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Norway Idea to Exit Oil Stocks Is ‘Shot Heard Around the World’ (bloomberg.com)
343 points by anigbrowl on Nov 19, 2017 | hide | past | web | favorite | 139 comments

> The Nordic nation’s $1 trillion sovereign wealth fund said Thursday that it’s considering unloading its shares of Exxon Mobil Corp., Royal Dutch Shell Plc and other oil giants to diversify its holdings and guard against drops in crude prices.

That doesn't sound like activist divestment. And in fact, environmental activism isn't why Norway is considering this action:

> Norwegian officials say the plan isn’t based on any particular view about future oil prices

> ...

> the move has more to do with hedging risk than saving the planet. Norway derives about 20 percent of its economic output from oil and gas. Finance officials have long debated whether reinvesting those profits back into petroleum producers leaves Norwegians overly exposed to the volatility of oil prices.

So the headline and intro are fairly misleading, IMO.

“This is like praising Exxon Mobil Corp. for taking other oil-company stocks out of its 401(k) plan. Sure it has sold some oil stocks. But it remains an oil company! “

“Norway is a petrostate with a sovereign wealth fund, and it has sensibly decided that that sovereign wealth fund will do a better job of diversifying the country's wealth away from oil if it does not also buy oil stocks. Norway has plenty of oil! “


Face it dude, fossil fuels are a thing of the past.

Oil isn't just about fuel. What's that computer or phone you typed this on made out of? Generally not wood, clay or pure steel.

Aren't all of those things only a tiny fraction of our oil usage though? The entire global plastic industry accounts for < 5% of the oil we dig up IIRC. The vast majority is turned in to fuel.

Likely true. However that will need to last us a long time. 5% of oil is still a very large industry.

We could still make Polyethylene from renewable ethanol. However oil is more flexible, and if we do run out it's shit.

We make renewable ethanol from agricultural products entirely dependent on fossil fuels.

Yes, plastic is so passé.

That may eventually be true, but that just underlines that there are economic reasons to diversify whether or not you care about the environment.

The bottom line is these companies are being valued by the market based on the assumption that they'll be able to sell the barrels of oil in their proven reserves. If those reserves are "unburnable", the current valuations are not accurate, because the market for their product will be much smaller. Either they are valued correctly, or we're going to take action that prevents the worst effects of climate change - but it can't be both.

And also the present, and at least part of the future.

Well, yes and no. This is plausibly a move which could be performed even in a world where oil is expected to be the only viable energy source.

But on the other hand, if you wanted to divest from oil with the expectation that oil will become a non-essential resource, you wouldn't go around proclaiming it loudly. I had the same thought when I first heard the announcement; this is going to be interpreted as more than a diversification move, and I'm not certain that it _is_ purely a diversification move.

Saudi Arabia is doing the same thing by listing Saudi Aramco on the stock exchange. If oil will eventually become a (relatively) niche resource, the market value derived from non-extracted resources will tank, and divesting needs to happen now, before everyone realizes what's going on. To do this without triggering the very thing you are hedging against, you need to have plausible deniability, which Norway does.

Saudi Arabia is quite different from Norway though as something like 70% of their economy is oil and 30% of Norway’s is. Saudi Arabia has made themselves insanely dependent on foreigners while Norway isn’t and can continue to function as a normal country after oil. Nothing is normal with Saudi Arabia.

The question that you're circling, but can't seem to put your finger on is "if they weren't concerned with oil's future, why would they diversify?"

Historically, oil has gone gangbusters. I doubt any of the sovereign wealth funds lost money buying oil stocks. Yet, within a decade, we've seen a few of them announce that they're going to diversify. Ostensibly, this is a move to stabilize their long-term value against market fluctuations, but given the criticality of energy and how well historically these companies have done, it seems more likely that they're worried about a major market shift on the 30-50 year horizon and are looking to reposition themselves ahead of when the market itself moves.

So to me, it looks like major oil producers are preparing to leave oil, when viewed through a generational lens -- the wealth funds are clearing out, educational training programs are shifting, etc.

In 10-15 years, the flow of new workers will hit whatever low-level long-term carrying will be; in 30-40 years, oil will have settled into some kind of "post primary energy" role. (It's not like petrol products are suddenly not useful; just the bulk of traffic will shift, and so there won't be enough business to support several nations.)

Of course, 2050-2060 was when people were guessing that was going to happen for quite a while. But this seems like a sign we're on track for that, broadly speaking.

> Yet, within a decade, we've seen a few of them announce that they're going to diversify.

