Norway sovereign wealth fund, the world's biggest, to dump oil and gas

Daniel Fowler
March 10, 2019

The government of Norway, the biggest oil and gas producer in western Europe, said the divestment was specifically targetting exploration and production companies, "rather than selling a broadly diversified energy sector".

The fund will continue to own shares in major oil companies like Shell and BP that are making an effort to diversify into renewable energy.

"The most important thing we can do to prepare for a possible drop in the oil price is to conduct an economic policy that facilitates transformation in all parts of the economy and lowers the significance of such shocks", Jensen said.

The finance ministry said that pure oil and gas explorers would still be sold, but that integrated groups, which also refine crude oil and operate petrol stations, would not be included in the ban.

It is ironic that Norway's sovereign wealth fund has relied on profits made by extracting oil from the continental shelf under the North Sea over a period of several decades.

"The objective is to reduce the vulnerability of our commonwealth to a permanent oil price decline", Finance Minister Siv Jensen said, stressing the move should not be interpreted as a lack of confidence in the future of the oil sector.

Norwegian lawmakers will vote on the proposal to divest from oil and gas companies later this year.

The state's oil revenues are placed in the sovereign wealth fund - commonly referred to as the "oil fund" but formally known as the Government Pension Fund Global - which Oslo then taps to balance its budget. The fund will eventually sell its investments in 150 oil exploration and production companies, which amounts to only 1.2 percent of its holdings.

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Norway's finance ministry today appeared to partly endorse this analysis, arguing that removing oil and gas stocks from the wealth fund would reduce the country's "aggregate concentration risk".

The proposition to remove energy exploration and production from the fund's portfolio, which now make up around six per cent of the wealth fund's investments, comes on the heels of a 2017 recommendation from Norges Bank.

The government recommendation must still be approved by the country's parliament before going ahead.

The Norwegian government said its motivation was not climate activism but financial.

Jensen defended her decision to keep the big oil companies in the portfolio.

Grant and others said the Norwegian government, perhaps as a political compromise, was dumping the oil companies in the fund that had the greatest perceived risk because they were focused on fossil fuels, while encouraging those that remained to invest more in renewables.

The advice follows a report from Norway's central bank in 2017 that dropping oil and gas investment would be a good economic move.

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