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Europe

Norway faces oil production shutdown

Text by News Wires

Latest update : 2012-07-09

Norwegian oil companies were preparing to close down production completely on Monday if the government did not succeed in resolving a dispute between striking offshore workers and employers. Norway is western Europe’s largest oil producer.

REUTERS - Norway is hours away from the first complete shutdown of its oil industry in more than 25 years as the government holds off on breaking up a fight between striking offshore workers and employers, threatening exports from western Europe's top producer.

The strike by offshore workers over pensions is already in its third week, and a deadline for government intervention ahead of a planned midnight lockout of all offshore staff looms.

"The companies are now ready to close down production on the Norwegian continental shelf if the government doesn't intervene before midnight," Eli Ane Nedreskaar, a spokeswoman for the Norwegian oil industry association (OLF), told Reuters.

Leif Sande, leader of Industri Energi, the biggest of the three unions, said he had not heard from the OLF, nor received any signals of potential government moves.

"Our members are preparing for the lockout and will travel back to land at midnight," Sande said.

Production worries have rattled markets, with Brent crude climbing towards $99 a barrel on Monday.

The Norwegian dispute centres on a demand for early retirement at 62 by offshore workers which has raised eyebrows in a country that already pays the world's highest oil and gas salaries. Offshore workers put in 16 weeks of work a year.

State-controlled Statoil, which dominates the sector, is planning a controlled shutdown of all its production, an operation which will take 1 to 4 days.

Statoil said on Monday it was considering claiming force majeure -- an inability to honour contracts due to circumstances beyond its control -- towards transporters left without shipments.

"We cannot speculate whether the government will intervene or not. We have to take the threat of a lockout seriously," said Bard Glad Pedersen, head of information at Statoil.

The strike over early retirement has already choked off some 13 percent of Norway's oil production and 4 percent of the country's gas output.

A full closure of output in Norway - the world's No. 8 oil exporter - w ould cut off more than 2 million barrels of oil, natural gas liquids (NGL) and condensate per day.

Analysts have been banking on intervention.

"I do not think that we are going to see a lockout. At the same time, I am a bit surprised that the conflict has lasted this long," said Anne Gjoen, an analyst at Handelsbanken. "I will be extremely surprised if there is a lockout."

Norway is keen to retain its image as a reliable supplier of energy, but the Labour-led coalition government has been reluctant to intervene as it faces general elections in a year, and labour unions are important partners.

The last lockout in the offshore sector occurred in 1986, shutting down production on the Norwegian continental shelf completely, and lasted for three weeks before the government intervened. In 2004, the centre-conservative government stepped in to avert a lockout.

Norway's oil sector has grown exponentially in recent decades and today energy accounts for about half of the country's total exports.

Date created : 2012-07-09

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