Arctic Oil and Public Finance: Norway’s Lofoten Region and Beyond

Abstract

This study explores potential implications of Arctic oil and gas exploration for public finance, with the Norwegian Lofoten region as a valuation case. A model is calibrated to turn oil and gas resource estimates into projections for investment, production, and net cash flows, which are discounted to assess the direct impact for the government budget. With the Norwegian oil fund mechanism and fiscal policy rule, Lofoten oil and gas revenues could add fiscal capacity in the range of 0.1-2.4 per cent of the current government budget, implying a permanent increase in annual government spending (or tax relief) of 24-220 USD per capita. Corresponding implications for other resource-rich countries in the Arctic depend on their resource potential and the relative role of oil and gas in their economy.