Getting resource nationalism a good name [NGW Magazine]
Resource nationalism has all sorts of bad connotations.
It conjures up countries like Venezuela that have jolted from an open pragmatic, investor-friendly approach to business in the 1990s to a closed and increasingly by the 2010s siege economy. Or Russia, which swapped the chaos of the late 1990s for the cronyism of state capitalism 20 years on, where foreign investors – such as Shell, Total and BP – are present in the energy sector, but as minority, if influential, shareholders.
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Other producer countries too have damaged the investor climate, ranging from Algeria and Nigeria forever promising to update their hydrocarbons laws but where in practice only experienced international oil companies can succeed through bilateral negotiations; to Tanzania that is now so wary of foreign investors that it has shut the door on new offshore gas developments this side of 2025. Would-be LNG developers are in Mozambique, Qatar, Australia and North America instead.
Few people though complain about Norway, an open country where corruption is almost unknown, and its citizens know their almost-$1 trillion rainy-day fund is due to the past five decades of working with – rather than against – the world’s petroleum industry. It was around $1.1 trillion, but a global stock market decline affects Oslo’s fund for future generations too.
Norway though remains a paragon of resource nationalism. Its leading oil and gas producer Equinor remains 67%-owned by the state and is a pioneer of carbon capture and climate-neutral hydrogen. In addition, the state holding Petoro manages sizeable interests in most fields –- not least among which is a 56% interest in Norway’s largest gas field Troll – and pays a share of investment and receiving handsome dividends.
Its law prioritises maximum resource depletion, rather than leaving stranded gas in the ground – something the UK is approaching in a different manner through the Oil & Gas Authority –and from the very beginning it has used legal and regulatory powers to stop the waste that is gas flaring.
Some in the petroleum industry at times get sniffy about less-developed countries seeking to develop a long-term independent and sustainable oil and gas industry.
Such an example is Timor-Leste (East Timor), a micro-state of 1.3mn people that struggled for independence for 25 years against Indonesian military occupation in the late 20th century before freedom and UN accession in 2002.
Its government has stubbornly fended off commercial proposals to develop the Sunrise/Troubadour gas fields, discovered in 1974 which straddle the Timorese-Australian offshore boundary, through either a floating LNG project or one linked back to Australia – advocating an onshore Timor one instead. It also haggled for a fairer deal with Canberra on division of the fields.
Timor-Leste has agreed to buy out two of the Greater Sunrise shareholders, US Conoco and Anglo-Dutch Shell, which will give it a majority 56.56% stake in the fields, unless pre-emption rights are exercised by the non-state shareholders: the operator Woodside (33.44%) and Japan’s Osaka Gas (10%).
Could this be one giant strategic error – paying a total of $650mn to bid farewell to two of the most experienced LNG producers in the world? Or is it a logical attempt to bring the resource for development – gas – to shore, and with it more of the value and all the jobs that would result from the onshore liquefaction venture that Timor-Leste has always wanted? One way not open to the project 15 years ago is to reduce project costs by producing the offshore gas with a floating production ship, rather than fixed platforms.
Maybe it makes sense. Shell and Conoco both have rival LNG schemes worldwide against which their Australasian projects have to compete. Timor Leste though will also have to wait for a window of development – that probably means no LNG exports this side of 2025.
Three other points are reassuring. For all its turbulent past and some present-day crime, Timor Leste remains a settled democracy. It has carefully built up a sovereign wealth fund of some $17.2bn (at end-September 2018) from royalties from its offshore joint development area with Australia for the future (so roughly $13,240 per citizen). And third, it has had a little mentoring here from Norway whose fund is 14 times greater per head.
Founded in 1968 at the dawn of its own oil industry development, Norwegian Agency for Development Co-operation (Norad), part of the country’s foreign ministry, has long administered an ‘Oil for Development’ training programme for public and state industry officials. It co-operates with 14 countries, including Iraq, Myanmar and South Sudan – countries with a history of war or civil strife.
Norad often works in conjunction with the World Bank, which sometimes acts by itself in providing training to new and upcoming producer nations such as Senegal and Mauritania.
Norway is often branded as smug for the way it counsels against coal while generating much of its national income from oil and gas. But its near-$1 trillion Oil Fund is not afraid to divest from ‘dirty stocks’ which it feels have done too little to cut emissions, and thus itself is trying its best to slow global warming.
Power groups whose stocks it refuses to hold include US-based AES, Czech CEZ, Hong Kong’s CLP, Drax in the UK, Eneva in Brazil, and Poland’s PGE. Over a hundred in total are excluded, if arms manufacturers and serious ethical violators – backing illegal regimes – are included.
The world needs more Norways willing to share knowledge, without a kickback or reciprocal deal. As we near the COP24 round of UN Climate Change negotiations in southern Poland, it’s worth reflecting that more enlightened self-interest is needed: we have, after all, only one planet.
NGW Magazine Vol.3, Issue 22 is now available to Premium Subscribers.