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Norway and Saudi Arabia: Managing Oil Resources for the Global Energy Transition

Resource and Energy Management is an important Environmental consideration for sovereigns, particularly for oil and gas producing countries. In this DBRS Morningstar commentary, we take a look at how two large oil and gas producers – Norway and Saudi Arabia – manage their resources and how they are using their savings from oil to prepare for the global energy transition. The two countries differ substantially in terms of economic development and in terms of the importance of the oil industry. We start by comparing their reliance on fossil fuels, we then contrast their resource management and diversification efforts, including the use of their sovereign wealth funds, and highlight their strategies on green technologies and renewable energy.

Key highlights:
• The development of Norway's offshore oil industry has been accompanied by a robust fiscal framework, allocating its oil revenues to the accumulation of foreign financial assets. Spending is limited to the expected real rate of return on the fund, estimated at 3%. Norway was a high income economy and was also a leader in hydropower well before oil was discovered, but oil wealth has supported further diversification of the economy and development of renewable energy sources.
• Saudi Arabia, in contrast, relies heavily on oil revenues as the primary source of investment funding for the domestic economy, though the Kingdom has also accumulated significant foreign assets. The government is currently pursuing a reform agenda that includes the diversification of its economy, the development of human capital, and an energy reform.
• Norway and Saudi Arabia are exposed to transition risks from climate change. Norway is well prepared for the global energy transition. The country is implementing carbon capture and storage in its oil industry and its success in expanding hydropower is allowing it to export electricity to Europe. Saudi Arabia is also investing to expand carbon capture technologies and plans to invest on cleaner energy like hydrogen.

"The management of oil resources in Norway and Saudi Arabia is largely a story of contrasts. Norway has managed its oil resources effectively for several years, thanks to a robust fiscal framework allocating its oil revenues to the accumulation of foreign financial assets. Saudi Arabia has relied heavily on oil revenues as a source of investment funding for the domestic economy" notes Rohini Malkani, Senior Vice President in the Global Sovereign Ratings Group.

“Norway and Saudi Arabia are clearly on different stages in the energy transition of their domestic economies, but both countries are exposed to the global energy transition, given how much oil still represents of their total exports” notes Adriana Alvarado, Vice President in the Global Sovereign Ratings Group.