Norway: It’s Alberta only with Vikings and common sense

It’s a land of mountains and glaciers, with oil and gas fuelling its economy.

That sounds a lot like Alberta … but I’m talking about Norway.

Norway is, in many ways, comparable to Alberta.

Their population is about 5 million; ours about 4 million.

We have burgeoning free-market economies.

Both are democratic jurisdictions, currently under stewardship of conservative governments. Alberta and Norway offer generous social programs — although you can definitely argue Norway’s social safety net is woven more tightly than ours.

Both derive a large proportion of government revenues from the oil and gas sector, with high exposure to the positive and negative side-effects of swinging oil prices.

Therefore, governments in both jurisdictions squirrel excess revenues away, saving money for a rainy day.

This is where the financial road forks: Whereas Alberta built itself a gravel back road riddled with potholes, Norway built a freeway paved with black gold.

Alberta’s Heritage Savings Trust Fund began in 1976, with cash injections from a portion of resource revenues and general government revenues.

In the mid-1980s, the fund stopped receiving revenues from royalties, with the fund’s growth coming from occasional cash transfers from government and returns on investments from stock market investments.

As of September 2014, the Heritage Fund had a market value of $17.4 billion.

The idea for Norway’s Government Pension Fund Global, known as the Oil Find, emerged in the mid 1980s.

It received its first capital injection in 1996 and continues to accumulate excess government revenues derived mostly from the energy sector.

As with Alberta, the Norwegian fund has holdings on world markets, giving it another opportunity for growth.

As of October 2014, Norway’s Oil Fund had a market value of 5.661 trillion Krone. At today’s exchange rate, that would be about $870 billion Canadian.

That was not a typo. $870,000,000,000.

Why don’t you take a moment to let that sink in.

Granted, there are dissimilarities between Alberta and Norway that can account for this enormous discrepancy in savings.

Norway is a country, free to set its own priorities. Alberta is a province, subject to decisions and priorities of a higher order of government.

Norway gets a portion of its revenues as dividends from a state-owned energy company. Alberta does not.

Despite the differences, Norway’s experience provides a vivid illustration of how state energy wealth can be managed to shield the public purse from economic temper tantrums.

This is despite tougher operating conditions in Norway versus those in Alberta.

The head of Norway’s central bank said in December US$70/barrel of Brent crude is the break-even point for his country’s energy operations.

In Alberta, established oilsands operations can remain profitable between $30-$40/barrel of West Texas Intermediate.

(WTI closed Monday near $50 for the first time since the 2008-09 recession, while Brent crude closed just above $53.)

Still, despite Norway’s vulnerability to oil swings, that country’s prime minister said last month short-term economic turbulence wouldn’t affect long-term economic plans, which include tax cuts and no big changes in government operations.

Alberta, meanwhile, is once more scrambling to figure out how to make up for a shortfall caused by a sudden drop in world oil prices. There was even a hint last month of boosting revenues, often government-speak for tax hikes.

Clearly, this province would do well to study how Norway and other energy-driven economies deal with their wealth.

We appear to need all the help we can get.

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