Danish oil from the North Sea has been crucial to the development of the Danish welfare, and has meant that Denmark, amongst other things, was better prepared for the financial crisis. The words come from Thor Pedersen, who was Minister of Finance in the 00’s where production in the North Sea peaked, and the billions in tax revenue were even greater in number than expected.
Throughout the last 50 years the oil and gas of the North Sea has provided more than 400 billion DKK for the Danish state treasury. The revenue was particularly great in the 00’s when production was high, and it peaked in 2004 with over 385.000 barrels a day at the same time as oil prices increased.
Thor Pedersen, as Minister for Finance, had overall responsibility for the Danish economy from 2001 – 2007, and he believes without doubt that oil has been an unconditional benefit to Danish society.
“The North Sea oil has been a crucial foundation for the development of welfare we have seen in Denmark – and decisive for the degree to which Denmark was prepared when the global financial crisis washed across the country”, he answers, when asked what Danish oil production has meant to Denmark.
Oil and fiscal policy turned debt to surplus
Greater production and higher oil prices than expected through the 00’s meant more money from the North Sea than budgeted in the state’s household budget – the Finance Bill. From 2001 to 2005, the North Sea generated well over 25 billion DKK in revenues. The many billions from the North Sea combined with carefully controlled fiscal policy was, according to Thor Pedersen, the reason for a historical surplus of 87 billion DKK on the public finances in 2007 – which is the difference between income and expenditure. Instead of establishing an oil fund, as they have done in Norway for example, the Danish surplus was used to bring down public debt. This meant that the Danish net-debt in 2007 was turned to a net-surplus of about 30 billion DKK.
“No one saw it coming. The tax-stop and steady public expenditure created a massive surplus on the public finances. However, we did not fall for the temptation to increase spending. We did not establish a fund; instead we used the money to bring down our debt. We had a desire to save for rainy days, which is exactly what we did”, says Thor Pedersen, and elaborates on its importance to Denmark, when the financial crisis struck.
“What plagued other countries in the EU, which we can compare ourselves to, was that they had large public net-debts. For Denmark it meant that when the financial crisis struck, the government had room to maneuver, room to make investments to counteract the crisis, which other countries really did not have in the same way. This meant that our welfare could be financed without further borrowing, and in that respect the oil from the North Sea is a major contributor”, he says.
Securing the welfare of the future
Despite falling production in the North Sea since 2004, the area continues to hold large reserves of oil and gas. On the question of what to do with the remaining resources, the former Minister of Finance is unwavering.
“My point of view is, that if it is economically viable to produce the oil, we should do it, and thereby secure the future with the value embedded in the oil. Its revenue may be spent on hospitals for example, and to make sure that life in general becomes better for retired citizens in Denmark. If we don’t, it might eventually result in a loss of welfare for Denmark”, Thor Pedersen finishes.