27 Years of Misery

Is it time to learn from the past?
This article appeared in Vol. 13, No. 4 - 2016


Statistics teach some basic history. In the time that Norway has been an oil producer, the oil price was lowest in 1971 (the first year of production) and in 1998, at $13 and $18 (US) per barrel respectively. 

In 2015, the price averaged $52 per barrel, a catastrophic low both for Norway and for the world oil industry that had grown accustomed to high costs and extensive exploration budgets. But $52 is certainly not exceptionally low if we look at historical figures. 

Over the 45 years that Norway has been producing oil, prices have been lower than $52 a barrel (in 2015 dollars) for as many as 27 years. It was also consistently lower than the 2015 level from 1986 to 2004 – 19 years – at a time when Norway grew powerful as an oil nation; the average price over that period was $32.5 per barrel. 

The ‘unfortunate’ thing is actually that it was over $52 in all years from 2005, and that it bounced well over $100 per barrel in 2008 and from 2011 to 2013. Those are the years when everything went wrong. The knowledge of historical prices suddenly disappeared. History had nothing to do with the future. That is why 2015 became a ‘Black Monday’. Politicians, executives, geoscientists all said the same: “High prices are here to stay”. Those of you who did not, please raise your hand. 

One example of the sad consequences of this neglect of attention to historical statistics is the Goliat field in the Barents Sea, which was put on stream half a year ago. With 180 million barrels of recoverable oil, it probably needs $100 per barrel to break even. 

Most people I talk to in the oil industry say that the price will return to ‘old highs,’ implying a high level is a normal level. But then someone must define what is normal. The average price between 1971 and 2015 was $71 per barrel. Maybe we should be OK with such a price?


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