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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Experts: Norway Should Stick With Oil

An expert commission tasked by Norway’s government with evaluating a suggestion that the country’s US$1-trillion sovereign wealth fund divests from all its oil and gas investments has advised against such a divestment.

Bloomberg quotes the report of the three-member commission as saying “If energy stocks are excluded from the fund, the composition of the investments will differ from market weights, and the fund will be expected to either achieve lower return or higher risk.”

The commissioners also noted that divesting from oil and gas will do little to mitigate the sovereign fund’s exposure to oil price volatility, but at the same time, it would change what has until now been a “successful investment philosophy.”

Norway’s Government Pension Fund Global, the largest sovereign wealth fund in the world, recommended the removal of oil and gas stocks—US$35 billion worth of shares—from the fund’s equity benchmark index last November. It said this move would make Norway’s wealth and economy less vulnerable to a permanent drop in oil and gas prices.

Currently, oil and gas equities make up some 6 percent of the fund’s benchmark index, or US$35 billion (300 billion Norwegian crowns). The fund has almost 380 investments in oil and gas equities, including stakes in the top global firms. The fund holds 2.33 percent in Shell, and that stake’s market value alone is US$5.36 billion. The interest in ExxonMobil is 0.82 percent worth US$3.066 billion, in Chevron it’s 0.92 percent worth US$2.04 billion, in BP it’s 1.65 percent worth US$2.028 billion, and in Total its stake is 1.62 percent worth US$2.02 billion.

Now the government of Europe’s biggest local oil and gas supplier will review the conclusions of the commission and pass the issue on to parliament. Lawmakers quoted by Bloomberg seem to differ in their opinions on the merits of the commission’s report, while the fund itself has for now refrained from commenting on the commissions’ conclusions.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on August 24 2018 said:
    This is exactly the recommendation I made in my comments on Tsvetana Paraskov’s article “Wealth Fund One Step Closer to Ditching Oil” on the 23rd of May 2018.

    I said then that the fact that a country with the world’s largest sovereign wealth fund whose fund was built on oil riches is trying to dump oil and gas stocks beggars belief when oil and gas are the biggest earning commodities in the world. Moreover, if oil is the fuel for the global economy, then oil’s value, importance and financial rewards are assured well through the 21st century and far beyond.

    I also said then that it is possible that the Norwegian sovereign fund is trying to cosy up with the environmental lobby or is receiving environmental rather than sound financial advice. Moreover, a $35 bn investment in oil and gas stocks including steaks in the world’s top oil companies amounts to only 3.5% of the fund’s assets.

    Through its history oil has experienced a lot of volatility which emanates from its strategic importance and the various economic and geopolitical pressures to which it is subjected at any point in time. But for the fund to give an excuse of trying to make the fund less vulnerable to permanent drop in oil and gas prices is not based on good financial and economic advice. Oil is not in permanent drop and never will be. While oil prices might dip every now and then, they always rise up like the phoenix as is happening now. There will never be a post-oil era throughout the 21st century and far beyond.

    I concluded then that Fund should reconsider its decision and seek wider advice from international oil experts.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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