OSLO – Norway’s $1 trillion sovereign-wealth fund took a major step toward selling off some of its substantial holdings in oil-and-gas companies, a move to shield the oil-rich nation from the risk of permanently lower crude prices.
The Norwegian finance ministry proposed that the fund remove energy-exploration and -production companies from its portfolio, following a 2017 recommendation made by the central bank, which uses the fund to invest the proceeds of the country’s oil industry.
Norway built its wealth on crude through its massive North Sea oil fields. The profits from those fields are managed by the country’s sovereign-wealth fund, which is one of the world’s largest investors. But the country faces a world where oil demand and prices may be on a lasting decline and has decided that its economy is too tethered to the price of crude.
The Scandinavian country joins some of the world’s biggest oil producers, including Saudi Arabia and Russia, which are scrambling to diversify their dependence on petroleum-based wealth in the face of rising renewable energy use and efforts to reduce greenhouse gas emissions.
Global demand for oil is expected to peak in 2030, according to Equinor, Norway’s state-backed oil company. After a period of price volatility, where oil whipsawed from over $100 a barrel in 2014 to below $30, oil-rich nations are adjusting to tighter budgets.
“The oil price drop in 2016 reminded us how vulnerable we are to those kind of changes,” said Henrik Asheim, lawmaker for Norway’s center-right Conservative Party. “It’s not a debate about climate, it’s about financial risk.”
After the downswing three years ago, Russia sold around one-fifth of energy giant Rosneft to Qatar’s sovereign-wealth fund and Glencore. Saudi Arabia proposed selling about 5 percent of Saudi Arabian Oil, better known as Aramco, but the initial public offering preparations stalled in 2018.
Oil and gas equities make up around 6 percent of the Norwegian sovereign-wealth fund’s investments. The Stoxx Europe 600 Oil & Gas index fell to a 10-day low on the news of the potential divestment.
The proposal didn’t encompass all energy companies, with only around 20 percent of the fund’s oil and gas holdings included, as integrated oil companies such Total SA, in which the fund holds a 2 percent stake, won’t be sold. The fund is a large shareholder in other international oil companies that won’t be affected by the proposal, including Royal Dutch Shell, in which it has a 2.5 percent stake and BP, in which it holds 2.3 percent.
Investments affected included the fund’s 1.1 percent stake in Anadarko Petroleum, 2 percent stake in UK-listed Tullow Oil and its 1.5 percent stake in Australian energy company Santos. In London, Tullow Oil shares were down 3.7 percent at 2.19 pounds Friday.
“The companies that they are still investing in are changing their focus to diversify their energy exposure to include other sources of energy production with wind and solar,” said Halvor Strand Nygård, analyst at Swedish bank SEB Group.
The relevant energy equities would be phased out of the fund gradually and plans would be prepared with the central bank, after the parliament’s vote on the matter.
The government doesn’t plan to sell shares in Equinor, in which it holds a 67 percent stake, or the state’s direct financial interest in the Norwegian continental shelf.