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Outlook for the Norwegian industry Focus on the oil & gas sector

Outlook for the Norwegian industry Focus on the oil & gas sector. Erling Øverland Chairman of the Confederation of Norwegian Enterprise The Sparebank 1. Capital Market Day Stavanger, June 14th, 2005. Outlook for the Norwegian industry Focus on the oil & gas sector. Headlines: Introduction

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Outlook for the Norwegian industry Focus on the oil & gas sector

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  1. Outlook for the Norwegian industryFocus on the oil & gas sector Erling Øverland Chairman of the Confederation of Norwegian Enterprise The Sparebank 1. Capital Market Day Stavanger, June 14th, 2005

  2. Outlook for the Norwegian industryFocus on the oil & gas sector Headlines: • Introduction • Structural opportunities and challenges • Petroleum as a transformer • Summary

  3. A spoiled nation? ”What help is lower income tax when you raise the VAT on my Rolex?” Per Kristian Foss Minister of Finance Newspaper drawing in the aftermath of the National Budget 2005 Source: Inge Grødum, Aftenposten, October 2004.

  4. The Norwegian economy is blessed . . . • A high standard of living • An open economy • Natural recources • Ability to use new technology • A high level of education • High participation in the labour force

  5. . . . but we also face challenges • Globalisation • Small domestic market • Petroleum economy/governance challenges • Rapid increase in public expenditure • Tax level among the highest in the world • Shortage of labour • A high wage-level for workers, more competitive for engineers • A strong currency threatens export industries • Limited influence in EU

  6. Competitive Norwegian industrial clusters SEA FOOD fish, fishfarming, fishing boats, equipment HYDRO ELECTRIC POWER waterpower, equipment, power generation power distribution, metalurgical industries MARITIME INDUSTRIESshipyards, shipsgear, offshore, shipping services, maritime R&D FOREST INDUSTRIES saw mills, wood products, chemical wood pulp, paper industry, packing special products PETROLEUM INDUSTRIES Oil and gas companies, offshore industry, offshore service, shipping, petrochemical industries

  7. Among the wealthiest nations in the worldGDP per capita 2004 (EU25 = 100) Source: Statistics Norway/Eurostat, 2005.

  8. Increasing oil importanceGDP by sector (per cent) Source: Statistics Norway.

  9. Exports dominated by oil and gasNorwegian export by sector (per cent) Source: Statistics Norway, 2003.

  10. Strong growth in the Norwegian economyAnnual growth in GDP and employment (per cent) 4 2 3/4 Trend Source: Statistics Norway/NHO.

  11. Low unemployment in NorwayUnemployment rates (per cent) Source: OECD.

  12. Currency appreciation hurts the competitivesCost competitiveness index (trading partners = 100) ? Source: TBU/NHO estimates. *) Based on unchanged exchange rate from May, and wage inflation in line with trading partners.

  13. EU Norway Manufacturing productionSeasonally adjusted volume index (1995 = 100)

  14. Public sector and manufacturing industriesEmployment (1,000 persons) Source: Statistics Norway/NHO forecast. Source: SSB/NHO forecast

  15. People live longer lives . . .. . . but working-life is shorter than before 2040 2003 1964 20 26 Retired Retired 10 Retired Working Working 34 Working 45 36 23 Education 25 Education Education 20 75 years old 79 years old 85 years old Source: Statistics Norway /NHO forecast.

  16. Globalisation and the Norwegian economyEffects on economy and industries • Higher productivity • Improved trade balance • Higher economic growth • Structural unemployment higher EU enlargement • Lower import cost • Interest rates down • Wage pressure down • Higher oil & export prices Norwegian economy New competition from China Lidl and WTO

  17. Globalisation of Norwegian companiesNumber of employees Source: NHO/Annual reports 2003/2004.

  18. 1998 -1999: Asia • 2000-2003: Global • 1992 -1996: Continental Europe Norske Skog – international growth • 1990: Only production in Norway Norske Skog Canada (30%) Pan Asia (50%) Europe - 100% South America (100%) Austral asia (100%)

  19. IMD competitiveness ranking 2005 Finland 6. Denmark 7. Sweden 14. Norway 15. Source: IMD 2005.

  20. NHO report June 2005Main conclusions on the Norwegian economy The effects of globalisation and the introduction of China in the WTO result in lower inflation through cheaper imports, decreasing interest rates and higher oil and export prices. The increased manufacturing production by our trade partners is positive for Norwegian exports in 2004-2005. Our companies are increasing productivity in the early stages of the recovery due to uncertainty regarding currency, tax and wage levels. Fiscal budgets must be kept in line with the ”4 per cent rule” in order to prevent a special Norwegian interest rate increase and a stronger currency.

  21. Petroleum as a transformerFuelling the aspirations of a European periphery Macro-economic indicators 2004 per cent Value creation 1970-2004 GDP (bn NOK, nominal) Source: Statistics Norway, Ministry of Finance.

  22. Strong oil price exposureOil and offshore industries: ~ 50 % of OSE market cap. Company Market cap Share in OSE (NOK M) (per cent) Statoil 239,000 26,1% Hydro 137,005 15,0% Telenor 101,958 11,1% DnB Nor 88,568 9,7% RCCL 54,245 5,9% Orkla 51,483 5,6% Yara 30,187 3,3% Frontline 23,242 2,5% Norske Skog 17,008 1,9% Storebrand 16,830 1,8% Stolt-Nielsen 16,533 1,8% Aker Kværner 13,014 1,4% Schibsted 11,426 1,2% SAS AB 10,775 1,2% Stolt Offshore 9,967 1,1% Tandberg 9,921 1,0% Odfjell 9,016 1,0% PGS 8,810 1,0% Fred Olsen Energy 7,756 0,8% Smedvig 6,572 0,7% Prosafe 6,474 0,7% Wilh. Wilhelmsen 6,321 0,7% Sum 875,891 69,5% 44 per cent 30.5 69.5 Source: Holbergfondene

  23. Shaped by technological challengesPathbreaking skills and competence Technology content in development projects (per cent) 1970’s- and 1980’s 1990’s 2005 . . . Source: IPA.

  24. A competitive industrial cluster

  25. A strongly positioned regionStatoil’s total 2004 procurement: NOK 57 bn Norway: 77 per cent Rest of Norway:45 per cent Rogaland: 32 per cent Stavanger Source: Statoil. Source: Directorate of Labour (Aetat).

  26. Two strategic priorities International production NCS production • Realise the full potential on the NCS • Build international platforms for long-term growth 27

  27. NCS production towards 2020 Source: Statoil.

  28. High investments on the NCS Total investments 1980-2012 Source: Statistics Norway/Statoil.

  29. Long-term development of the NCSPushing geographical and technological barriers To Asia Oil, gas and LNG terminals Barents Sea Oil, gas pipelines Oil, gas production LNG ocean tankers Melkøya Nordland Murmansk Vesterålen To USA Deepwater To Europe Tjeldbergodden Nyhamna Mongstad Kollsnes Kårstø

  30. New international challengesPushing technological frontiers – in a competitive environment Arctic waters Different business environment Onshore operations in exotic climate New reservoir types Ultra-deep water 18

  31. Market and industry dynamicsOpportunities and challenges in a high-price environment 15 USD/bbl 30 USD/bbl 50 USD/bbl March 1999 Oct 2003 June 2005

  32. Norway 2025: Still on the top?

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