FRACTIONAL FLOW

Fractional flow, the flow that shapes our future.

Archive for June 2014

THE REVIVAL OF MOUNTRAIL’s ”OLD” SWEET SPOTS

This post is an update and slight expansion of my previous post In Bakken (ND) it is now mostly about McKenzie County about developments in light tight oil (LTO) extraction in the Bakken/Three Forks formations in North Dakota.

It also includes a little about developments in LTO extraction from Bakken/Three Forks in Elm Coulee, Montana.

Harsh winter weather affected additions of producing wells and also caused a total estimated 300 additional producing wells (relative to entering winter) to be shut in with different durations. The total effects from well additions that was below what was estimated to sustain a level production, and the high number of wells shut in caused total LTO extraction to move sideways last winter, with a small dip during December and January.

Figure 01: The chart above shows development for annual tight oil extraction from the Bakken/Three Forks formations in North Dakota [green area and rh scale]. The black line shows development in the interest for the US 10 - Year Treasury [lh scale].

Figure 01: The chart above shows development for annual tight oil extraction from the Bakken/Three Forks formations in North Dakota [green area and rh scale]. The black line shows development in the interest for the US 10 – Year Treasury [lh scale].

Interest rates had for some time been on a downward trajectory and the extraction of tight oil from Bakken/Three Forks started to grow while interest rates continued to be lowered and the Fed and other central banks started their rapid expansion of their balance sheets. Assisted with a tighter global supply/demand balance the oil price moved higher.

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NORWAY’s PETROLEUM ECONOMY STRUGGLES WITH DECLINING DEBT PRODUCTIVITY

In this post I present a closer look into the developments in the Norwegian Gross Domestic Product (GDP) and the Marginal Productivity of Debt (MPD) from households, non-Financials and municipalities.

Further a brief update on developments in credit/debt growth (for households, non-Financials and municipalities) in Norway. Sovereign debt and debts in the financial sector are not included in this analysis and for a complete analysis ALL DEBTS have to be included. Norway is a small and open economy that is exposed to developments in the global economy (like the price of oil) and its trade relations.

This post is an expansion to my previous post A closer Look into the Drivers of the Norwegian Economy’s recent Growth Success with some updates.

The post also presents a brief look at how recent years developments in the oil price and total petroleum extraction and sales have affected Norwegian GDP, credit/debt growth, the MPD and petroleum related expenditures and what this may portend for the near future.

NOTE: All financial data in this post are in the Giga Norwegian krone (GNOK; Billion NOK) unless otherwise specified. 6 NOK approximates now around 1 US dollar.

Figure 1: Chart above shows the development in the Norwegian Gross Domestic Product (GDP) split on mainland Norway (brown area) and petroleum and maritime activities (green area). The Norwegian petroleum activities are offshore within the Norwegian maritime economic zone. At present exchange rates Norway’s GDP for 2013 was around $500 Billion (nominal). The black line shows the development for total nominal disposable income for Norwegian households.

Figure 1: Chart above shows the development in the Norwegian Gross Domestic Product (GDP) split on mainland Norway (brown area) and petroleum and maritime activities (green area). The Norwegian petroleum activities are offshore within the Norwegian maritime economic zone. At present exchange rates Norway’s GDP for 2013 was around $500 Billion (nominal).
The black line shows the development for total nominal disposable income for Norwegian households.

The chart illustrates how the Norwegian GDP has been on a steady growth trajectory during the recent four decades and how petroleum activities, which started in the late 1960’s,  gained in relative importance of GDP developments. The effects of growth in the petroleum activities are documented to spill over into the mainland GDP.
In 2013 around 23% of Norway’s GDP was from petroleum related activities.

The acceleration in the Norwegian GDP from around 2004 have been identified to come from two main sources;

  1. The growth in the oil price that really took off from around 2004 spilled over to the mainland economy.
  2. The credit/debt growth from households, non-Financials and municipalities.
    This was likely triggered by the growth in the oil price as it revived consumers’ perception of improved outlooks to service more debt as disposable income grew and interest rates started to decline (cheap credit), which again was reinforced from the feedback from rising housing prices and growth in stock indices (equity growth).

As Norwegian petroleum extraction is in general decline and its gross revenues subject to oil price developments, the remaining force to sustain Norwegian GDP growth is to entice the households for continued growth in debt financed consumption.

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