The important development in this decade is that we have turned some corners in technology, primarily electrical cars with sensible mass-market economics, so a significantly less oil-dense energy economy is now a mainstream projection using fairly orthodox assumptions - electricity is primarily produced from coal and natural gas, rarely oil. Previously, predicting the end of oil was more in doomsday/crackpot conspiracy territory.

Also, in this same decade, fracking came of age. Where previously the endgame for oil was holding the world hostage at ever rising prices, we now know that there is a substantial supply at $80-100, effectively capping the price there, making the endgame a lot shorter and much less profitable.

Won't the endgame be longer rather than shorter?

I meant for legacy oil companies. They won't be able to draw out a long decline.

Oil will be around basically forever, but play a diminishing part.

>But on the other hand, if you wanted to divest from oil with the expectation that oil will become a non-essential resource, you wouldn't go around proclaiming it loudly.

Particularly if you're an oil exporter.

Norway has been remarkably successful, clever and a little lucky with this sovereign wealth fund.

Hedging makes sense. The funds primary source of growth is oil and oil prices, the outside money. Why carry the same risk in the portfolio itself?

It's the national equivalent of "Don't invest in your employer, because if it goes bust you lose your investments AND your job."

This advice is usually "Don't (only) invest in the industry you're employed in".

See e.g. the dot-com bubble and how people who worked in IT and had invested their money mainly in IT were screwed, whereas it wasn't so bad if you just got fired and say invested in an S&P 500 index fund.

But yes, investing only in your employer is a particularly bad version of that.

...investing only in your employer is a particularly bad...

Haha when I worked for Lucent long ago they actually had a program set up exactly for that, so my more foolish colleagues received vastly-overpriced stock in place of some percentage of their salary. Thinking back, the managers must have had some kind of incentive because they hyped it in unseemly fashion.

ESPP programs are fairly common, and usually a great decision because they yield a minimum 15% return on the final value of the investment at the end of the program period whether the stock goes up or down. If you sell immediately, you realize a minimum of 90% ARR over the program period. [1]

No need to keep it there if you just want to take your gains and walk.

[1] https://thefinancebuff.com/employee-stock-purchase-plan-espp...

15% is not a minimum. ESPP discount will vary by employer.

That said: yes, they're usually a very good value for employees as long as you sell immediately and diversify the proceeds.

In some cases one would be better served to run rather than walk. I remember advising colleagues as to the riskiness of this program in late 1999. Three years later LU had lost 98% of its value.

ESPP is guaranteed to make money for employees. Everyone should sell ESPP shares immediately, of course, and most don’t, so functionally you’re right, they’re dangerous, but if you can be mildly disciplined, I don’t think there’s a better investment in the world than taking your employer up on discount ESPP shares then selling the moment they’re in your account.

...functionally you’re right, they’re dangerous, but if you can be mildly disciplined...

It's interesting that these schemes aren't viewed in the same light as e.g. credit card incentives. Getting 0% interest for the first 6 months is a deal good enough to put the credit card bank out of business, but somehow enough credit card borrowers are getting screwed to pay for the incentive overall. TANSTAAFL. Why is that harder to recognize in some circumstances? Is it a class thing? Anyone can get a credit card, while only high-quality people like ourselves can get a job at Acme Inc?

Anyway credit card companies might be evil, but they receive enough scrutiny to be extremely lawful in their evil. (If you actually pay off the debt they won't forget about your payment.) Can we really make the same statement about employers, in general? One might have a standing order to sell these shares at regular intervals, but one has seen enough HR shenanigans by this point to realize that they DGAF about employee interests... "Oh gosh we're sorry that got changed at the beginning of the year and we didn't tell you about it for 9 months while you lost all the money you've ever made in this program! Our recent stock slump has been difficult for everyone! There's nothing we can do about it now! I guess you should have been mildly disciplined..."

Agreed it’s a similar psychological principal, but the threat model you’re describing from HR is silly.

ESPP is only for publicly traded companies, and when the purchase goes through, you get shares at a discount on the more advantageous of the starting and ending stock prices.

HR has no power to prevent you from selling that stock, it’s held in a stock account over which you have full control and HR has none.

You are already paud by your employer, you are not going to get more money or security from him.

many companies encourage employees to buy stock with special rates.

If you're really lucky, as I'm sure you well know, you can ever put your pension into the company, and then when Enron goes bust you've got no job, no investments, no pension!

Which any wise person would sell immediately to diversify.

