Norway narrowly avoids shutdown of oil, gas production
Norway, the largest producer of oil and natural gas in Western Europe and the fifth largest oil producer globally, was on the brink of an industry shutdown before the government stepped in Monday. Fears of a lockout drove international prices of crude oil and natural gas higher. Offshore oil workers have been on strike since June 27 over pension and retirement issues.
The New York Times
LONDON — Minutes before Norway's oil industry planned to lock out thousands of striking workers, the Norwegian government stepped in, ordering the offshore workers back to work and sending the dispute to binding arbitration.
Norway, the largest producer of oil and gas in Western Europe, was on the brink of a large-scale industry shutdown Monday that could affect world petroleum prices, which lately have been softening because of slack economic demand.
Already, the strike has cut Norwegian oil production by 15 percent, and gas production by 7 percent. A lockout would have idled about 6,500 workers, and much of Norway's oil and gas production would have been offline within a few days. The Norwegian offshore industry produces about 2 million barrels per day of oil, or about 2 percent of world supplies.
Offshore oil workers had been on strike since June 24 over retirement and pension issues, causing the shutdown earlier of some Norwegian fields. The Norwegian Oil Industry Association, which represents the petroleum companies, had warned the workers to return to work by Tuesday or be locked out of their jobs.
But Norway's minister of labor, Hanne Bjurstrom, summoned the two sides to a meeting in her office just 30 minutes before the lockout was supposed to begin. "She declared the conflict as over and that there will be compulsory arbitration to define the new pay agreement," the oil industry association said in a statement on its website.
Losing petroleum output would have added "three or four dollars" to the price of a barrel of oil, said Stuart Joyner, an analyst at Investec Securities in London.
One labor leader said before the government's order that it was "crazy" for the oil companies to allow a shutdown that would cost them "a lot of money."
"The North Sea will be shut down completely," said Leif Sande, president of Industri Energi, one of the three unions involved in the dispute.
As a lockout looked increasingly likely, oil prices rose in Monday trading. The United States benchmark oil price, West Texas Intermediate crude, rose $1.54 to $85.99 a barrel. Brent crude, the European benchmark oil, rose more than $2 a barrel.
The loss of Norwegian crude was not the only worry of international oil experts. There were reports over the weekend of sabotage on a key pipeline in Nigeria's Niger Delta. And local militia in Libya, protesting Saturday's elections, blocked three export terminals responsible for half of the country's shipments for two days last week.
Whatever the supply and price of oil, though, the far bigger impact of a Norwegian disruption would have been on the natural-gas market. Norway produces about 10.8 billion cubic feet of gas per day, according to data from the industry association. That is about 3 percent of the global supply of natural gas. Within Europe, Norway provides about 26 percent of the region's natural gas, about the same as the other big supplier, Russia. Britain, Germany and France are among the big consumers of Norwegian gas. Natural gas on the global spot market gained 10.7 cents in Monday trading in New York to end at $2.883 per 1,000 cubic feet.
With European gas inventories already 8 percent lower than at this time last year, a result of bad winter weather and diversion of some supplies to Asia, "a shut-in of Norwegian gas output has considerable potential to compound an already tightening European gas market," said Rob West, analyst at Bernstein Research in London.
One buffering factor could be that, with much of Europe in the economic doldrums, demand for gas is weaker than it might otherwise be. In the labor dispute, the unions are seeking to lower the retirement age for offshore oil workers to 62 from 65.
Norway's oil and gas workers are already among the world's best paid, making an average of $157,000 a year, according to the industry association. And while offshore laborers work only about 16 weeks a year, they cite tough conditions in their call for an earlier retirement age.
Sande, the labor official, said that the unions have proposed paying the early-retirement costs out of $40 million they have already set aside for that purpose.
"What we are asking the employers is to allow us to use our own money to pay pensions," Sande said.
With the lockout threat, the oil industry seemed to be trying to force the Norwegian government to intervene in the dispute.
"Of course, it will harm Norway's reputation as a secure energy supplier to Europe," said Eli Ane Nedreskar, a spokeswoman for the industry association. "This is important for both the companies and the government."
Norwegian oil production has been in decline for years, falling from 3.4 million barrels a day in 2001 to about 2 million barrels a day in 2011, according to the BP Statistical Review of World Energy. Gas output has doubled in that period.
|Top world oil exporters|
2009 export numbers (in thousands of barrels per day)
|4.||United Arab Emirates||2,270|
Source: U.S. Energy Information Administration