Today's video was made possible by Masterworks. More on this in a moment.
What if I told you that there is a country in Europe that is making money from the energy
crisis? A democratic country, a member of NATO, and one that has gas and oil
in abundance – that's right! Norway. The land of salmon and black metal.
After the shutdown of Russian gas, many eyes are on Norway. A country that until now was Europe's
second largest source of natural gas after Russia. But the million dollar question is:
Will Norway be able to save Europe with its gas? Whatever the case, one thing that is clear is
that Norway is getting EVEN RICHER from the war. And this matters because Norway
is not only important for oil. It also has huge influence in the business world – that’s right!
Despite having just over five million inhabitants, the Norwegian state has one
of the largest investment funds in the world: the Norwegian Sovereign Wealth Fund. Much
of the profits they earn from fossil fuels are invested in assets all over the world:
renewable energy plants, debt, real estate and shares in the world's largest companies.
And this could have very significant consequences for the day-to-day lives of
all of us. Even in areas we might never suspect: So what does Norway have to do with the fake news
on Facebook? What does Norway have to do with the union struggles at Amazon? I haven’t gone
crazy! By the end of this video you will understand why everything that
happens in Norway could have consequences on Wall Street.... and in our daily lives.
Of course, there has been no shortage of those who have accused the Norwegians of being selfish,
such as the Polish Prime Minister. But in Norway, they know all too well
that you don't get rich by giving money away. In fact, despite being a big oil supplier they
have one of the highest gasoline prices in the world. So the questions we are asking today are;
how is the war in Ukraine affecting Norwegians? What impact could this have on the world economy?
Today, we are going to answer these questions,
but before we go on, let me ask; what’s your favorite horror movie?
Mine is The Shining.
Sorry, I’m flashing back to last month, when heat maps looked like this:
Welcome to 2022: a year when 99% of companies lost value in a single day.
And we’re all saying:
“But wait, I'm diversified, why is my portfolio still getting destroyed?”
Sure, any single day does not make the market,
but maybe we're not diversified in the right way.
You see, Goldman Sachs released a shocking report just last week,
It claimed that the classic 60/40 strategy of stocks and bonds won’t be enough.
It’s down 34% this year alone, its worst performance in 100 years!
As a result, Goldman Sachs says the ideal allocation for stocks has shrunk
from 60 percent, to around 45. So what do they recommend you
do with that difference, in order to salvage your disappearing returns?
Invest in tangible assets, like art.
Goldman Sachs says it can protect your purchasing power, even as prices rise.
And, the last time inflation was this high, art appreciated more than stocks,
and even real estate, at an incredible 17.5% per year, according to the MW All Art Index.No wonder
Masterworks has sold a painting as recently as this month for an amazing 17.8% net return,
even as inflation rages and stocks keep sliding. In fact, the Masterworks’ last three exits
have all been pretty incredible, 17%, 21%, and 33% net returns!
As a result, Masterworks has had to acquire and release more art on their platform to meet demand,
and there is a wait list. But you can skip it just by clicking the link in the description.
And as always, in everything related to investment: use your head. Nothing is risk-free.
(THE NORWEGIAN EXCEPTION) Norway is currently the world's largest exporter
of salmon, exporting to more than 100 countries. But it is not only salmon that is exported. Norway
is a major producer of dinosaur juice and gas. Although we all love salmon, it is hydrocarbons
that account for 40-70% of Norway's exports, and which have made Norway such a wealthy country.
It was not easy to find oil in Norway. During the 1960s, they drilled more than 200 boreholes until
they found a deposit: the EKOFISK oil field. And I know what many of you are thinking! Especially
those of you who are already familiar with VisualEconomik, our channel devoted to economics.
A country discovers oil? Watch out! They could fall into the curse of natural resources! That's
right! Having a lot of natural resources does not mean you will become rich. In many cases,
the opposite is true. But we explain this in detail in a VisualEconomik video,
which I’ll link for you in the description. However, Norway is neither Russia nor Venezuela.
It is a very special case. Listen up. In 1972, Norway created the state-owned
oil company STATOIL, now called EQUINOR. In 2001 Stateoil delisted part of its shares on
the Oslo and New York stock exchanges, but the government still held 81.7% ownership.
Then in 2007 came a merger with the oil and gas division of Norsk Hydro, Norway's
leading hydropower producer. Right now, the Norwegian State owns just over 68% of Equinor.