That is not necessarily true. As an employee, you may be in a good position to judge whether a firm is likely to succeed, with perspectives not available to the market. This is why markets often react when CEOs buy/sell their own stock.

The average employee would be in a terrible position.

Ref: Enron.

Isn't it more likely that you don't know your employer as well as market analysts, but that you do have much more severe cognitive biases?

A CEO is an "insider" in market-speak. Jo(e) Engineer is just a punter like anyone else.

That's not strictly true. Depending on the company, it's very possible for mere engineers to have access to material non-public information. There's a reason many companies impose broad blackout dates on trading.

Mere engineers would be prosecuted long before CEOs for the totally-at-Justice-Dept-discretion crime of "insider trading".

That's self-evidently false. Engineers have insight into the internal culture of a firm and how it may differ from public perceptions, not to mention their own opinions on the quality of the back end technology and awareness of future plans or possibilities.

The advantage of the employee isn't insider knowledge - it would be illegal to deal based on it - but understanding what the company does and which market it works in in the first place. This purely technical knowledge might give investment decisions some better factual support. But

Sure, but until those options vest you’re still doubly exposed. I’m in this position right now. A fixed amount from my pay goes into buying options which vest in 3 years time. Fortunately I could afford to lose that money if it came down to it, but it’s a real issue and in a worst case scenario that’s money I might need. It’s certainly a consideration.

Investing in options that vest in three years. Hopefully you are part of a big stable corporation.

There's a reason you get a discount. Are employees who buy options generally unaware of the risks?

You'd be amazed how many people willingly keep large portions of their net worth invested in their employer.

Nothing in the title or intro indicates that it was caused by environmental activism, just that it's a major positive step in their view.

Environmental activism seems to be an almost entirely invented slant by the author and his or her selection of quotes. The piece reads like propaganda to me.

I've found that every message surrounding environmentalism from all angles - either for or against - is almost always propaganda. People without some sort of bone in the game have long since dropped out of the ironically toxic discussion. There's just too much money involved in it and no real desire for real discussion. Only zealotry remains.

The winning move is not to play.

Shot heard round the world

Implies exactly that. If it had nothing to do with activism then 1) activism effort to influence investments failed and 2) this lends no momentum to the movement as it was a coincidence and could be changed tomorrow regardless of environmental impact.

The only way this is positive news for EA is if they spin and misrepresent it as is done here.

Strongly disagree. Markets are not rational and changes in portfolio allocation by sovereign wealth funds are likely to have a ripple effect no matter what the stated reason. If it pans out, that means fossil fuel stocks become de facto optional rather than mandatory.

No, assuming the fundamentals haven't changed oil stocks become a good investment for other entities until the price is back to where it was (assuming it's negatively affected at all).

Oil may or may not have a bright near to mid term financial future, but Norway's move is either virtue signaling at the national level or diversification of a portfolio that's too heavily invested in that sector. In itself it won't change the oil market one iota.

$35B divestment out of trillions in oil businesses market caps is a rounding errror.

Yup, they're already invested in oil, buying XOOM etc shares just un-diversifies (is that a word??) their investments.

The opposite of diversify in this context is usually concentrate.

Although driven by their own policy, the fact that almost half of the new cars in Norway are electric/hybrid vehicles is incredible. I think they know EVs are on a growing trend, and they just get to see it at an accelerated rate than everyone else - but they probably believe the same will happen elsewhere, just 5-10 years later. I think it's unlikely that this wasn't at least a small factor in their decision.

I also believe that as EVs grow to 5%, 10%, 20% of the global sales for cars, Norway will increase its "hedging" over the next few years, which will show some direct correlation between EVs and Norway's decision to hedge its oil stock risk.

One should factor in that Norway's petroleum exports are ~50% natural gas (of which <1% goes to fuels for cars) and ~50% oil (of which ~60% becomes fuel for cars, trucks, tractors, excavators, airplanes, etc.).

So the total "negative exposure" towards EVs if all cars everywhere become electric is <30%.

Furthermore, the retail sales of gasoline and diesel fuel has not yet shown any decline in Norway [1], despite EV-subsidising policies being in effect for a decade. So decreased fuel sales volume has a many-year (perhaps even decade) long lag behind increased EV sales. (The average Norwegian car is 17 years when it is scrapped.)

[1] https://www.ssb.no/en/energi-og-industri/statistikker/petrol... - petroleum product sales statistics, English description, you can export to csv file.

