This article was first published by the Oeconomus Research Foundation.
Following the escalation of the Russo-Ukrainian war in 2022, the landscape of European energy supply fundamentally changed. While Russia was the continent’s main supplier of fossil fuels until three years ago, the country’s energy exports to the EU have now been made impossible by the sanctions imposed due to the invasion of Ukraine. Although Russia has been able to successfully circumvent trade sanctions with its so-called ghost fleet, it has nevertheless fallen significantly behind on the list of Europe’s energy suppliers. In most analyses the United States is highlighted as the number one winner of this reshuffling of the market that occurred over the past three years, forgetting about Norway, the EU’s largest supplier of natural gas.
Divestment from Russian energy resources
The price cap on Russian crude oil came into effect in December 2022, and other restrictions on liquid gold were introduced in February 2023 as part of the sixth sanctions package.
As a result of the sanctions policy, Russia’s share of crude oil among EU suppliers has decreased from an average of 25% before 2022 to 2% by 2024. Typically, Central European countries still buy Russian crude oil. A similar trend has occurred with regard to natural gas, with Russia’s EU market share of 30-45% in the 2010s falling to 15% after the outbreak of full-scale war.
Currently, only Austria, Hungary, Italy and Slovakia buy Russian natural gas in gaseous form, as no other cheap alternative is available to these countries. Russian LNG was purchased exclusively by Belgium, Spain and France. Based on data from June last year, these three EU member states purchased around 54% of all Russian LNG exports. They are followed by China and Japan with 22% and 18%, respectively, according to CREA (Centre for Research on Energy and Clean Air).
Norway, the EU’s number one energy supplier
Due to the restructuring of the energy markets since the outbreak of the war in Ukraine 2022, Norway now supplies 30% of Europe’s energy needs, thus contributing greatly to the continent’s energy security. According to Eurostat, in the third quarter of 2024, Norway was the second largest supplier of crude oil to the European Union member states, with a share of nearly 14%. In the case of LNG, the Nordic country was in fifth place with 7.1%, which is an increase of more than 70% compared to the same period in 2023. As for gaseous and liquefied natural gas combined, Norway’s market share is 30.3%, making the Scandinavian country the EU’s largest supplier in three years.
The birth of an energy giant
According to the Observatory of Economic Complexity database, in 2022, a year characterized by extremely high energy prices, the share of energy carriers within Norwegian exports approached 75%, but the product group had a 60% share in the previous year.
Norway’s energy production peaked in 2001 at 3.4 million barrels of oil equivalent per day. Production volumes fell by an average of 5% annually until 2011, when production stagnated. Despite the fact that Norwegian oil and gas production volumes have stagnated since 2019 (figure above), high inflation, also driven by geopolitical risks, led to exports quadrupling in the first year of the war and more than doubling in 2023 compared to the last peaceful year before the COVID-19 pandemic (figure below). Norway is Europe’s largest oil producer, accounting for nearly 60% of continental production in 2021. In 2023, 2 million barrels of crude oil were produced per day, 85% of which was exported, so Norway met 2% of the world’s crude oil needs. Currently, the Nordic country is the 12th largest oil producer in the world.
From an energy perspective, Norway is one of the greenest countries in the world. In 2023, 90% of newly registered vehicles had an electric drive. Despite the slowdown in the spread of electric cars last year, their popularity in the Scandinavian country remains unbroken. In addition, electricity generation comes almost entirely from renewable energy sources, with hydroelectric power plants accounting for 88% and wind power plants accounting for a tenth of electricity generation. In terms of the total energy mix, the share of fossil fuels was 44% in 2023, one of the lowest in the world. In Norway crude oil accounts for a quarter of the energy mix, while natural gas accounts for 16%. The latter is primarily used for agricultural fertilization and heating residential buildings. Due to low domestic consumption, the vast majority of the crude oil and natural gas produced is sold. The primary destination for crude oil produced in the offshore economic zone was the United Kingdom in 2023, followed by the Netherlands and Poland.
In addition to crude oil, Norway is also one of the largest natural gas producers. Like crude oil, natural gas consumption in Norway is extremely low, so the vast majority of the production volume is also exported. The main destinations for liquefied natural gas (LNG), which accounts for only one twentieth of total gas exports, are the Netherlands, Belgium and the United Kingdom.
In 2023, nearly a third of the EU and UK’s combined natural gas imports came from the Nordic country, making a significant contribution to European energy security and replacing some of the declining Russian energy sources. Two years ago, Norway was the world’s fourth largest supplier of liquefied and gaseous natural gas, behind only Russia, Qatar and the United States.
Since the turn of the millennium, oil production has fallen by 41%, while natural gas production has increased by 124%. However, by mid-century, oil exports are estimated to fall by a further 15%. Only 40% of the available gas reserves are estimated to have been extracted so far, ensuring high levels of production for the next ten years. Investments are flowing steadily into the sector, reaching $21 billion last year, a new record, surpassing the peak of 2014. Last year, Norway produced 55% of Europe’s gas production.
The state generates significant revenues from fossil fuel exports. In 2022, energy export revenues were close to half of the entire state budget, thanks to extremely high energy prices.
How it all began
In the 1950s, there were only assumptions about natural gas and oil deposits in the North Sea on the Norwegian continental shelf. At the end of the same decade, Dutch test drilling confirmed these assumptions, and production began in the 1960s. All natural resources in the extended economic zone belong to the Norwegian state, but several foreign companies have obtained permits to extract them. The first Norwegian mining company, Statoil, was founded in 1972, and was half-owned by the state. The company was merged with individual Norwegian energy companies in 2007 to form Equinor. The new company was ranked 80th in Forbes’ list of the world’s largest companies last year. The state ownership of the company has been increased to two-thirds, and the more than $10 billion in profits now cover a large part of the annual budget.
Norwegian pensioners live off energy exports
However, the Norwegian state’s revenues from fossil fuel exports flow into the Norwegian Pension Fund, which added 680 billion Norwegian kroner to the fund’s assets last year. The value of investments managed by one of the world’s largest funds reaches 1.8 trillion dollars. According to various studies, the excess profits achieved due to Europe’s divestment from Russian energy sources account for 6% of the portfolio managed in the Scandinavian country’s pension fund. Experts involved in planning the reconstruction of Ukraine are increasingly drawing attention to the fact that Norway, which benefits from the war, should spend its “extra profits” on the development of the Eastern European country. According to an estimate published by the Norwegian Ministry of Finance, in 2022 and 2023 it received about 111 billion dollars more in revenue from natural gas exports. Although last year’s revenues will not reach the record of 978 billion kroner in 2023, the Norwegian energy industry contributes significantly to maintaining the country’s welfare system. This year, the Scandinavian country is expected to receive 650 billion kroner in revenue from energy exports. Thanks to its huge revenue, while most European countries struggle with a lack of resources, the Nordic country’s annual budget surplus in 2022 approached 26% of GDP, compared to the average surplus of 9.3% achieved between 2013 and 2021.
