Bloomberg News

Norway Oil-Production Shutdown Looms After Labor Talks Fail

July 09, 2012

A shutdown of all Norwegian offshore oil and gas production will start at midnight, cutting about 12 percent of Europe’s oil output, unless unions and employers can resolve a two-week strike or the government intervenes.

Workers will be locked out of oil platforms, Bengt Eidem, a spokesman for the Norwegian Oil Industry Association, said today by telephone as a dispute over pensions entered its 16th day. “The situation is of course very serious and we hope that the strike will be over as soon as possible,” he said.

Talks between the association, which represents employers including Statoil ASA (STL) and Exxon Mobil Corp. (XOM:US), and unions broke down yesterday morning after 13 hours. There has been no contact since and no further discussions are planned, Eidem said. A halt in output from western Europe’s largest crude exporter may boost oil prices, which already gained 7.8 percent the past two weeks.

Statoil, Norway’s biggest energy company, said its own shortfall in output will be about 1.2 million barrels of oil equivalent a day, resulting in daily lost revenue of 520 million kroner ($87 million). As much as 2 million barrels a day may be lost in total output from the continental shelf, according to data from the Norwegian Petroleum Directorate.

Force Majeure

“If a shutdown were to commence at midnight tonight it will take up to four days to safely conclude,” Bard Pedersen, a Statoil spokesman, said by phone. The producer is assessing whether to declare force majeure on shipments, he said in an e- mail. Force majeure is a legal clause that allows companies to miss deliveries because of circumstances beyond their control.

Companies including Statoil, BP Plc (BP/) and Exxon are coordinating preparations for a potential lockout, Eli Ane Nedreskaar, a spokeswoman for the Oil Industry Association, said today by phone.

The threat to suspend production is intended to force the government to end the impasse via compulsory arbitration, as happened in 1997, 2000 and 2004, said Teodor Sveen Nilsen, an analyst at Swedbank AB (SWEDA) in Oslo. The disagreement is centered on pension reforms, which would raise the age of entitlement to a full company pension beyond 62 years. The companies have said they’re conforming to the government’s general pension reforms.

State Intervention

“There might be a last-hour solution to this, but at the moment it looks like the parties are still very far from each other,” Thina Saltvedt, an analyst at Nordea Bank AB in Oslo, said by phone, adding that she didn’t expect the government to intervene today. “They will actually let the lockout start and maybe let it last for a day or two before they do something.”

Her view contrasts with that of Goldman Sachs Group Inc., which said in a note it expected the state to react. The Labor Ministry said it was “monitoring and assessing the situation.”

Oil futures rose 1.1 percent in New York after falling 3.2 percent on July 6. Brent crude for August settlement gained 1.2 percent as of 4:47 p.m. in London, widening its premium to New York crude to $13.96, from $13.74 on July 6.

“If the only option to solve this is for the government to use some of their tools to end this conflict, we certainly hope that they will do that,” the industry association’s Eidem said. “It seems to be quite difficult to find other options.”

Labor Unions

SAFE and Industri Energi, two unions representing the workers, said yesterday the government shouldn’t order compulsory arbitration.

“It is total silence, which is reassuring as we take this as a sign that the authorities chose to be reasonable and see this as a conflict among parties,” Hilde-Marit Rysst, leader of SAFE, said today by phone. Leif Sande, leader of Industri Energi, also expects the lockout to proceed as planned.

“I haven’t seen any form of contact so I think it will go ahead,” Sande said by phone.

Norway pumped 1.63 million barrels of oil a day in May, according to the Petroleum Directorate. About 15 percent of oil production and 7 percent of gas is already affected, costing the government and companies 3.1 billion kroner in 16 days, the Oil Industry Association said. The strike is disrupting as much as 250,000 barrels of oil output a day, according to Statoil.

The U.K., which gets about 20 percent of its gas imports from Norway, may withdraw the fuel from storage sites if the lockout goes ahead at midnight, Barclays Plc said.

The dispute, which began June 24, is the first industrywide strike by energy workers since 2004 and the longest, according to the SAFE union.

To contact the reporter on this story: Josiane Kremer in Brussels at jkremer4@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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