The newest generation of wind turbines can float offshore in very deep water.
Norway is using them to power five oil platforms.
Wind Power
From a distance, Norway’s new wind turbines look like pinwheels. Up close, they are huge. At 12,000 tons, each one equals the weight of 60 Boeing 747s. Rotating 10 to 15 times a minute at 180 mph, their blades extend for 265 feet and just need one rotation to power a single house. At the same time, imagining their height, we should think of the Eiffel Tower.
Located 90 miles off the coast in very windy waters, these turbines are unlike the traditional turbines that sit on the seabed. In this Equinor (Norwegian state-owned energy company) diagram, you can see a massive wind turbine’s anchors:
Norway’s Oil Story
Norway’s oil story starts in 1969. After years of finding almost nothing, Norway discovered that it controlled massive reserves. The bonanza could have been catastrophic. When countries focus all of their land, labor and capital in one area, other industries suffer. Instead, they used the technology beyond the oil fields and helped related industries to develop and grow.
Perhaps most crucially though, Norway established a sovereign wealth fund in 1990. Until then, their oil revenue spending boosted inflation and constrained productivity. This early timeline displays Norway’s spending pivot:
Created to invest the state’s share of oil and gas revenues outside the country, the fund’s assets are now at the $1.3 trillion level. Called the Government Pension Fund Global, its domestic spending is constrained by law. As the fund explains, its purpose is to preserve the national wealth for future generations and to protect the national budget from short-term petroleum price fluctuations.
And this is where the new wind turbines enter the picture. Continuing past policies, the new turbines are supposed to be a source of jobs and Norway’s non-oil economic development.
Our Bottom Line: Dutch Disease
The oil industry reminds us what a commodity boom can do to an economy when it employs the best land, labor, and capital. As it blossoms, other industries wilt. At home it’s tough for non-oil businesses to pay for increasingly expensive resources. Abroad, a nation’s currency appreciates when international markets clamor for the new commodity. The problems start because that stronger currency makes other exports less attractive.
Then, it gets even worse when other industries disappear and government depends on oil revenue for social welfare spending. When the boom turns to bust, there are no replacement industries to fill the void, government money dries up, and the source of consumer spending and incomes contracts. It happened in the Netherlands during the 1960s and ’70s (hence the name Dutch Disease). At this point we can call a windfall a curse.
But not for Norway.
My sources and more: Thanks to this Washington Post article for reminding me to return to Norway. From there, though dated, Vox had more analysis while the IMF and the fund’s website had the sovereign wealth fund facts.
Please note that today’s Dutch Disease section was in a previous econlife post.
