Phillips Petroleum’s discovery of North Sea oil in 1970 set off a boom that energized the world economy and recast geopolitics. But offshore production in 2005 remains a trying business as producers go after oil and gas resources that they used to think were out of their reach. After three decades of leapfrogging northward, searching for the next big Norwegian field, the international energy companies seem once again to have reached the edge of the world – or rather, the threshold of a new one.
Cold and dark for much the year, yet beautiful in its desolation, the Barents was known to ancient coastal dwellers as “the Holy Sea” – a huge expanse of water and ice separated from the North Pole by glaciated volcanic islands. For early European explorers the sea was a death trap, yet rich beyond imagining in fish, seals and whales. Ever since the Dutch navigator Willem Barents died in its icy embrace, in 1597, the sea has loomed at the periphery of human consciousness, providing us with images to go with the word “cold”.
Looking north across the Barents Sea from Norway’s northern tip.© Statoil
But experts say that the Barents Sea, which Norway and Russia share, will soon be front-page news around the world as governments and oil companies spar over how best to develop its petroleum resources, including the fabled Russian gas field known as Shtokmanovskoye. “A whole new petroleum adventure is about to unfold,” said Johan Petter Barlindhaug, chairman of the Norwegian engineering consultancy Barlindhaug AS. “And by all appearances it’s going to assume vast dimensions.”
Twenty-five percent of the world’s remaining hydrocarbon reserves are situated above the Arctic Circle, according to the US Geological Survey. The Russian tundra hides much of the oil, but a majority of the Arctic gas would appear to lie beneath the Barents.
Until recently, that gas was considered stranded – too far from shore to be extracted economically, and too far from any export market to justify an extension of the pipelines that for decades have carried Norwegian and Russian gas to European wholesale buyers. But Norwegian advances in multiphase flow technology and the rise of shipborne LNG transport (see article, page 26) have changed the economic calculus of offshore gas production. They are fresh examples of the world becoming smaller. Barents gas resources discovered in the 1980s and abandoned as too remote for European markets are suddenly coveted by consumers as far away as North America.
Just the Beginning
“We have been waiting for this, working for this, dreaming about this for 18 years,” Alf E. Jacobsen, the mayor of Norway‘s northernmost city, Hammerfest, has said. “Now it’s finally going to happen.”
He was talking about Snøhvit (“Snow White”), one of the 10 largest gas fields on the Norwegian continental shelf and the first true offshore development anywhere in the Barents. In the summer of 2004, the first 6 of 21 planned subsea production units were installed at 71 degrees north latitude, 143 kilometres north of Norway‘s rocky Barents coast. When Statoil begins production in 2006, the wells will surge with 5.7 billion cubic metres of natural gas and condensate each year while emitting almost no harmful materials into the fragile Arctic ecosystem.
Snøhvit’s wellstream will flow by pipe along the seabed to a gas processing and liquefaction plant on the previously uninhabited island of Melkøya. From there, in warmth and comfort, a surprisingly small number of Statoil technicians will control all operations. LNG carriers will call at the island regularly to pick up liquefied Snøhvit gas for transport to the east coast of the United States, as well as to Spain and France.
A map of the Barents region. Statoils Snøhvit field, highlighted here, will come online in 2006, making it the first offshore installation in the Norwegian Barents Sea.© Statoil
All told, it is the largest industrial project in the history of northern
Norway. Development costs will likely approach $8 billion, or somewhere between NOK 49.3 billion and NOK 51.3 billion. But like Philips’ first platform in the North Sea, Snøhvit is just the beginning.
The ultramodern drilling rig Eirik Raude, owned by Stavanger-based Ocean Rig ASA, is scheduled to spend the winter of 2004-05 spudding exploratory wells within tie-back range of Snøhvit. The Norwegian Ministry of Petroleum and Energy, meanwhile, is preparing for a new round of licensing awards that observers expect will significantly expand the range of exploration and production in the Barents Sea, despite the concern of several environmental groups.
To Russia, With Love
While Snøhvit lies at the western edge of the Barents, geologists’ expectations rise with every kilometre of eastward exploration. “Expectations take off as you round the North Cape,” said Barlindhaug, referring to Norway’s northernmost tip. “As you go east, they keep getting higher.”