Oil in the arctic costs $40 or more to extract. Oil in Saudi-Arabia costs, what, $15? So at the very least there is a 50% exposure as the oil price will fall for all oil. It is not like Norway is the sole exporter. If oil price drops and there is a race to the bottom, only the cheap sources will sell. Norwegian oil is among the most expensive to produce (that is currently operated with the hope of profit).

If oil price drops too far you coild imagine gasoline and diesel generators taking over for gas :p or at least NLG taking a hit... the energy market is coupled.

> the retail sales of gasoline and diesel fuel has not yet shown any decline in Norway [1]

Odd. The stats you point to say otherwise. Says motor gasoline is down (1.9%) and diesel is up (4.7%) – so it's kind of a wash.

More interestingly (in the context of this news of divestment) the total figures are down year on year on year

(in 1000 litres units)

    2012    9 635 521
    2013    9 279 405
    2014    8 995 567
    2015    8 827 093
    2016    8 790 684
In light of those figures divestment looks sensible.

No, you have to look at just the sum of dutiable diesel and gasoline, which shows no decrease (even an increase). Most of the change you're summarizing above is reduced usage of light fuel oil (for heating), marine fuel and heavy distillate, particularly the latter two. Those changes are not caused by EVs.

Why would it happen elsewhere, unless other countries adopt the same tax policies? The main stimuli behind it was ridiculous tax on new vehicles that was absent on electric cars - if a new Tesla S costs the same as a basic VW Passat, it's a no brainer that Tesla sells better. But even in very wealthy countries(UK) electric cars are still much more expensive than normal cars and when I was buying 2 new cars last year it just didn't make any sense to purchase electric - the saving on a petrol car vs. Electric would pay for more years of fuel than I plan to keep the car for. Now, if those other cars were taxed at 100% or if the fuel was even more expensive than it is - then sure, it would make perfect sense. But as it stands now, no one is breaking into the cheap car market.

It is highly relevant though because it shows people are willing to buy electric at comparable price to ICE cars, even in a country with a spread out population and harsh climate.

Until the Norway experiment one could not know how much people care about using a fundamentally different car technology.

It shows that with likelyhood as EV prices drop sales will take off elsewhere.

> It is highly relevant though because it shows people are willing to buy electric at comparable price to ICE cars, even in a country with a spread out population and harsh climate.

But because of the harsh climate, Fenno-Scandinavians are already used to plug their car when they park it at home or at work (to warm up the engine and the interior in wintertime). Less change, an habit of seeing plugs a bit everywhere and the knowledge that it is not so much of a practical, legal, financial problem to have such a network installed, so less reluctance to switch, compared to inhabitants of southern Europe who imagine, rightly or wrongly, major obstacles to overcome for everyday use.

But many of the electric car owners live in the cities. Here they can drive in the bus lanes and don't pay the road tolls. This makes an electric car an excellent commuter choice.

Unless I'm mistaken, new electric cars in Norway have a subsidy of almost 50%, and are exempt from highway tolls.

So your stats have to be viewed through a heavy prism: it's not a customer trend as much as a government push.

This has been true due to the VAT and emissions tax exemption. The VAT exemption on PEVs will be dropped in 2020.

Also, a proposal has recently been made for a tax on heavy electrics (Tesla's). It will add $11687 to the purchase price of a Tesla X, before the now exempted VAT is added.

Road tolls for PEVs will be increased to half of ICE vehicles'.

It's incredible if electric cars were priced comparably relative to ICE cars, which they are not in Norway

Electrical cars are priced comparably to ICE cars (after subsidies). The main reason electrical cars are selling so good is not the price of the car, but rather all the other subsidies. Free pass through toll roads (which can be pretty expensive), free parking, free ferries and almost free fuel. Most car trips are short enough that range isn’t a problem.

ICE cars in Norway enjoy a 25% sales tax and quite a lot of taxes for the co2 emisions, engine size etc. Most low end cars end up just short of 100% in taxes, high end cars up to 200%, and luxury cars are a lot more.

Electric cars would not sell anywhere near as good if they weren't exempt from taxes and cost twice as much as they do now.

> and quite a lot of taxes for the co2 emisions, engine size etc

In other words, when you take away the implicit subsidies for the unpriced carbon, electric cars become cost-competitive?

(In Norway, the electric grid is primarily renewable/hydro based[1]... yes, I realize this argument is different for countries with different electrical makeups)

[1]: https://en.wikipedia.org/wiki/Electricity_sector_in_Norway

In macro economics, perhaps. To the individuals doing the purchasing, it's their short term expenses that matter most.