Naturally, this company distributes dividends... which are mostly collected by the Norwegian
government. Of course, that's not the only public revenue stream. The Norwegian government also
co-owns many of the country's oil and gas fields, while taxes on profits from the exploitation of
crude oil are extremely high. In particular, the State can keep more than 75% of the profits. In
other words, when it comes to oil in Norway, the biggest beneficiary is always the State.
And the question is, what have they done with all that money?
Well, in 1990, Norway created the so-called NORWEGIAN SOVEREIGN FUND: a State investment fund
for the purpose of investing surplus oil and gas revenues. And why, you may ask? Well, because this
sovereign wealth fund cushions all crises: Oil price drops? No problem: Norway has investments in
all kinds of assets. Assets that, of course, have nothing to do with oil. This fund is managed by a
division of the Norwegian central bank. What may surprise many of you is that
Norway's sovereign wealth fund is the largest sovereign wealth fund in the
world alongside China's main fund and Abu Dhabi's fund. Take a look at this chart.
To give you an idea, in 2013 the fund represented the equivalent of 183% and
in 2022 it already represents more than 225% of their GDP.
But not only that, unlike state-owned programs
in other countries, this fund has had almost constant growth. They have even
made significant returns in the wake of the COVID pandemic and low oil prices.
But how much oil does Norway produce, you may ask? Well, not very much.
Globally, Norway produces approximately 2% of the oil consumed and 3% of the gas.
This is far behind the production of countries such as the United States,
Saudi Arabia, Russia, Canada and Brazil, among many others.
To give you an idea, in 2021, Saudi Arabia produced around 9 million barrels of oil per day,
the United States 11 million, Canada 4.7 million and Norway about 1.7 million barrels.
However, Norway is the third largest exporter of gas in the world, behind only Russia and Qatar.
In any case its point of difference, its secret in respect to other countries,
has been based on being one of the few countries that invests in the stock
market and diversifies its profits from oil and gas. In this way the government is practically
guaranteeing the future of Norwegians. And the fact is that, as a rule,
governments are net debtors. That is, they have debts with the rest of the world. For example,
in the case of the United States, the public debt is equivalent to some $93,000 dollars per
US citizen; in the case of Italy it is equivalent to more than $50,000; and in the case of Spain
it is equivalent to more than $30,000. Well, in Norway the situation is completely
different. Do you know how much each Norwegian would pay in public debt? Absolutely nothing.
They could pay off the entire public debt of the country with the money from the
Sovereign Fund and still have more than $180,000 left over for each Norwegian.
Both right-wing and left-wing parties have been conservative with the fund and have not
squandered it. Something difficult to imagine in other countries where coming to power often
means sharing the spoils in order to win votes. The first withdrawal of money from
the sovereign wealth fund came in 2016, when $780 million was spent to counter an economic
recession caused by low oil prices. In this way, Norway barely noticed the oil shock.
To put it in another way. If there is a new oil crisis that would make other producing
countries suffer a lot, Norway could afford to not even be touched by such a crisis.
But do you want to hear a fact that could make your head explode? In 2021,
the Norwegian government earned about $30 billion from oil exploitation in the country.
It turns out that the average return of the Norwegian sovereign wealth fund, around 5.8%
since its inception, means that in a typical year the State "earns" more than twice as much from
the fund's profits as it does from oil revenues themselves. In other words, Norway is already
more dependent on the fund than on oil. N1 ("The 'big saving' that saves
Norway from the oil crisis". But beyond being very wealthy,
the question is, can Norway be the salvation of a Europe heading for gasmageddon? We are going
to look at that right now. T2 (NORWAY TO THE RESCUE?)
Norway was already a key partner of the European Union before the war in Ukraine. It exported 20%
of Europe's natural gas supply. Up until last year, Brussels was asking Oslo to stop drilling
in the Arctic for ecological reasons. Now, however, Brussels is asking Oslo
to take oil and gas from wherever they can. The goal is to replace Russian gas with more
gas from Norway and other countries. For the time being, Norway has already
pledged to increase exports to Europe in order to address the energy crisis.
N2 (Norway to raise hydrocarbon production by 6.8% by 2023. – EuropaPress)
This increase is in addition to the increase already seen in 2022. During this year Norway
will produce 8% more natural gas than in 2021. In total the increase in oil and
gas production will be almost 15% in 2021 and 6.8% in 2023. Almost 23% in just two years.
