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In Barents Sea, the future is either pipeline or LNG

Conflicting positions between the oil industry, the state and regional interests dominate ahead of the decision, which will shape the energy future of the Norwegian Barents Sea.

The Barents Sea is making it to the top of the Norwegian petroleum agenda. Several field projects are in the making, new promising waters are opened for exploration and preliminary data from the formerly closed waters on the border to Russia indicate resources of major proportions.

However, Norway has not yet decided how to develop the resources. While the country’s Minister of Petroleum and Energy, as well as the Minister of Foreign Affairs, have indicated support for the proposed extension of the existing Norwegian pipeline grid to the Barents Sea, representatives of Statoil, the state-controlled energy company, might want it otherwise. Talking to NTB, Statoil representative Øystein Michelsen underlines his company’s intention to expand capacity at its Melkøya LNG plant. He is supported by local authorities in Hammerfest, the town housing the LNG plant, who argue that “a LNG plant will give bigger local effects than a pipe”, NRK reports.

Meanwhile, the government position is supported by several other powerful interests. A report published in 2011 by Gassco, the company managing the Norwegian pipeline grid, concluded that “the promising discoveries made in the Barents Sea and the planned level of activity in the area make a pipeline connected to the existing pipeline system in the North Sea feasible and profitable.”

Similarly, a new policy document written by North Energy with support from the Norwegian Barents Secretariat concludes that Norway will have to develop a connecting pipeline towards the eastern part of the Barents Sea if the country’s role as key gas supplier to Europe is to be upheld. This stance has been promoted on several occasions also by the Barents Secretariat. In its official input to the new Norwegian High North policy document, the Secretariat in spring 2011 recommended a combination of pipeline and LNG export from the region.

However, if Norway is to expand its pipelines to the Arctic, the country will need confirmations about long-term demands from the European buyers. According newspaper Dagens Næringsliv, the UK has signaled positive interest, while the EU and the continent has not yet sent sufficiently clear signals.

The fronts between the two sides in Norway are not increasingly hardening. According to Alf R. Jacobsen, editor of the Petromagasinet journal, there is “a rough game on the highest level going on with intens activities and intense pressure on all levels,” NRK reports.

According to NTB, a decision on the preferred development model will be taken in June this year.

At the same time, the developments on the Russian side of the border are of key importance for the Norwegian decision makers. Norway and Russia are contantly expanding cooperation and in 2011 successfully completed the decades-long dispute over the 175,000 square km big undelinated zone in the Barents Sea. However, nonetheless, the two countries remain big competors in the international gas market and this competitive relation is enevitably unfolding also in the Arctic.

For the Russian side, LNG is now increasingly becoming the preferred alternative. Gazprom and its partners in the Shtokman project, Total and Statoil, in late March sent a clear signal about its intention to cut the planned pipeline to the Baltic Sea and instead develop only LNG in the Arctic project. Similarly, the gas company is joining Novatek in the Yamal LNG project and considers participation in the Pechora LNG project.

Also for Statoil, which operates the Snøhvit LNG project and is stakeholder in the Shtokman project, the flexibility of the LNG is increasingly attractive in the Arctic. However, with its high focus on LNG, the state-owned company might increasingly challenge Norwegian government postions on the issue.

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