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Norway's oil investment forecasts cut, further drop expected
[OSLO] Oil companies have cut their expectations for investments in Norway in recent months, fresh data showed on Tuesday, and economists said they are likely to continue scaling back ambitions as the price of crude continues to fall.
Investments in the continental shelf, a cornerstone of the Norwegian economy, will probably be around 20 percent lower in 2016 than they were in 2014, according to a survey of energy firms conducted by Statistics Norway (SSB). "The decrease (in 2016 projections) is mainly due to lower estimates for exploration," SSB said.
But the downwards revision from estimates made three months earlier was still smaller than many analysts had anticipated, leading to a short-lived rally for the Norwegian crown currency against the euro and dollar.
Oil firms, including state controlled Statoil, have announced cost cuts, causing layoffs in the tens of thousands among energy producers and their suppliers, sending Norwegian unemployment to a 10-year high of 4.3 per cent.
Economists said the cutbacks were likely to continue for several years. "The oil companies have said that investments for 2015 and 2016 are more or less locked in. That means that if the oil price stays low, there is a significant downside risk to investments in 2017," Handelsbanken chief economist Kari Due-Andresen said.
Overall investments next year were seen at 181.2 billion Norwegian crowns (S$30.95 billion), against 184.9 billion predicted in June and well below the all-time high of 227.3 billion reached in 2014. "The numbers don't seem to be that bad, but they are probably not realistic. We expect sharp downward adjustments going forward, but maybe not until the survey in February," DNB Markets economist Kyrre Aamdal said.
He said he still expected the Norwegian central bank to cut interest rates in November to help counter a slowdown in the economy, while Handelsbanken's Due-Andresen predicted a rate reduction would come as early as next month.
The SSB survey showed oil firms were making particularly deep cuts in their purchase of services such as engineering that could be scaled back to achieve quick savings, dropping from a record 39.8 billion crowns in 2013 to just 22.5 billion in this year and a forecast 15.4 billion in 2016. "The sharp fall within services therefore contributes to explaining the challenges now faced by Norwegian suppliers to the oil industry," SSB said.
The preliminary oil investment figures, compiled from energy firms by SSB, are revised every quarter with the next release scheduled for Nov 24.
For 2015, investment plans inched higher compared to estimates published in June, rising to 193.0 billion crowns from 190.1 billion.
The Norwegian crown rallied to 9.37 against the euro following the publication of the numbers from 9.45 ahead of the release, but later fell back to trade at 9.44 by 1011 GMT.