STAVANGER Aug 30 Paid more than the average
American CEO, Norway's oil workers are demanding an even bigger
bounty, threatening strikes and chewing away at the
competitiveness of a vital European oil and gas supplier.
Riding a global exploration boom and backed by Europe's
fastest growing economy, oil workers in Norway, the world's
eighth biggest oil exporter, can almost set their own terms. And
they are taking advantage.
Offshore workers shut part of the sector last month with a
16-day strike for better pay and the right to early retirement,
and services workers are threatening a September shutdown if
their own terms are not improved.
The labour action was a blow for a sector already struggling
with record output costs, falling volumes and shrinking margins.
"As a Norwegian, it's almost embarrassing that it's twice as
expensive to drill in the Norwegian side of the North Sea than
on the UK side," Hege Kverneland, the Chief Technology Officer
at National Oilwell Varco said.
"It's hard to understand and when you see this from the
outside, you start to wonder if they are completely mad," she
Norway is a victim of its own success. While Europe's
economies sank into recession, it recorded 5 percent annual
growth in the second quarter. It has no debt, no budget deficit
and amassed $600 billion -- $120,000 for each of its 5 million
people -- from its oil money in a wealth fund.
The country is importing as many workers as it can, which
has pushed housing prices to new records, giving households rare
confidence and spending power. The oil sector, which accounts
for a fifth of the country's $480 billion gross domestic
product, will employ basically as many people as it can find.
Oil workers are not alone with high demands. Airport
workers, teachers and public sector employees all went on strike
this year, wanting a bigger share of Norway's economic success.
The oil and gas sector's output has been declining steadily
since a peak in 2004 and oil majors have all but given up on
Norway's exploration scene until a string of major discoveries
and the opening of Arctic waters revived hopes.
The average oil worker makes $180,300 a year, the highest
anywhere in the world, recruiting firm Hays said in a report.
That's $93,000 more than a similar UK worker makes and above the
$177,000 pay for the average U.S. CEO.
The August strike, eventually broken up by the government
when oil firm threatened a full lockout, will only push this
figure higher even as labour costs have increased by 51 percent
"Some of the things that are happening in Norway are making
it less competitive than where it was one week, two weeks or
just a month ago with respect to investments and we look at
that," ConocoPhillips CEO Ryan Lance said.
"It's still an attractive place to make investments but it
is getting less attractive as these things happen."
Ironically, competition from a far away place like
Australia, could push Norwegian wages even further, said Mark
Guest, the managing director of Oilcareers.com.
"Australia is just a very attractive place with an
incredible demand for (energy sector) labour," he said. "Wages
are coming up and catching up to Norway. This competition will
force Norwegian wages even higher."
Labour costs can be as high as half of the overall cost in
the initial, construction phase of a project, like in the case
of Chevron's massive $37 billion Gorgon LNG project in
Australia. Labour costs, however, decline sharply once assets
The oil ministry, alarmed by risings costs, recently
proposed cutting the downtime for Norwegian offshore workers,
who get four weeks of rest for every two weeks at sea while
their UK counterparts either work in a two-week/two-week or
"If the oil companies continue to demand an equalization
between the British and Norwegian sectors then we might be
heading for a future full of conflict," Leif Sande, leader of
the Industri Energi union said. "To change work-schedules for
offshore workers because of competitiveness issues is out of the
The oil ministry estimates that just personnel costs on a
rig are up to $75,000 higher per day on the Norwegian side of
the North Sea.
"There is a supply/demand issue when it comes to services,
people, resources, so there is a genuine shortage of rigs,
competent people, and when there is a shortage, the asking price
will increase," said Tim Dodson, Statoil's head of
"The people costs and efficiency things become more and more
important as the challenges increase and the margins go down."
Information firm ISH, which maintains upstream capital and
operating cost indexes, recently estimated that costs in the
sector are at or near record highs after a dip in recent years.
But Norway is still far from the edge and some of the
challenges it faces are not unique to it, experts add.
"Norway has a lot of good things going for it," said Malcolm
Dickson, an analyst at WoodMac said. "It's stable fiscally and
politically. And the government takes on much of the exploration
risk by refunding exploration costs, and taxing once production
The country's regulatory and tax regime is known for
stability, a major advantage at a time when countries from
Australia to Nigeria tweak their rules to grab a bigger piece of
Still, as output falls and costs rise, margin pressures are
inevitable and labour costs are bound to become a bigger