This is a super interesting debate.
Norwegian oil and gas producers are asking for tax incentives to develop oil fields that are currently not profitable enough because they are either too small or technically complicated.
When you read this, the first impression is: "why would anyone want to invest in something unprofitable?"
But what if this fields are unprofitable today because they are being kept artificially unprofitable?
Let me explain. Norway has a protective system around its own oil and gas industry that does allow private companies to operate and exploit this resources but with two burdens:
- Norway, as the owner, keeps 20% of all revenues generated.
- The Tax Administration charges a 22% corporate rate plus a 56% special oil and gas rate—totaling 78% on benefits.
This system, works very well when oil fields are large and abundant and when oil prices are high and rising. Basically the condition of the last decades. And within these conditions, exploiting small fields simply makes no financial sense.
But in 2025 the picture is very different, with projections of decreasing oil reserves in the existing Norwegian fields and estimations of a low oil price due to less global trade and increase supply for oil countries.
I would argue that it is actually smart idea to provide targeted tax deduction for smaller and technically challenging oil and gas fields:
1 There is empirical evidence this works. In the 90s, Norway oil industry revenues fell and stagnated, and the Norwegian government responded with tax deduction rates of 78%! So for every 100 NOK invested, the company got 78 NOK in tax refund. This was obviously very expensive for Norway, but what it brought was a queue of global companies investing grandly in the industry. After 2002 the Norwegian oil supply and service sector experience the most fabulous growth rate ever, reaching level of investments of 136 billion NOK annually.
2 The oil and gas industry is not only about the oil per se. It is the know-how, the skills, the specialisation and the technologies behind. The Norway oil and gas industry has been so successful, partially for the sales of oil and gas, but also partially for the sale of offshore services and supplies. The offshore services accounts for roughly 20% total Norway exports and with a global increasing demand of offshore skills, expertise and tech (US and Canada drilling baby drilling), Norway can double down on its comparative advantage and become a major supplier.
3 Despite Norway's commitment to low carbon emissions and green energy, as of today there’s no viable and realistic plan to move away from their oil and gas revenue dependence. And by the time one emerges, it will need time and capital to develop.
I know this topic is super controversial (the trolls in Norway would actually eat you). But that is why is precisely necessary to debate it.
Norwegians often attribute their wealth to “luck”. But economics tells us it’s about incentives.
