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October 2010

Vol. 15, No. 40 Week of October 03, 2010

Our Arctic Neighbors: Accord paves way for Barents development

Resolution of maritime border dispute between Norway and Russia bodes well for increased Western involvement in Russian projects

Kay Cashman

Petroleum News

It is not unusual for petroleum deposits in remote areas of the world to be brought into production a decade or more after their discovery, especially when exploration and delineation of those hydrocarbons are delayed for political reasons, such as the boundary dispute between Norway and Russia for the energy-rich Barents Sea.

After 40 years of talks the two countries signed a maritime border treaty on Sept. 15 that, among other things, gives each a new hydrocarbon base and outlines how exploration, development and production will proceed in their new, 196-kilometer (122-mile) shared boundary. The agreement also opens the way for increased cooperation on the development of oil and gas deposits farther east on Russia’s Yamal Peninsula.

“We’d like our Norwegian friends to use their best technology and their best projects for the modernization of our oil and gas industry,” Russia’s President Dmitry Medvedev told reporters at a Sept. 15 press conference with Norway’s Prime Minister Jens Stoltenberg. “We’re already in talks about how to work on Yamal, so I hope that there are good prospects for this cooperation.”

State-owned Statoil to be Russia’s partner on border

The accord gives Statoil, Norway’s state-owned oil company, exclusive rights as Russia’s Norwegian partner in all the trans-border projects. Other foreign companies will have to negotiate with the partners to get a stake in a project.

But development is not going to happen overnight.

A 2008 Arctic strategy paper signed by Medvedev said the polar region must become Russia’s top strategic resource base by 2020.

Russia’s Minister of Natural Resources Yuri Trutnev said Sept. 21 that the 2020 goal is not feasible, although two Barents Sea fields are already under development — the Shtokman natural gas field, being developed by Gazprom in conjunction with Statoil and France’s Total, and the Prirazlomnoye oil field being developed by Gazprom subsidiary Sevmorneftegaz — plus Statoil brought its Snoehvit gas field on line in 2007.

Trutnev said the 2020 polar objective is “unrealistic.”

The accord, signed on Sept. 15 for the 175,000-square kilometer (67,568-square mile) area of the Barents Sea and adjacent Arctic Ocean, gives both countries big prospects, Trutnev said, but “the most optimistic timeframe for the development is 12-15 years away,” he told reporters immediately after the signing in Murmansk, per a Platts Sept. 16 report.

“Once (the agreement) is made law, there would be exploration and geological studies for around 7-10 years before the development of reserves can begin,” he said, as reported by Russia’s news agency RIA Novosti.

The minister also said there were as many as 10 structures identified in Russia’s part of the Barents Sea, one or two of which could be giant deposits and five to seven major deposits.

When asked about a statement by a Norwegian official that his country had secured the most “delicious” blocks, Platts reported that Trutnev said: “It’s not necessary nor correct to discuss where the most interesting fields are at the moment,” noting that there had only been initial studies based on gravity satellite imagery done in most of the Barents Sea.

“Now we will begin work in this area and then we’ll get the answer as to who has more fields, who is to produce more oil, and so on. I think the prospects are very good for both sides,” Trutnev said.

According to the Sept. 16 Platts report, Norwegian media had widely quoted the country’s Prime Minister Stoltenberg as saying his government was in no hurry to start exploration.

“I understand why you ask that (when mapping and exploration would begin), but I don’t want to answer that now. Not until the agreement has been finally approved (by Norway’s and Russia’s parliaments),” Stoltenberg was quoted by the Norwegian national wire service NTB.

But analysts have said the country was “in a big hurry” to extract gas and oil from below the Barents “because public opinion had swung against exploration of other major potential rival reserves, near the Lofoten Islands offshore Norway, following the Deepwater Horizon oil spill in the Gulf of Mexico,” Platts reported.

Bjorn Brunstad of Nordic economic consultancy Econ Poyry was quoted in Platts as saying, “I think this signing today is significant in the context of Norway’s declining crude reserves and the controversy surrounding the other main resource area there, the Lofoten and Vesteralen region off the Norwegian coast.”

Strong motivations for both countries

For Russia, the Barents Sea represents an opportunity to gain access to the Western expertise Russia needs to develop its Arctic offshore deposits. For Norway, the Barents is a way to find oil to offset its declining North Sea production.

The minister admitted Russia needed foreign partners for the development of large projects such as its giant Shtokman gas field and the 600-million-barrel Prirazlomnoye oil field, both in the Russian sector of the Barents Sea.

“Unfortunately, our offshore projects development is taking too long. ... That is why we should not (develop) them on our own, they should be developed using the experience available (on the global market),” Trutnev was quoted as saying by RIA Novosti.

Trutnev said that the Barents Sea could hold as much as “25 percent of hydrocarbon resources on Planet Earth” — specifically tens of billions of barrels of oil equivalent.

Revitalize Russia’s shipbuilding industry

He also said that Barents development would yield additional benefits for Russia, such as revitalizing its shipbuilding industry, a once vital part of the country’s economy.

As Arctic ice melts, it is expected that more and more international shippers, such as vessels carrying goods between Europe and China, will use the Arctic corridor. By sailing over the top of the world, the shippers save time (and thus money), since it is much shorter than traditional shipping routes, such as sailing around the southern tip of Africa or through the Suez channel.






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