Uncertainty hits oil sector

Some 12,000 employees in Norway's offshore oil-production industry took strike action in September 1999 against the government's apparent lack of initiative in the face of the present crisis in the Norwegian oil sector. There is growing uncertainty about the industry's future, and significant increases in unemployment are expected in the near future.

On 6 September 1999, approximately 12 000 employees in the offshore oil-production industry took strike action against the government's apparent lack of initiative vis-à-vis the present crisis in the Norwegian oil sector. There is growing uncertainty about the state of affairs in the sector, which has generated a low rate of investments among oil companies operating on the Norwegian continental shelf. As a consequence, significant increases in unemployment are expected in the near future. The industries supplying oil- and gas-related technology and products are already witnessing a crisis, with empty order-books and approximately 4,000 employees made redundant or laid off. The initiative to strike was taken by trade union representatives at three large offshore companies, Aker Maritime, Kværner and Umoe Haugesund, and followed two previous political strikes on 20 May and 1 June 1999. Members of unions including the Norwegian United Federation of Trade Unions (Fellesforbundet) and the Norwegian Oil and Petrochemical Workers Union (Norsk Olje- og Petrokjemisk Fagforbund, NOPEF) took part in the strike, which went ahead despite the government's proposed crisis package made public on 3 September 1999.

Reduced investments and expectations of increased unemployment

Since 1998, the Norwegian oil industry has experienced difficulties, with long periods of relatively low oil prices, and a significant fall in oil-related investments. New figures from Statistics Norway (Statistisk Sentralbyrå, SSB) for the second quarter of 1999 estimate that oil-related investments were down by 11.7% compared with the second quarter of 1998. Overall investments will fall by 7.2% in 1999, and an estimated 29% in 2000. This trend is explained by the fact that most important oilfields have already been developed, and that a large proportion of investment is allocated for maintenance of exiting fields, rather than exploration of new fields. Furthermore, the uncertainty about future oil prices has made most oil companies postpone further field-building projects, and several oilfields have reached their expiration date and are soon to be closed down. On account of this trend, many national as well as international oil companies operating in Norway have signalled wide-scale processes of redundancies and lay-offs if the situation does not improve. The reductions in investments in the oil sector have had dramatic consequences for other parts of Norwegian industry delivering equipment to the oil industry.

Employment situation in oil and related industries

A fall in the employment rate in the oil industry as well as the oil-related industries is expected in 1999 and in 2000. The Directorate of Labour (Arbeidsdirektoratet), in its report for the first quarter of 1999, estimated there to be approximately 91,500 employees in Norway's oil-related industries in August 1998, most of whom were employed in metalworking, building and construction companies, and oil and engineering companies. The Directorate of Labour's new figures, for the second quarter of 1999, suggest an increase in the number of redundancies in the offshore production and shipbuilding industry in the first five months of 1999. Furthermore, it is believed that this trend will continue in the latter parts of 1999 and during 2000.

The offshore production industry and the shipbuilding industry in general is already suffering the consequences of the lack of investment in the oils sector. Most offshore yards are struggling with empty order-books. According to the Aftenposten newspaper, approximately 4,000 workers in companies supplying the oil industry with platforms and equipment have so far been made redundant or laid off. The Federation of Norwegian Manufacturing Industries (Teknologibedriftenes Landsforening,TBL) estimates that if the situation does not improve, between 15,000 and 25,000 workers will soon follow suit.

The crisis in the oil sector is also effecting the oil-producing companies themselves. Although workforce reductions in these companies will in the first instance come in the form of outsourcing and reductions in hired-in labour and consultants, it must be assumed that in the long run there will also be further redundancies and lay-offs among permanent employees. Most of the major oil companies, such as Statoil, Hydro, Shell, Elf and BP-Amoco, have in fact warned against possible redundancies and lay-offs in the near future.

Demands for political measures

Despite a significant increase in oil prices during the autumn of 1999, and the fact that oil exports are expected to increase significantly in 2000, investments are still at a low in the Norwegian oil sector. In a letter to the government on 5 May 1999, both trade unions and employers' organisations called for immediate action by the government, and proposed several immediate and short-term relieving measures to encourage increased offshore investments and activity. Later, on 3 September 1999 the government proposed a crisis package to help the offshore engineering and shipbuilding industry. The Minister of Petroleum and Energy, Marit Arnstad, confirmed that the government still aims to phase out production taxes and to reduce the so-called carbon tax. The government also proposed to provide incentives for companies initiating new field-building projects and to allow alternative parties, not presently producing oil, licences to explore for oil on the Norwegian shelf. Other measures include a reduction of the time limit allowed companies between the time of allocating licences to explore new fields, and the point when these licences are utilised. These measures will form part of the state Budget proposal for 2000. The leader of NOPEF, Lars A Myhre, argued that the proposed crisis package from the government may in the long run be effective, but that the immediate crisis requires different and more drastic measures.

Commentary

Although the Directorate of Labour's new figures for the second quarter of 1999 indicate that the situation in the Norwegian oil sector is in fact stabilising, there is no evidence to suggest that the situation is significantly improving for the offshore production and shipbuilding sector. An important problem facing this sector is that oil investments have been kept at a low level, despite the fact that oil prices have improved significantly in recent months. The offshore production and shipbuilding sector is a key industry in the country's manufacturing sector, and provides significant and vital employment all along the coast of Norway. This is also the reason why so much political pressure, as well as pressure from the trade unions, has been put on the government to take the initiative to improve conditions in the oil industry. The government is now putting equal pressure on, as well as encouraging, oil companies to invest in new oil fields. However, the determining factor with regard to new and further investments in the oil sector is developments in oil prices, and as such there is uncertainty about the future prospects of the Norwegian oil sector and its related industries. (Haavard Lismoen, FAFO Institute for Applied Social Science)

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