So if we're talking conspiracy theories again: can you guess which European country has benefited the
most from the Russian gas sanctions and the sabotage of Nord Stream I? Exactly! Norway.
Coincidentally a new Norwegian gas pipeline was put into operation on 1 October . The pipeline is
called "Baltic" and has already started carrying gas from Norway through Denmark to Poland.
The Baltic pipeline will transport 10 BCMs of gas per year to Poland.
Up until now Norway has been meeting 20% of European gas demand, but this year it is estimated
that it will already be meeting 25%. And next year the percentage is expected to be even higher.
What’s more, the Norwegian government itself says the following.
("They [Europe] will need gas from other sources than Russia. And in that perspective, I think it's
hard to see that there are many places where it's more natural to continue to import gas
from in a European context than from Norway.") C2 (("For us, it's important that they know and we
show them that Norway is a reliable, trustworthy, and long-term energy partner for Europe.")
(Andreas Bjelland Eriksen, State Secretary in Norway's Ministry of Petroleum and Energy)
And EQUINOR has already said it will increase production. But wait a minute! While Norway
is giving Europe a little breathing space from its gasmageddon, it won't
be the ultimate solution for the time being. Sometimes desire is not power. In Norway they
are rubbing their hands with all the extra income and want to sell more gas to a needy
Europe. The problem? Norway can't double its gas production overnight, and not only that!
Before the war, there were even those who said that we should stop extracting
hydrocarbons as soon as 2035. Okay, this was the case of the Greens, but take note,
because although the Labor Party itself, which is now in government, did not set a specific date,
it was in favor of negotiating it. In other words, there was not much incentive to invest
in the country's oil and gas industry. In other words, it is impossible to turn
around years of disinvestment in a few months. In addition, one thing that has made it difficult
to buy gas in Europe is European regasification capacity. A quick way to supply gas is to buy
liquefied natural gas. There would be no need to wait to build new pipelines with Norway or other
countries. But the EU's regasification capacity is insufficient. Germany, which consumes the most gas
in the EU, did not have a single regasification plant before the Ukrainian war. And of course,
Norway does not have sufficient liquefaction capacity either. Because LNG has to be liquefied
first and then regasified. You need capacity at both ends of the transportation chain.
Put another way: Europe needs much more gas than Norway can offer in the short term. In
other VisualPolitik videos we explain in more detail what liquefied natural gas is
and what the various alternatives are that Europe is getting to try to counteract the
energy crisis. Europe is diversifying its gas purchases and preparing to receive liquefied
natural gas from different countries. But now the big question is: In Norway
are they being supportive or is there some vested interest behind it? Is there some dark
globalist agenda behind it all? T3 (THE NORWEGIAN MONOPOLY)
As we said at the beginning of the video, Norway is making a lot of money out of the
war in Ukraine. They are making gold without having to go looting like the Viking Olav.
So what does this mean for Norway's sovereign wealth fund and the global economy?
Well, watch out because in 2023 alone the Norwegian government expects
to earn more than $130 billion from the exploitation of crude oil and natural gas.
And that's not all. At the moment, revenues for 2022 are estimated at almost $120 billion.
And do you know how much they earned in 2021? A little less than 30 billion.
In other words, thanks to the war in Ukraine, Norway will receive in 2022 and 2023 the
equivalent income of eight regular years. And do you know what? A large part of this
income will be earmarked for its sovereign wealth fund, and this is no joke!
Norway already owns 1.3% of all shares in the world. Companies such as Nestlé,
Apple and Microsoft have the Norwegian Sovereign Wealth Fund as one of their largest shareholders.
And stay tuned because here comes the really interesting part!
One advantage of being a shareholder of a company is that if you have enough shares,
you can influence its direction. Well, until a few years ago,
this Sovereign Wealth Fund did not pursue any influence over the companies in which
it invested. Let's say that it limited itself to excluding certain types of companies from
its portfolio: basically arms manufacturers, producers of hydrocarbons, tobacco, coal or
companies with dubious links to human rights... Something that of course it continues to do.
For example, the fund recently put Canada's Bombardier and South Korea's Hyundai Glovis
on a watch list for possible sale from its investment. In the case of Hyundai,
it was because of its alleged use of scrapyards in Pakistan and Bangladesh,
where labor conditions border on human rights violations: at least, according to the fund.
