FRACTIONAL FLOW

Fractional flow, the flow that shapes our future.

Archive for the ‘Trade Balance’ Category

A CLOSER LOOK INTO THE DRIVERS OF THE NORWEGIAN ECONOMY’s RECENT GROWTH SUCCESS

In this post I present some hard data from the Norwegian economy, which in the recent decades show high correlations between total debt growth and the oil price. Presently the total debt growth from some sectors runs at an annual rate above 8% of GDP.

I also present my thoughts and observations about historical developments and what may lie ahead.

The economic undertows now suggest for a sharp downturn in the Norwegian economy. A deep look into the public data from Statistics Norway (SSB) reveals that it was the growth in debt, primarily acquired by the Norwegian households, that was and still continues to be a major and less acknowledged contributor to the recent growth success of the Norwegian economy.

The primer for the strong nominal growth in debt was likely the growth in the oil price starting back in 2004. The oil price has remained at a structurally higher level at around $100/bbl.

Developments in the Norwegian economy have been tightly linked to movements of the oil price and the value of petroleum exports.

  • It is widely recognized that the growth in the oil price spurred more investments for exploration and developments for petroleum from the North Sea.
  • With the increased Norwegian North Sea petroleum activities followed an acceleration in households, non financial and municipalities debt growth.

Figure 1: The stacked columns in the chart above show the development in the 12 Months Moving Totals (Annualized) for Norwegian exports split on petroleum (oil, condensates and natural gas [green columns]) and exports exclusive of petroleum [black columns]. The orange line shows the development in the 12 Months Moving Totals (Annualized) for total imports and the pink line the 12 Months Moving Totals (Annualized) for the trade balance. 6 NOK ~ 1 USD By clicking on the chart a bigger version opens in a new tab/window (goes for all the charts in this post).

Figure 1: The stacked columns in the chart above show the development in the 12 Months Moving Totals (Annualized) for Norwegian exports split on petroleum (oil, condensates and natural gas [green columns]) and exports exclusive of petroleum [black columns]. The orange line shows the development in the 12 Months Moving Totals (Annualized) for total imports and the pink line the 12 Months Moving Totals (Annualized) for the trade balance.
6 NOK ~ 1 USD
By clicking on the chart a bigger version opens in a new tab/window (goes for all the charts in this post).

Norway had a long history of running a balanced trade account and with increased incomes from petroleum exports during the recent decades, a big trade surplus.

As the data on imports are not broken down by sectors, there is good reason to believe that a major portion of the import growth originates from purchases of goods and services for the petroleum industry.

The value of Norwegian petroleum exports is now expected to decline in the near term with the decline in production, primarily of crude oil and by the end of this decade also natural gas.

Anyhow the data were whipped around for confessions, it turned out the Norwegian economy now appear to approach a major turn around.

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UNITED KINGDOM, ENERGY AND TRADE BALANCE

United Kingdom (UK) is widely associated with the industrial revolution which was a fossil fuel revolution.

Coal fueled the industrial revolution and UK also exported coal. The next cycle in UK’s energy history came with the discoveries and production from the oil and natural gas discoveries in the North Sea in the 1960’s which happened while UK’s indigenous coal production had been in general decline since the late 1920’s.

The oil and natural gas discoveries in the North Sea made UK again a net energy exporter for some years during the 1980’s and from the middle of the 1990’s through 2004, refer also figures 2, 3 and 4.

Beginning in 2005 UK again became a net importer of energy and as of 2012 UK imported around 42% of its primary energy consumption (primarily fossil fuels). The portion of imported energy for 2013 is expected to grow to 50% and beyond in the near future. Few countries have so rapidly transitioned from being self-sufficient and an energy exporter to develop such a high and growing dependency on imported energy.

The imports of expensive energy increasingly weigh heavier in the UK trade balance, refer also figure 7.

Figure 1: Development of UK’s total energy consumption for the years 1965 - 2012 split on energy sources.

Figure 1: Development of UK’s total energy consumption for the years 1965 – 2012 split on energy sources.

The UK has in recent years experienced a strong growth in energy production from renewables (light green area in figure 1). The recent years general decline in total energy consumption is likely  primarily due to the ongoing financial crisis.

Coal’s portion within the UK energy mix declined as it was being replaced by a growing supply of oil and natural gas from the North Sea. The growing supplies from the North Sea may at the time have defined the UK government’s position during the coal miners strikes in 1984 – 1985.

The portion of fossil fuels in the UK’s energy mix has declined from 92% in 2008 to 87% in 2012, mainly due to lower oil and natural gas consumption following the financial crisis and persistent higher oil and natural gas prices.

In 2012 barely 5% of the UK’s energy consumption was from renewables which also includes hydroelectric.

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