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Last Updated: Sunday, 23 October 2005, 15:03 GMT 16:03 UK
Arctic exploration creates new alliances
By Jorn Madslien
BBC News business reporter

The bleak and barren landscape of Europe's Arctic north belies the glittering glory of the oil and gas riches hidden in its underbelly.

Arctic landscape
Frozen assets: the ice hides a quarter of world petroleum reserves

Until recently, the natural wealth of this vast, inhospitable region was largely contained by the frozen tundra and by the icy and hazardous Barents Sea.

Also making access awkward was the lengthy post-war political drama that for decades forced a wedge between Norway and Russia - or, seen with Cold War eyes, between Nato and the Soviet Union.

But while the lengthy standoff made much commercial activity in the region impossible, it also led to the build-up of an insatiable appetite on both sides of the border.

The area surrounding and covered by the rapidly retreating Arctic ice is believed to contain a quarter of the world's petroleum resources.

So after the Cold War ended, great armies of engineers and scientists, ship crews and oil workers begun to arrive, kitted out with both heavy machinery and hardnosed government backing.

Their search could change the entire power balance in a global economy where access to petroleum - that is oil and gas - is key.

New allegiances

It was inevitable, perhaps, that the tables would eventually turn.

map

Last week's appointment of Norwegian foreign minister Jonas Gahr Stoere is a clear hint at how.

A year ago, whilst still in opposition, Mr Gahr Stoere predicted a future where Norway's traditional allies, based on a military logic, might not be its obvious allies in terms of energy supplies.

The remaining make-up of newly elected Prime Minister Jens Stoltenberg's government further hints at the strategic importance he places on the future of the Arctic region and the Barents Sea.

Trade and industry minister Odd Eriksen, petroleum and energy minister Odd Roger Enoksen and fisheries and coastal affairs minister Helga Pedersen all come from Northern Norway, a region geographically remote and in many ways culturally distinct from the more populous South.

And their views on the matter were made immediately clear.

One of the first announcements made by Mr Stoltenberg's government was that it will push ahead with oil exploration in the Barents Sea, in spite of vocal opposition from environmentalists.

Russia's natural resources minister Jurij Trutnev, meanwhile, has been making optimistic noises in recent weeks about the likelihood of a resolution of a long-standing border dispute between the two nations over a 155,000 square kilometres "grey area" in the Barents Sea.

Both countries know for sure that the Barents Sea contains vast hydrocarbon riches; neither needs border disputes to slow down their moves into the area.

Giant gas field

Cross border commercial alliances remain embryonic at this stage, but they are quickly developing into mature relationships.

Statoil LNG ship
Giant ships will ship gas from the Barents Sea to the USA

The two Norwegian energy giants Statoil and Hydro and their Russian counterpart, state-controlled Gazprom, have signed a memorandum of understanding, and talks are ongoing about cooperation on future projects.

Along with energy giants Total, Chevron and Conoco, the Norwegian groups are particularly keen to be selected as partners in a Gazprom-led consortium that is preparing to construct a giant gas field in the Barents Sea, 560 kilometres north-east of Murmansk.

Development costs are estimated at between $10bn (5.6bn) and $25bn, though the lower figure is considered wildly optimistic by financiers with fresh memories of almost $3bn cost-overruns at the other major Barents Sea development, the $8.8bn Snohvit gas project just off the Norwegian coast near Hammerfest.

Tricky transport

The 1,400 square kilometre large Shtokman field is set to become the world's largest offshore gas field with 3.2 trillion cubic metres of gas contained in reservoirs two kilometres below the seabed, which is itself at 350 metres depths.

Gazprom building
Gazprom's economic power brings Russia political power

Gas from the field is set to be pumped through four pipelines that will run along the extremely uneven seabed to receiving facilities near Murmansk on the Kola peninsula, about 560 kilometres away, with further onshore pipelines running on from there to ports, as well as a 1,200 kilometre long pipeline running south across the Baltic Sea to Germany.

Both Russia and Norway, which between them have much of the rest of Europe's oil and gas markets cornered, hope to become major suppliers to North America too, initially of gas from Shtokman and Snohvit, but over time - as oil exploration gets underway in the Barents Sea - of crude oil as well.

A tanker leaving Murmansk could reach the North American coast in just over a week, compared with journeys sometimes three times as long from the Middle East.

Gazprom is preparing to put 15 tankers into service to transport LNG to the US market.

Given that Gazprom is 51% controlled by President Vladimir Putin's government, the significance of the company's growing role as a leading global energy group will not be lost on diplomatic circles, where money and power go hand in hand.


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