In the case of Bombardier, the reason was some suspicions of corruption in various countries.
Then this same fund has also had controversies with the Chinese government. They divested all
shares in the sports company, Li-Ning, due to an apparent violation of human
rights in the Xinjiang region. However, for some time now,
the fund's strategy has begun to change. C3 ("We have evolved from being a reluctant
owner to a more active owner [...] In the beginning, the idea was simply to buy a
slice of the global financial markets and our intention was not to exert any influence over
the companies." Trond Grande, Deputy CEO of the Norwegian Sovereign Wealth Fund)
For example, it is no longer unusual for this fund to publish in advance how it is going to
vote on certain issues at shareholder meetings in order to generate pressure. They supposedly
do this to improve corporate governance. C4 ("Our goal is to strengthen companies
through better governance and improve their long-term risk management" Trond Grande, Deputy
CEO of the Norwegian Sovereign Wealth Fund) Along these lines, in 2021, the Norwegian
fund voted in six resolutions at Facebook's Shareholders' Meeting for Facebook to be more
transparent and to present improved reporting. However, right here is the potentially most
disturbing issue: that from purely corporate issues the Norwegian Fund moves on to pressuring
companies with more cultural, identity or political issues. In other words,
that it tries to import Norwegian values into the companies in which it invests.
For example, in 2022, the Norwegian fund voted in favor of a human rights report and a pay
gap report at Disney's shareholder meeting. And something similar happened at Amazon.
Norway was on the side of Amazon workers who wanted to set up a union. In fact, at
a shareholders' meeting, Norway voted in favor of collective bargaining rights against the interests
of Jeff Bezos himself. As a sidenote, I will tell you that, in this case, Norway lost the vote.
And it did so, among other reasons, because the Fund's holdings in
companies tend to be relatively small. But of course, when you have so much money,
what you say within a company is, at the very least, taken into account. And you can become
a trend-setter. Many other funds and shareholders may decide to copy you. To put it in a nutshell,
Norway in the stock market is like the popular kid at school who sets trends.
And not only that, if necessary, this fund could buy larger stakes in certain companies
in order to be able to influence them much more. Believe me, with more than one trillion
dollars in your investment portfolio you can do almost anything you want.
Another example? Well, you see, Norway is not only one of the richest countries in the world:
it is also one of the most egalitarian. And it
is precisely this social model that they try to bring to their companies.
In fact, do you know what one of the major causes Norway is fighting for? Exactly! The
salary of managers: Norway has been pressuring companies for years to lower the high salaries
they pay to their managers. This means one thing: the Norwegian sovereign wealth fund could end up
becoming a nightmare for CEOs. That's why headlines like this
one don't come as a surprise: N3("World's Largest Sovereign
Wealth Fund to Vote Against Apple CEO Tim Cook's Pay Package". – Barrons)
And keep in mind the problem is that you can start with the salary of managers and
end up with many other initiatives. Let's just say that if necessary,
Norway could use the fund as a political weapon... In one direction or the other.
This year, the Fund announced that it will liquidate all its Russian assets. We are talking
about 2.8 billion dollars. It is not a large sum if we compare it with the investments they
have in other countries... But there it is. And, logically, the more money the Fund has,
the more influence it has. So if one thing is clear, it is that the huge torrent of money that
is now pouring into the land of fjords will, if anything, greatly increase that influence.
There are those who have harshly criticized the Norwegian sovereign wealth fund for its
behavior. Why? Because pursuing political or ideological interests when investing can
result in lost returns. And this could be bad news for Norwegians themselves.
Of course, if we are talking about criticism... Norway has also been
strongly criticized for the large revenues they are earning from the war. Poland's own
prime minister has pointed out that Norway is benefiting directly from the war and
urged them to share this new wealth with Ukraine. But... whatever the case, now the question is for
you: will Norway help Ukraine more or will they seek to invest more in
their sovereign wealth fund? Will Norway manage to produce more gas to save Europe
from the energy crisis? What will be the next moves of the Norwegian sovereign wealth fund?
You can leave me your answer in the comments. As always,
don't forget that here on VisualPolitik we release new videos every week,
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you liked this video, LIKE it and see you in the next one. Take care and see you soon.