Norway is one of the world's richest countries in per capita terms. It has an important stake in promoting a liberal environment for foreign trade. Its large shipping fleet is one of the most modern among maritime nations. Metals, pulp and paper products, chemicals, shipbuilding, and fishing are the most significant traditional industries.
Norway's emergence as a major oil and gas producer in the mid-1970s transformed the economy. Large sums of investment capital poured into the offshore oil sector, leading to greater increases in Norwegian production costs and wages than in the rest of Western Europe up to the time of the global recovery of the mid-1980s. The influx of oil revenue also permitted Norway to expand an already extensive social welfare system. Norway established a petroleum fund (the Government Pension Fund Global) to save and invest the state’s oil and gas earnings. The fund was valued at over 3 trillion kroner (over $500 billion) at the end of 2011. Thanks in part to prudent financial regulation and to high prices in world markets for its energy and fisheries exports, the global financial crisis has had only a limited impact on Norway. Norway’s unemployment rate stood at 3.4% at the end of November 2011. In recent years, labor costs have increased faster than in its major trading partners, eroding industrial competitiveness. Though the impact of international economic turmoil is uncertain, Norway is expected to experience moderate growth in 2012.
Norway twice voted against joining the European Union, but, with the exception of the agricultural and fisheries sectors, Norway enjoys free trade with the EU under the framework of the European Economic Area. This agreement aims to apply the four freedoms of the EU's internal market (goods, persons, services, and capital) to Norway. As a result, Norway normally adopts and implements most EU directives. Norwegian monetary policy is aimed at maintaining a stable exchange rate for the krone against European currencies, of which the euro is a key operating parameter. Norway does not have a fixed exchange rate. Its principal trading partners are the EU, the United States, and China.
Offshore hydrocarbon deposits were discovered in the 1960s, and development began in the 1970s. Production increased significantly in the 1990s as new fields came on stream. The growth of the petroleum sector has contributed significantly to Norwegian economic vitality. Current petroleum production capacity is approximately 2.6 million barrels per day. Production in gas has increased rapidly during the past several years as new fields are opened, with crude oil production in decline. Hydropower provides nearly all of Norway's electricity, and all of the gas and most of the oil produced is exported. The Norwegian continental shelf's total recoverable petroleum resources have been estimated at 12.8 billion standard cubic meters of oil equivalent (scm o.e.), of which 5.5 billion have been recovered.
Norway is the world's seventh-largest oil exporter and second-largest gas exporter (2010). Norway provides much of Western Europe's crude oil and gas requirements. In 2010, Norwegian oil and gas exports accounted for approximately 47% of total exports. In addition, offshore exploration and production have stimulated onshore economic activities. In 2010, 26% of state revenues were generated from the petroleum industry; taxes and direct ownership ensure high revenues. Foreign companies, including many American ones, participate actively in the petroleum sector. The oil industry directly employs roughly 40,000 people in core extraction activities. Over 250,000 are employed in petroleum-related activities.
Petroleum production peaked in the early 2000s, and the pace of discoveries has not been sufficient to reverse that trend. However, innovative use of extraction technologies has extended the lives of fields and major oil and gas discoveries were made on the Norwegian continental shelf in 2011. Declines in petroleum extraction is to some degree offset by increased extraction of natural gas in both new and existing fields, such as Snohvit and Troll. Given the energy industry’s weight in the economy, diversification into other industries is a long-term challenge for Norway.
Sources:CIA World Factbook (March 2012)
U.S. Dept. of State Country Background Notes ( March 2012)