Electrical cars are cheap in Norway compared to other cars, especially compared to the same situation in other countries.

It's not like they're cheap, but the fees are insanely high for ICE cars in Norway.

Example: A BMW M550i is from what I can see $73,400 in the US and $135,300 in Norway. That's 82 percent more. The difference is way smaller for electric cars.

The fees are "sanely" high for ICE cars in Norway. Whats "insane" is our refusal to price the pollution externalities elsewhere.

Bingo. I looked up the vehicle example and the first search result talks about it hitting 60mph in 4 seconds. That kind of car is hit heavily by Norwegian taxes, as they are in part based on engine displacement.

It's not based on engine displacement, it's based on emissions.

Pretty much. Most of that was introduced back when Think was the height of EV, and very few were interested.

Come Tesla, and suddenly all the rich people in Oslo wanted one so they could bypass the commuters by driving in the bus lanes.

The rest of the nation is still very much an ICE nation. When you have to drive a half hour or more to do certain types of shopping when you live outside the cities, they are pretty much required.

In spring I drove 500 km in Norway between Oslo and Bergen in a leased eGolf from 2016. The whole trip took 9 hours versus 7.5 hours in an ICE car. The extra time is just time at quick charging stations that I had to use 4 times. The trip is over mountains with over 1Km up and that kills the battery much quicker than the promised 200km of range.

On a more flatter terrain around Oslo the car could go around 150km. This is more than enough for any kind of shopping. The newer eGolf almost doubles the range making it absolutely non-issue if one gets car today.

The real reason is why electrical car has not been popular with less wealthy people is that cars in Norway are heavily taxed making one a heavy investment that one sticks to and people here are rather conservative. But attitude is changing.

And that’s horrible because they’re not only financing Tesla with car purchases, but also tax money and by this large national wealth fund. Why burn your own resources to someone else’s benefit? They don’t develop anything for themselves this way

> So the headline and intro are fairly misleading, IMO.

Pretty much Bloomberg's modus operandi when it comes to their select few pet projects.

"Sharp retreat: European oil stocks react"

I wish financial reporters would stop using blatant hyperbole. The graph shows a -0.21% drop. That's nothing. The intraday noise is half that amount. 5% might be a "sharp drop," 10% definitely would be, but 0.2%, is not even a blip. A more realistic report would be "European stocks practically ignore Norwegian fund's announcement to leave oil" but that would not support their message that Norway is doing this as a statement about climate change. (In fact, as reported, their statement said nothing about the reasons for diversification, so the report's twisting that into a polemic about how everyone is abandoning oil is unjustified.)

"Minuscule blip: European oil stocks not really affected" doesn't grab those clicks, though. They won't stop using hyperbole for headlines unless the evolutionary pressure (i.e. revenue model) significantly changes for news media.

"Sharp drop or miniscule blip? Environmental activism or cold economic calculation? Find out which Nordic country made this sudden bold move to their portfolio!"

So while this doesn't appear to be an 'ethical divestment' but more of a 'spread the risk'sort of move, I'd still like to say: I've never heard a convincing argument for ethical divestment (and this is coming from someone who's a bit of a SJW). My main point is that unless you buy stock in an IPO, then buying shares does not increase the funds the company has available to perform its operations (some or all of which you may disagree with ethically), so you're not changing anything. Unless you think that you can shame the whole world into not buying the stock even if it's a good investment (yeah, right), then all you're doing is making sure the company is owned by people more scrupulous than yourself. If you really want to influence a company to change its ways, you should become a major shareholder and actually change it. And if a given company is the best investment you could make (to the best of your knowledge), wouldn't you be able to accomplish more good with the money you could make from that investment? (e.g. using the money to lobby lawmakers to make a carbon tax does way more than divesting from fossil fuel companies does). So it seems to me that ethical divestment has this in common with terrorism, that the action itself doesn't actually achieve anything, and the whole point of it is really just to cause a fuss and get in the news.

The secondary market for stocks absolutely influences the company. It influences executive pay, employee share-based compensation, certain performance-based compensation vehicles, and sets the reference price for any secondary offerings of shares by the company (whether for cash for operations or acquisitions). Those are substantial influences on the company, IMO, and anytime a cohort of investors who would otherwise hold the shares elects to not hold the shares, the clearing price for those shares goes down.

I think "ethical investing" is largely a -EV game, but I do think it has beyond symbolic value.

What is "a -EV game"

-EV = "has negative expected value" (versus a control)

IOW, investing with the additional constraint of "investments must be ethical in the following ways" is likely to underperform an equally skilled peer who is free to invest anywhere.

