy

When oil was discovered off the coast of Norway in the late 1960s, the Norwegian government quickly moved to set up mechanisms to sell leases to and collect revenues from companies looking to explore and develop this resource. Within a year, the government also created a state-owned oil and gas company to develop expertise in the extraction and sale of petroleum products and to provide employment for the Norwegian people. The mission of the new company, later named Statoil, was to help Norway do more than just collect revenues from the ownership of a resource, but to also participate in the downstream gains that could be realized from what seemed likely to become a huge part of the country’s economy.

Norway's Ten Commandments of Oil Policy

In 1962 Phillips Petroleum gained permission from Norway to explore for oil and gas on the Norwegian Continental Shelf (NCS). In 1969, Phillips discovered one of the largest offshore oil fields in the world – a field named Ekofisk that was located in the Norwegian portion of the North Sea.

This discovery started a boom in NCS oil and gas fields as more and even larger fields were discovered on the NCF over the next decade. To establish national guidelines for this new asset, in 1971 the Storting (Norwegian parliament) approved a national petroleum policy. The basic principles of the policy included national control, the development of a national oil industry, a requirement that all producers bring all petroleum ashore onto Norwegian soil, and the establishment of a state-owned oil company. The government policy also established that the state was to have 50% ownership in every production license, generating funds to compensate the country for the extraction of its resources. The policies adopted by the government were summarized as “The Ten Commandments of Norwegian Oil Policy" and became known internationally as the “Norwegian Model.”

Norway’s entry into the oil market in the 1970s turned out to be financially fortuitous. During the next decade, the Organization of Petroleum Exporting Countries (OPEC) orchestrated dramatic increases in the world price of oil – the price of a barrel of oil went from $2.96 to $37.10 in just over ten years (though oil prices declined during the 1980s).  While Norway was not part of the cartel, it benefited greatly from the “umbrella effect” of being able to charge higher prices for its energy.

In the decades after the discovery, the petroleum sector became Norway's largest income source, measured in terms of value-added, government revenues, investments, and export value. The oil and gas revenue stream grew to be around a third of Norway's GDP and a fourth of its annual general income. Oil and related industries employed around 300,000 individuals in Norway, 5.5% of the country’s population.[6] The government directly derived oil revenue from three sources: taxes on oil extracted, direct ownership of a portion of various oilfields (SDFI), and dividends from state-owned enterprises engaged in the oil and gas business. The tax revenues supported the country's current operations, while the revenues from ownership of oilfields and dividends from state-owned enterprises went to Norway's sovereign wealth fund, the Norwegian Pension Fund Global (NPFG) or Norwegian Oil Fund.^[1]

Norway's Net Government Cash Flow from Petroleum Products (NOK millions)

Avoiding the “Dutch Curse”

For many countries, a sudden influx of huge amounts of revenue from an unexpected source like the discovery of oil could paradoxically lead not to prosperity, but to negative consequences, including financial and political instability, corruption, and degradation of traditional cultural values. To avoid this problem, initially labeled in a 1977 article in The Economist as "the Dutch Disease,"^[2] Norway established a special fund in 1996, the Norwegian Pension Fund Global, later known as the Norwegian Oil Fund or the Norwegian Bank Investment Management (NBIM), to hold and invest a significant portion of its petroleum revenues for future public pension obligations. 

Many observers of Norway's overall success with its oil riches credited the cultural attributes attributed to the country and its neighboring countries. As described in a 2004 Slate article:

Norway has pursued a classically Scandinavian solution. It has viewed oil revenues as a temporary, collectively owned windfall that, instead of spurring consumption today, can be used to insulate the country from the storms of the global economy and provide a thick, goose-down cushion for the distant day when the oil wells run dry.^[3]

The NBIM’s existence and growth came from Norway’s long-term view of its petroleum revenues. Each year since then, the government added to the fund the revenues derived from the oil fields, with the plan of withdrawing only expected earnings from the fund and leaving the capital intact to benefit future generations. To accomplish this goal, the government instituted a spending rule that allowed the country to take only 4% of the NBIM’s assets each year to help fund the country’s current operations. By 2020, the NBIM had become the largest sovereign wealth fund in the world, valued at $1.2 trillion, roughly $250,000 per citizen of Norway.

The Norwegian parliament set the fund’s investment policy, while the NBIM, an arm of the country’s national bank, ran the day-to-day operations. The fund was managed in a highly transparent manner with far more stringent investment guidelines and reporting requirements than any other country's sovereign wealth fund.

Norwegian Society

Norway had been described as a "prosperous bastion of welfare capitalism, featuring a combination of free market activity and government intervention."^[4]  Norway ranked at the top of one measure of overall national success, measured by the Human Development Index (HDI), a composite statistic incorporating life expectancy, education, and standard of living.

Most observers argued that oil wealth had not greatly changed Norwegian society and culture. While some people had become wealthy from the oil industry, the country remained one of the most egalitarian in the world. One measure of income inequality is a country’s Gini index, a summary measure that ranges from 100 (most unequal) to 0, most equal. According to the World Bank, in 2018, when the United States Gini index registered 41.1, the value for Norway was 27.6. In another measure, in Norway, the top ten percent of income earners received 22.2 percent of the country’s total income. In the United States, the top ten percent drew 30.7 percent of all income. 

Norwegian society placed a high value on equality, openness, and transparency, and expected the same from its government and businesses. Observers also cite the high esteem of nature and outdoor life. In one example, Norwegian law (Allemannsretten, or every man's right) allows individuals "the freedom to roam" the countryside - to hike and forage on any uncultured land, such as woodlands, meadows, rivers and lakes, no matter who owns the land, following only a few basic rules.^[5]

One example of the country’s approach to transparency and openness was that Norway provided public accessibility to income information about every individual.[13] Started in 1814, the "skatteliste," or tax list, was published annually, originally in a book available at local libraries. Since 2001, the data has been published online in a searchable database. (The high level of searches led to a requirement that those searching include their own tax numbers, so individuals can see who had searched for them.^[6] 

Some observers likened Norwegian culture to a shared Scandinavian cultural trait captured by the concept of “Janteloven” or Jante Law. The term was based on a fragment of a 1933 “scathing” novel by the Danish-Norwegian author Aksel Sandemose. Described as a particularly difficult individual, Sandemose articulated “Ten Commandments” or tacitly accepted rules of behavior in the fictional town. The supposed social norms of Jante required citizens to not try to stand out from the crowd or strive to be better than anyone else. Although Sandemose novel was satirical, many saw some truth in this parody of the culture. Some observers even credit this social attitude with maintaining Norway's egalitarian society, although there are questions as to whether it perhaps discourages innovation or drive for excellence.^[7]