For US Oil Boom, Some See Lessons in Norwegian Model

In a country where oil wealth has typically been controlled up by oil companies, the concept of the U.S. harnessing its energy boom to shore up its frayed public finances may be hard to conceive.

Although state control of natural resources tends to evoke images of authoritarian countries like Venezuela or Saudi Arabia, the most oft-cited example of a model the U.S. could mimic is Norway – a Group of Twenty (G-20) economy and the largest oil exporter in Western Europe.

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Private ownership of natural resources, combined with the dominance of U.S. oil giants like ExxonMobil, Chevron and ConocoPhillips, are immediate barriers to the world's largest economy effectively turning into a petro-state. Still, as the U.S. produces more fossil fuels domestically, some see merit in the idea.

"The simple logic is that if you're digging up wealth from underground, you don't want to spend it all today," said Edwin M. Truman, a senior fellow at the Peterson Institute and a former U.S. Treasury official. "That's the logic of natural resource wealth."

North American crude supply is expected to expand to account for two-thirds of non-Oil and Petroleum Exporting Countries (OPEC) supply, according to the International Energy Association. Meanwhile, research from the Colorado School of Mines last year estimated the amount of recoverable natural gas in the U.S. at an estimated 2,384 trillion cubic feet.

In other words, the U.S. is sitting on massive oil and gas that, not unlike petro-states, could be exported, with the proceeds used to pay down debt and shore up the economy.

"The concept of a western democracy holding a surplus of hydrocarbon-based wealth is not new at all," said Jonathan Socolow, an attorney at DLA Piper. "Norway is an obvious example, but there was a time that the same was true of UK, Netherlands and US."

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The Nordic country is the world's third-largest exporter of natural gas – a touchstone of the U.S. energy renaissance – and the seventh largest oil exporter. Its nearly $500 billion economy is dwarfed by its $740 billion sovereign wealth fund, the world's biggest, which it uses on occasion to boost its economy.

Truman said many oil-producing states, including Alaska, Wyoming and Alabama, have funds based on oil proceeds, a model not unlike Norway's that in theory could be replicated by the federal government.

However, many observers say the U.S. would have to nationalize the crude industry, or at a minimum confiscate profits. To do that would require a "sea change at the federal level in how we perceive natural resources," as Truman puts it.

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"The US owns quite a bit of rights…[but] a huge amount of the current boom in the U.S. is flowing into private hands," said DLA's Socolow. "Individual people have found themselves becoming profoundly wealthy from the oil boom, which you do not see in places like Norway."

Unlike other parts of the globe, the U.S. owns only the surface rights of key land, leaving whatever lies beneath to private development. Aside from the ability of Congress to impose windfall taxes, management of oil revenues is largely handled at the state and local level.

"Historically…the states have taxed oil revenue and funded money into permanent funds, like Alaska's Permanent Fund or the North Dakota Legacy Fund," said Michael Maduell, president of the Sovereign Wealth Fund Institute.

Creating a Norwegian-like wealth fund would trigger "a heated debate between the federal government vs. state governments over resources," Maduell added. "The politics would be paralyzing, which is why it hasn't been done yet."

Oddly enough, many oil-producing states pay far more at the pump than U.S. consumers do, due largely to fuel and other taxes that provide generous social spending. For their part, Norwegians pay a whopping $10 per gallon.

"They heavily tax oil consumption in Norway, while in the US energy consumption taxes are lower than anywhere else in the world," said Socolow. "Taxing fuel and transportation more is anathema here in the USA: it's the real third rail of politics."