Quick Bite – Oil and Gas Wealth: Norway, Britain and Australia’s Divergent Paths
The exploitation of oil and gas reserves since the 1960s has reshaped the economic destinies of Norway, Britain, and Australia. All three countries discovered substantial offshore hydrocarbons within a similar period, yet their policy choices produced vastly different outcomes. Norway emerged as the benchmark for intergenerational wealth management. Britain, despite an early North Sea windfall, squandered much of its advantage. Australia sits uneasily between the two, having driven export growth but failed to capture long-term fiscal benefits.
Norway: Prudence Institutionalised
Norway’s watershed moment came with the 1969 discovery of the Ekofisk field. Recognising the finite nature of oil wealth, policymakers crafted a hybrid model balancing state participation with international expertise. The creation of Statoil in 1972 gave Norway an anchor in operations and ensured domestic capture of technological know-how. Importantly, from 1996, surplus petroleum revenues were channelled into the Government Pension Fund Global (GPFG), now the world’s largest sovereign wealth fund with US$1.9 trillion in assets—equivalent to roughly US$350,000 per citizen and representing approximately 1.5% of all publicly traded companies globally.
Norway’s Sovereign Wealth Fund: US$1.9 trillion
Source: Norges Bank Investment Management
Norway’s approach combined a high government take – around 50–60% of profits after deductions – with fiscal discipline. Unlike Britain and Australia, oil wealth was insulated from short-term budget cycles: GPFG returns could be tapped for spending, but the principal remained untouched. This model not only avoided “Dutch disease” but created a stabiliser against commodity price volatility. (“Dutch disease” is an economic phenomenon where the discovery of a valuable natural resource causes a strong appreciation of the domestic currency, which in turn harms other export-oriented and import-competing sectors of the economy, such as manufacturing.)
Complementary energy policy also mattered. With nearly all electricity generated from hydropower, Norwegian industry benefited from some of Europe’s lowest power prices, attracting aluminium and fertiliser producers. Thus, hydrocarbons were leveraged not just as fiscal assets, but as a springboard for industrial competitiveness.
The result is that, despite maturing fields, Norway remains a top producer – its oil output in 2023 was nearly three times Britain’s. Its fund ensures prosperity long after the last barrel is extracted.
Source: Doomberg.com
Britain: Spending the Windfall
Britain’s North Sea oil boom began in the 1970s, coinciding with economic malaise and fiscal deficits. Successive governments, Labour and Conservative alike, opted for a “spend-as-you-go” model. Revenues were used to plug budget shortfalls and support current expenditure rather than set aside.
The regulatory framework initially encouraged private-sector participation, with generous investment allowances. Yet fiscal policy was inconsistent: North Sea operators have faced repeated tax regime changes, creating uncertainty. The current marginal tax rate on upstream profits stands at 78%, one of the world’s most punitive. Unsurprisingly, investment has collapsed. Exploration wells drilled in the UK Continental Shelf fell from over 100 annually in the late 1980s to fewer than 20 in 2023, while decommissioning costs mount.
Britain’s revenue from North Sea oil and gas as % of GDP
Source: IFS.UK.Gov
Without a sovereign wealth fund, Britain has no intergenerational buffer. The contrast is stark: Norway, with a population of 5.5 million (barely one-tenth of Britain’s), has accumulated a US$1.9 trillion fund, while Britain has little to show beyond transient fiscal relief. Meanwhile, the North Sea’s decline leaves the UK increasingly import-dependent, with geopolitical exposure heightened by its ambitious but costly renewable energy transition.
Australia: Growth Without Capture
Australia’s story reflects both ambition and missed opportunity. Oil production peaked in 2000 at 809,000 barrels per day but has since fallen by more than 60%. By contrast, natural gas, and particularly liquefied natural gas (LNG), became the backbone of our resource boom. From negligible exports in the 1980s, Australia shipped 81.5 million tonnes of LNG in 2023–24, earning A$92 billion and cementing our position as a top global exporter. The chart below is a couple of years out of date, but you get the picture.
Australia’s Energy Trade
Source: Aust Govt, Geoscience Australia (2020-21)
The Petroleum Resource Rent Tax (PRRT), introduced in 1987, was designed to encourage risk-taking by taxing profits only after cost recovery. It succeeded in attracting more than A$500 billion in LNG investment since the 2000s. Yet fiscal capture has been weak: PRRT revenues averaged just A$1–2 billion annually in the past decade, despite industry turnover exceeding A$160 billion between 2012 and 2022. The government’s take is under 10%, a fraction of Norway’s.
Australia has also lacked a dedicated petroleum wealth fund. The Future Fund, created in 2006, is not resource-based and holds only A$226 billion – tiny relative to the scale of LNG exports. Commodity booms inflated the exchange rate, squeezing manufacturing, while subsidies for fossil fuels rose to A$14.5 billion in 2023–24, typical of Dutch disease. Decommissioning liabilities, projected above A$60 billion by 2050, risk shifting to taxpayers. Declining exploration spend – from A$4.5 billion in the early 2010s to under A$1 billion in 2023 – raises concerns about future supply security.
Some policy interventions worked. The Australian Domestic Gas Security Mechanism, introduced in 2017, ensured sufficient east coast supply during the 2022 crisis, stabilising prices. But the absence of a sovereign wealth framework leaves Australia vulnerable to the same intergenerational inequity that defined Britain’s missteps.
Who Did It Best, and Who Worst?
By almost any metric, Norway is the clear winner. Its combination of state involvement, fiscal prudence, and industrial strategy converted a finite endowment into an enduring source of national wealth. Britain sits at the opposite end: the failure to save, coupled with regulatory volatility, has left the North Sea in decline and fiscal buffers absent. Australia occupies the middle ground. It harnessed LNG exports to drive GDP growth and attract foreign direct investment, but its fiscal capture was weak and its lack of savings vehicles risks leaving little legacy once resources deplete.
Conclusion
The divergent experiences of Norway, Britain, and Australia underscore that rich resource reservoirs alone do not guarantee prosperity. Institutions, fiscal rules, long-term strategic vision and discipline matter as much as geology. Norway built resilience; Britain consumed its inheritance; Australia monetised growth but failed to entrench intergenerational equity. The lesson is clear: resource wealth is not a gift but a test of governance, and few countries have passed it as convincingly as Norway. It is not too late for Australia to admit errors and learn from Norway.