Now, that may still be OK, and it's more than possible to show positive gross returns from ethical investing, of course.

I always assumed it was more about what you do elsewhere in life once you've invested in an "unethical" company: If I'm invested heavily in the lemonade stand, it's against my interest to point out that too much lemonade could give you diabetes.

So the point is more to free yourself from an obligation to act immoral.

Ok, I'll try.

Ethical divestment quietly, by regular individuals: mostly useless.

Ethical divestment loudly (publicized), by respected institutions or famous investors can be useful if done correctly.

The utility of divestment comes in its' signaling power. A large, well-respected university divesting signals that the university expects the future value of oil to be less than it is today. The expectation is backed up by putting it's money where it's mouth is (see: http://longbets.org/).

If I'm an unscrupulous investor and see powerful institutions signaling that they believe society will change in some way such that an investment in oil is less valuable, I should probably believe them. They are, after all, powerful institutions for a reason (partially b/c they are good at surviving), and their divestment ensures that those institutions will welcome carbon taxes or other measures that reduce the value of oil.

Lastly, divestment can start to signal social stigma against the industry, making that industry less attractive to skilled talent.

I think the reasoning is that divesting can reduce demand for a stock. Thus reducing the stock price, and reducing the future financing capacity of the company.

Does it do that, though? I find it hard to believe divestment would have much long term effect on stock price. The value of a stock stems from the the company's profits and those remain unchanged. In a competitive market, no player has market power, and stocks seem pretty competitive.

The only financing that happens with a stock is at the point of IPO, which is obviously not applicable for these ancient oil companies. I'm not sure an oil company has issued more outstanding shares for financing in a very long time. They get the vast majority of their financing through low-interest debt.

> The only financing that happens with a stock is at the point of IPO

False. Companies make secondary offerings for acquisitions or other purposes as well as issuing shares as part of employee/executive compensation.

Public companies can issue more stock to public markets at any time. That stock would be priced at the market rate. If a company’s stock price tanks due to lack of demand, that is bad for the company. Similarly, companies with failing stock prices have problems attracting (and bleeding) talent.

> all you're doing is making sure the company is owned by people more scrupulous than yourself.

You mean "less scrupulous".

Ethical investing suffers from a really rough dilemma: it either doesn't work or underperforms the market.

If ethical investing works, then it does so by making capital more expensive for companies you do not invest in. And the market for capital is two-sided, so the people who do invest in it get above-market returns at your expense.

If you get market-rate returns, on the other hand, you haven't made capital any more expensive for the unethical companies.

This seems like a particularly bad article, especially considering that it's published in a business publication. While the article does say:

Norway derives about 20 percent of its economic output from oil and gas. Finance officials have long debated whether reinvesting those profits back into petroleum producers leaves Norwegians overly exposed to the volatility of oil prices.

It fails to state clearly that the only reason that Norway has a $1 trillion dollar surplus of funds is because of their oil wealth. They are divesting from oil stocks due to simple goal of diversification, to prevent the Norwegian economy and the fund from being too closely coupled. While it's gauche to quote Wikipedia as the arbiter of truth:

The Government Pension Fund Global, also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector.

The Government Pension Fund Global (Norwegian: Statens pensjonsfond Utland, SPU) is a fund into which the surplus wealth produced by Norwegian petroleum income is deposited. Its name changed in January 2006 from the Petroleum Fund of Norway. The fund is commonly referred to as the Oil Fund (Norwegian: Oljefondet).

The purpose of the fund is to invest parts of the large surplus generated by the Norwegian petroleum sector, mainly from taxes of companies but also payment for licenses to explore for oil as well as the State's Direct Financial Interest and dividends from the partly state-owned Statoil. Current revenue from the petroleum sector is estimated to be at its peak period and to decline in the future decades. The Petroleum Fund was established in 1990 after a decision by the country's legislature to counter the effects of the forthcoming decline in income and to smooth out the disruptive effects of highly fluctuating oil prices.


The most charitable interpretation I can come up with is that BloombergMarkets assumes that everyone bothering to read the article already knows this. But somehow I doubt this is true, and that the authors were actually making this assumption. So why is it written this way? Spin, ignorance, or just bad editing?

Excellent observation, this just irked me as well.

> So why is it written this way? Spin, ignorance, or just bad editing?

I don't know. Good question, though. A symptom of the journalism crisis in general? I can't remember where, but I think I read something about it a couple of days ago, something along the lines of a bubble of digital journalism, about to burst pretty soon, etc.

