Norwegian oil town loses direct flights to Texas after slump in crude price

http://www.theguardian.com/world/2015/sep/16/norwegian-oil-town-stavanger-texas-flights-cancelled

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When direct flights from northern Europe’s oil capital to the heart of Texas launched a year ago, passengers toasted their booming industry with vintage champagnes.

Since then, however, the oil price has more than halved, gouging a hole in Norway’s economy and forcing the Scandinavian airline SAS to cancel its six flights a week from Stavanger to Houston.

“As a consequence of reduced activity in the oil industry, SAS has experienced a severe decrease in demand and thus passenger loads on the Stavanger-Houston route. Hence, SAS no longer has sound commercial grounds for continuing this niche route,” the airline said in a statement.

When the route started in August 2014, it was aimed at connecting two huge oil markets at a time when the price of crude was $98 a barrel. Now the price is barely $45. The German airline Lufthansa scrapped direct flights between Stavanger and Frankfurt this summer, and Air France ceased direct flights from Paris in May.

The collapse in the oil price has hit Norway’s economy, which is predicted to grow by little more than 1% this year despite record low interest rates. Around 50% of Norway’s export income comes from oil, which accounts for 20% of investment.

The effect on Stavanger, Norway’s fourth largest city, has been pronounced. One in three jobs, around 43,000, are directly or indirectly related to oil and gas in the area. Thousands of jobs have already been lost, and house prices are sliding – only 16 properties were sold in the city this summer, according to a housing market survey by Samfunnsøkonomisk Analyse.

Related: Oil price crash threatens the future of the North Sea oilfields

Stavanger is an exporter of oil technology and oil-related equipment. According to one estimate, there are 150 Norwegian firms in the Houston area, and 12,000 Norwegians live in or around the Texan city.

Norway’s investment in oil and gas will decline by more than 30% over the next two years, according to Øystein Dørum, chief economist at DNB Markets, a financial services group. DNB expects the oil price will pick up to around $65 in 2016, and $70 in 2017, stabilising at between $60 and $80 a barrel.

“This will provide a skewed hit to the Norwegian economy – we expect to see a much weaker development in labour and housing markets in western Norway, particularly in Stavanger. But we do not predict a decline in the economy overall,” Dørum said.

The SAS flight to Houston is the longest by a Boeing 737 aircraft, lasting more than 10 hours. To get the extra range, the airline had to take out 100 seats, leaving only 44, to fit additional fuel tanks. A return ticket costs around NKr25,000 (£1,970).

The final flight to Houston will take place on 23 October.