How the decision of the largest sovereign wealth fund could impact the oil and gas industry
Published: 21 Nov 2017 By Matt Cook
The energy industry has been somewhat disrupted by advice from the central bank to the Norwegian government to disassociate itself from the oil and gas market.
The Norwegian central bank, the largest wealth fund in the world, valued at over $1Tn, has informed its government that it should remove its shares with oil and gas companies, which could have a significant impact on the oil industry.
Fund managers, Norges Bank, have suggested that ministers should begin to take steps away from the industry to avoid impacts on the fund value due to declining oil prices. The wealth fund was initially built on the back of the development of the Norwegian oil industry and nearly £30 billion of the fund is currently invested in oil and gas businesses worldwide.
The recent advice by the central bank has already impacted the industry, pushing shares down in oil companies located in Europe, with prices hitting the lowest mark since mid-October.
The central bank believes the wealth fund of Norway can be made more secure by removing investment in oil and gas shares. The government of Norway has said they are considering the advice, but an outcome is unlikely to happen until next year after a detailed analysis and assessment are made.
Whilst no deadline has been put in place by the bank, they clearly recommend that all oil and gas shares should be removed and no further investments should be placed into the oil industry. The wealth fund currently has investments with the biggest players in the industry including Shell, ExxonMobil, Chevron, Total, BP, Schlumberger, and Eni.
Paul Fisher, the non-executive director of UK debt management office and associate for sustainable leadership at the Cambridge Institute has welcomed the recommendation by the Central Bank. Fisher explains that it is not surprising that the central bank is suggesting this move as fund managers appreciate the risks connected with the oil markets and the uncertain future ahead for the industry.
Greenpeace has also voiced their support for this move but has also highlighted that Norway must halt any oil exploration activities within the Arctic region. Norway is a major investor in oil and gas exploration, so any move by the central bank to remove shares will greatly reduce the impact on the environment.
Financial experts also believe that by removing oil and gas share, other investors could be influenced by this move. Experts believe this move is sensible due to the connection the Norwegian economy has with the oil market.
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