I read it too. Though Pocket, without ever seeing ads.


Yes, that's what I meant. Thank you.

Hardly the only reason. Other oil producing countries don’t show such surpluses.

Anyone know of index funds closest to vanguard low cost options that exclude oil and other stocks not friendly to the environment? I wish there was a fund where I can handpick my investments through exclusion of various categories against my core values but without having to pick individual stocks. Perhaps this exists and I’m just unaware?

There are a number of "socially responsible" ETFs with quite low fees - not as low, but not bad. Most focus on environmental goals, though some have worker rights, "biblical values" or equality goals too, some also seek to derive most of their revenue from the renewable industry. That's definitely riskier, but may appeal to some.

http://www.etf.com/sections/features-and-news/top-10-sociall... has some basic details about some popular ones.

If your interested in the opposite there is always the VICEX EFT.

"VICEX, as the ticker implies, holds a basket of stocks specializing in alcoholic beverages, tobacco, gaming and defense/aerospace industries"

Just missing CXW and its 6% dividend to round out the fund.

In this context the "opposite" would be something like an energy or utility ETF (like Vanguard's VDE or VPU), funds that are 100% invested in fossil fuel infrastructure.

I just made an account so I could reply to this - I work on https://fossilfreefunds.org which is a site analyzing mutual fund/ETF portfolios for exposure to fossil fuel stocks. You can see if funds own the 200 largest carbon reserve owners, largest coal-fired public utilities, etc. We also measure carbon emissions metrics for the overall portfolio. And if a fund has a "socially responsible investment mandate" we show that as well.

I don't know of any off the top of my head that only excludes 'not friendly to the environment', but I would look at the other brokers. Schwab and Fidelity both have low cost funds similar to Vanguard.

Also, really low cost might be hard since excluding something like 'not friendly to the environment' is more of an active managed fund. There is this though:


Not a customer but I’ve just learned about https://www.motifinvesting.com

There are other similar platforms like https://www.openinvest.co/. And even if you use a trading platform like Robinhood you can find environmentally-conscious ETFs by searching terms like "fossil free", "green", etc.

Sounds like a business opportunity. I don't think there is a lot of competition in this space yet. You could probably do this with an investment engine that uses a few hundred ETFs to build a portfolio. You'd need decent customer volume in order to make it low-cost, but there are definitely possibilities there.

motifinvesting.com pretty much handles this

SPYX and SPXE are both s&p 500 ETFs that exclude oil. Check the holdings of each, because I know one of them does actually still have some Petro companies.

Fidelity has "green" ETFs.

Thanks I’ll take a look!

It's impressive the way Norway has manage to avoid the Resource Curse (https://en.wikipedia.org/wiki/Resource_curse ) unlike Saudi Arabia, Venezuela, etc.

Great article on slate about it: http://www.slate.com/articles/business/moneybox/2004/10/avoi...

While the economics of it are sound, i.e. diversification, etc. it still is a major asset movement by an investor who would otherwise be strongly bullish on the commodity. Any way you slice it, this is a big deal.

Some think the curent corruption crackdown in Saudi Arabia is merely an excuse to seize the assets of eveyrone opposed to the official diversification plan. https://www.theguardian.com/world/2017/nov/10/how-the-saudi-...

Most petrostates provide at or below market-rate fuel to their citizens.

Norway has some of the most expensive gasoline in the world, due to really high fuel taxes.

They also seem to have been preparing for life after oil from early on, as opposed to other petrostates only beginning to consider it when it becomes obvious that they have to change.

Norwegian Business School and the government have looked and promoted for years solutions for the local economy after oil party will end-up. It’s a way to speed-up this transition to a cleaner economy with the risk of loosing some.. focus on the climate and lead that direction. Building a new church, paying for past sins, nothing wrong with that.

While this helps diversify, it doesn't really affect the transition of the Norwegian economy, though - the oil fund only invests outside of Norway. There is a much smaller fund that does invest in Norway, and the Norwegian government does own a substantial proportion (about 1/3 last time I checked) of the total value of the Oslo Stock Exchange, but that's a separate issue from the oil fund.

It's not like the idea should surprise anyone. It has always been a discussion whether or not to invest in oil.

A big part of the idea behind the oil fund is to make sure the county has resources if the income from oil where to decline. Investing in oil when such a high percentage of Norway's income is from oil might be a bad idea.

This is nothing more than "it might be a bad idea to put all the eggs in the same basket".