The Russians have more than twice the gas reserves of Iran, which is the world’s second-largest gas country. No Russian region is better endowed than the eastern Barents Sea, whose crown jewel is Gazprom’s Shtokmanovskoye field. In western Europe it is known simply as “Shtokman”.
Shtokman is thought to contain up to 3 trillion cubic metres of sweet gas and 33 million tonnes of condensate, making it more than double the size of Norway’s own largest gas deposit, called Troll. Unfortunately, the field will be harder to develop than Troll was. Obstacles include the cold, wintertime darkness, wave heights of up to 25 metres and occasional drift ice. But the biggest drawback – quite aside from the tens of billions of dollars in investment capital that will be required – is Shtokman’s location. It is 600 kilometres northeast of Murmansk. That puts it well out of normal helicopter range.
Russian engineers have been mulling development scenarios since 1989, with advice along the way from Norsk Hydro, among others. Russian investment and taxation policies have made some prospective international partners uneasy, but in late 2004 the Barents Observer newspaper could report that “international oil companies are jockeying for position” and that a preliminary development plan for Shtokman was to be announced shortly.
Possible production configurations range from subsea wellheads with multiphase pipelines and a land-based processing and liquefaction plant (similar in concept to Snøhvit, though requiring a leap in multiphase booster technology) to a massive, gravity-base platform made of concrete. Such a platform would resemble the type that Norwegian contractors perfected decades ago in the North Sea, and which they modified in recent years to withstand icebergs in Petro-Canada’s Hibernia field off Newfoundland.
Natural Growth Area
Interestingly, Russian producers elsewhere have revived the big-is-beautiful school of platform design. When the Sakhalin Energy Investment Co. decided last year to order two gravity-base production platforms for the icy Sea of Okhotsk, off Russia’s northeast coast, it turned to Norway’s Aker Kværner, which promptly reassembled such North Sea design veterans as Aas-Jacobsen, Multiconsult and Dr. techn. Olav Olsen.
These days, Aker Kværner is better known for its compact subsea solutions. So too are FMC Kongsberg Subsea, Vetco Aibel and the niche players Hitec Framnæs, Framo Engineering and READ, to name a few Norwegian companies that offer Arctic-relevant technologies.
Whether the Shtokman design turns out to be tried and true or one of a kind, the unmatched experience and technological daring of Norwegian firms in Arctic conditions bode well for a multifaceted collaboration. For example, according to Norway’s CHC Helikopter Service, which carries platform workers up and down the Norwegian continental shelf, a logical way to solve the problem of transporting workers to Shtokman would be to fly them by airplane to a base on the archipelago of Novaya Zemlya and from there by helicopter to the field.
Norsk Hydro CEO Eivind Reitan has said his engineers could cut 30% from preliminary cost estimates for a Shtokman development. Statoil CEO Helge Lund, for his part, has signed a memo of understanding with the field’s licensees, Gazprom and Rosneft, to study an LNG production scenario for Shtokman as well as possibilities for Russian participation in the Snøhvit development and Russian access to Statoils LNG import facilities in the United States.
“Statoil sees the Barents region as a natural growth area,” said Lund. “We look forward to a fruitful long-term cooperation with Gazprom and Rosneft, initially focusing on sharing with them our experience from the development of the Snøhvit LNG project and our ability to market this gas in North America.”
Gazprom Chairman Alexey Miller commented: “We have giant gas reserves offshore in the Barents Sea and Statoil has LNG production and transportation experience and market access to the North American market, which is strategically important for us. By joining forces for studying these promising projects, we will be able to achieve good results.”
It’s been estimated that 70 service and supply firms will be needed to develop Shtokman. But oil and gas operators on the Norwegian side of the Barents will also need help as new fields are discovered. Thanks to an initiative by Norsk Hydro, four Russian supply companies have been pre-qualified through the Achilles Joint Qualification System to serve field operators in Norwegian as well as British and Danish waters. True collaboration goes both ways, as Norwegian operators have demonstrated wherever in the world they have sunk wells.
The challenge of the Barents is an epic one. But so, by the standards of the day, was the challenge of the North Sea in the 1970s. If today’s petrol consumers seem blasé about that earlier feat of derring-do, it’s only because the oil and gas industry keeps stretching the bounds of the possible.