15.11.2018

Opportunities for Estonia in the Norwegian offshore sector

A lot of Estonian entrepreneurs operating in Norway have recently pointed out that the local market has become a lot more open to finding new suppliers and cooperation partners, which makes it easier for Estonian products and services to get their foot in the door, so to say. This is especially visible in the, previously rather protectionist oil and gas sector, in which Norwegians have previously focused on keeping their riches to themselves.

A partial obstacle here is the lack of support for ideas in Estonia – those few who have more ambition, do not get adequate support from their surroundings. After all, no oil has been discovered in Estonia so far and natural gas can only be found in meagre amounts on a few islands. Therefore, it is widely believed that Estonian economy has nothing to do with offshore industry. Extraction of natural resources from the energy giant closest to us, i.e. the edge of the Norwegian continental shelf, actually brings about orders to several Estonian companies of the metals and engineering industry and the processing industry. These include both local subsidiaries of Norwegian companies (such as Bestra and Protex) as well as expanding Estonian enterprises (such as SRC Group, APL Production and Respo Haagised).

Estonia has built a reputation for itself in Norway as a considerable wooden house manufacturer (with Kodumaja AS, which has over 20 years of experience on the Norwegian market, taking the lead). Those experiences, as well as our international e-reputation, are sure to help Estonia gain a stronger position in the large and newly re-expanding offshore business. As of 2016, the growth of production volumes, together with the increasing oil and gas prices, has brought along over 45% growth in revenue to Norway in this sector. The net cash flow of the Norwegian government in the Norwegian oil industry is forecast to be 183 billion NOK in 2018.

Dividends paid by Statoil make up a “mere” 14.5 billion NOK; therefore, the Norwegian government’s guiding role in the oil industry is bound to be more diverse than we can imagine. Statoil has been a publicly traded company as of 2001, the rest of Norwegian SDFI, i.e. the State’s Direct Financial Interest (coordinated through the State-owned company Petoro) is the following: 186 production licenses, 38 production areas and holdings in 16 joint enterprises, which include pipelines and on-shore installations.

Estonian companies can offer, to the Norwegian offshore sector, software solutions that increase production efficiency, fresh business ideas in the field of mechatronics or materials technology, etc. Research is currently ongoing in Norway and Saudi Arabia, whether our unique oil shale production technology includes any innovative solutions that could be valuable for the oil and gas industries (both onshore and offshore) of the aforementioned countries. Additionally, Norwegian engineers are more willing than before to work for Estonian companies, which makes it easier to establish subsidiaries in Norway.

There is no doubt that the offshore industry holds a lot of other opportunities for Estonia as well. The tens of thousands of people who work on oil and gas platforms are constantly in need of the various products and services – work clothes and footwear, specialty foodstuffs, safety devices and work boats, IT solutions for health monitoring, etc. The product range of the plastics industry is expanding to items that were previously manufactured solely by the metals industry. Oftentimes, the greatest potential of export revenue lies in smart niche products, which may not seem to be linked to a specific industrial sector at first glance. Although the supply chain of the offshore sector is subject to complex quality requirements and procurement standards, it is still possible to earn a decent margin from it.

A lot of enterprises have been deterred from the offshore sector by the period of decline that began in 2014. That’s when profit opportunities seemed to be drying up. About 30,000 people lost their jobs in Norway alone, hurting Norwegians’ pride among other things. The recovery, which started in 2017, has definitely been slow, as was the market recovery after the previous fall of crude oil prices in 2008. It seems that this time around, oil producers are intent on learning more from the painful experiences than they previously have.

The latest oil crisis was caused by greed and negligence, to be more precise – oversupply of production (e.g. by Saudi Arabia and Russia) and lack of agreements between OPEC countries, as well as insufficient cooperation between OPEC countries and other countries of production. One of the leaders in the production rally – Saudi Arabia – has now embarked on implementing reforms and the Gulf countries have set a common 5% VAT rate to intensify economic cooperation. Increasing production efficiency and reducing dependency on fossil fuels in the country's GDP is becoming more topical in Norway as well. Statoil, which is likely to soon be known as Equinor, aims to bring the cost of oil production down to $30 by starting work at new oil fields (such as Johan Sverdrup).

The leading event of the Norwegian offshore industry, ONS 2018, which combines a trade fair, conference and a summit, was organised in August and brought together key figures of the international oil and gas industry. In 2014, the event had over 91,000 visitors, in 2016, there were about 65,000 visitors. During the past six months, with another oil price increase, the sector’s prospects and stock prices have been assessed increasingly optimistically. Operators are about to launch new flagship projects in the North Sea and the Barents Sea, while simultaneously seeking out new business models. Estonian enterprises were represented at the oil production capital Stavanger with their joint stand in order to gather new information straight from the source and get new orders.

© 26.03.2018 Eero Raun

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