This is just prudent diversification. If you work at Google and your personal capital is tied to Tech, go easy on Tech stocks in the retirement account. Bankers who held too many financial services stocks in 2008 saw their 401Ks crater at the same time they lost their jobs.

If the fund is to diversify away from oil, silly to buy oil stocks. If oil does well, they have more in the ground.

Interestingly, I believe this is a part of Eugene Fama's original argument for the value premium (workers buying stocks in industries outside their own).

Saudi Arabia has been diversifying out of oil for at least a few years. Everyone sees the same thing. We are one battery technology breakthrough away from gasoline being unnecessary.

A related news item these days rolling in Norway is how a big investment (Goliat platform) is posed to make a net loss, costing the goverment a lot of money due to the tax regime. (Jury will be out for many years, investments in arctic oil happen 10-15 years before thw income).

Because of the high extraction costs for Norwegian oil, it is possible for Norwegian oil to crash, while other oil producers are still massively profitable.

So it is not about "oil or not oil" as such but the oil price.

Isn’t that a rather odd announcement?

If I was thinking of selling a huge amount of shares, I’m not sure I would announce I was considering selling and drive the price down.

What was their thinking here?

Perhaps it was that they are a national fund accountable to their parliament and the people of Norway, who have a legitimate say in their investment strategy, and the only way that can reasonably be expressed and debated is in public. In any case this strategy change wouldn’t be agreed in much less than a year, and would be executed over at least 2 to 3 years, so any short term impact on share prices isn’t really material.

It's such a big decision that it has to be debated and decided upon by Parliament, so it can't stay secret.

Yes, as I understand it the petroleum found does very little active management, but instead have a mandate to hold stock based on the FTSE Global All Cap Index.

Changing the mandate require approval by the parliament.

It does do active management in some asset classes. E.g. real estate purchases and the like. It also does buy or divest shares based on various other consideration, such as ethical rules. But you're right that they're investing according to a mandate set by government so they're limited in what they can do.

They are a democratic government, so their policy and decision making should be open. Thought has nothing to do with it, however, they make the announcement today, some investors freak out and sell, and a bunch of others get a bargain. Meanwhile, each year, oil consumption continues to increase by 1.5 million barrels of oil a day.

Then Norway begins to diversify their holdings over many years as they probably should have done already, but now at a fair price because everyone now knows this is going to happen, so it is "priced in".

This story is the exact reason why most everyone should ignore this financial news nonsense. This is an opportunity to buy oil companies at a discount, but this story makes it sound as though it is time to start selling off petroleum stocks. It is also a reminder that your portfolio needs to be diversified, you don't know what is going to happen tomorrow.

It is almost as if they hope the price goes down so they can actually buy more. Then if their share purchases increases share price, maybe selling later to please policy makers whilst still making money...

As this seems just at a discussion level still, it still would have to pass through several levels of parliament debates etc, it is not really an announcement of policy, more just possible ideas made by someone associated with the fund.

Though as they have already been ordered to divest from tar sand and armaments companies it does seem possible from an ethical stand point. Slightly hypocritical though.

It does makes sense in spreading out future risk, divesting from oil & gas, but honestly not something they have to rush into for quite a few decades.

An interesting piece of news. While this does not mean that the oil industry is going to die tomorrow, it sends the clear message that Norway starts to think that their money earned from oil production might be better invested long-term into something else. This is probably not surprising, but definitely another indicator that oil isn't "the future" any more.

Why they keep pumping out their oil and buying financial junk for this, I really don’t understand. Just keep the oil in the ground if you want safety fund, stop financing all kinds of modern tech bullshit around the world. This is my advice to Norwegians, your fund is going to turn into pile of junk when you most need it. Conserve your resources instead.

Seems to be a media attempt at drumming up panic. The post outlines that the Norwegian fund won't be the first institutional investor divest itself of fossil fuels and is doing so for simple diversification purposes. The decision's also not set in stone and will take at least a year to be finalized.

When the Rockefellers divested of oil and gas a year or two ago that was a heads up to everyone that they should reconsider this asset class.

Norway is typically not behind the trends. I hope O&G's contingencies are ready for execution. That's 1 trillion.

It's quite obvious they're doing this to diversify. It's not exactly a shock.

Smart forward looking decision.

:Norway is typically not behind the trends. They set them.

I worry about Canada's significant dependence on oil as well.

If the world ever diversifies away from oil then Canada will take a major downturn. Canada is the 3rd or 4th largest oil exporting country.

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