Norway’s oil sector is facing difficult times and energy investment forecasts may have to be cut further if prices continue to drop, central bank governor Oeystein Olsen said on Thursday.
Prices have fallen to a 28-month low, hitting the Nordic country’s vast oil industry, which accounts for a fifth of the economy and half of its exports.
Oil and gas investments are expected to fall by 10 percent next year on investor demands for higher returns and a drop in oil prices.
“If the oil price continues to drop, it will eventually reach a point where we’ll have to reconsider our estimates for future (oil industry) investments,” Olsen told reporters after a speech to business leaders.
A weak PMI reading released Wednesday adds to the worries, on top of a steady stream of projects delays, cancellations and layoffs in the oil sector.
The Norwegian purchasing managers’ index (PMI) fell to 49.4 points in September from 51.8 in August. Analysts polled by Reuters had expected the index to fall to 51.0.
“These (oil prices and PMI data) are another new set of information coming on top of other facts pointing toward a period of difficult times for the oil industry, and not least for the oil services industry,” Olsen said.
Brent crude fell to a more than two-year low of $91.55 per barrel on Thursday, dropping 21 percent since June.
Still, Olsen said he did not expect the drop in oil investment to be the start of a new trend, even if the bank expects a big fall next year.
“This will clearly impact the Norwegian economy, but it’s not the start of a downturn the way we see it,” he said.
Oil majors around the globe spent record amounts on big projects for the past decade, pushing costs sharply higher, eroding efficiency and margins.
Statoil, Norway’s state-owned energy concern, estimates that even as oil prices rose from around $40 per barrel to over $100 in the past decade, the return on capital from majors dropped by 30 percent.
Statoil, which itself reduced its investment plans this year, said half of its peers had returns on capital employed of 10 percent or less, a level considered unsustainably low.