Analysts estimate that the Arctic region holds a quarter of the world's oil and gas reserves. The Snohvit field has made Statoil the technological vanguard in the Barents Sea.
As the first offshore project in the Barents Sea and the first Liquefied Natural Gas (LNG) scheme in Europe, the development of Snohvit has opened up a completely new area of the Norwegian continental shelf.
One of Statoil's most experienced managers, Henrik Carlsen, is senior vice president for Statoil's Barents Sea operations.
"Viewed overall, the development of Snohvit involves the application of new technology which will be crucial for Statoil's future, both in the far north and internationally," he says.
So far, a total of 61 wells have been drilled in the Barents Sea in the search for oil. These efforts have mostly uncovered gas reserves, and analysts believe the area shows signficiant promise. At present, Snohvit is the only field that has been prepared for commercial production.
Throughout the world, many LNG plants have been developed. But after a ten-year collaboration with the German engineering company Linde, Statoil has developed a cheaper and more energy-efficient solution for Snohvit than ever seen before. Huge compressors have been built in Italy and have been tested and delivered.
Door-opener to the Barents Sea
While Snohvit has been the door-opener to the Barents Sea, the search for further reserves has begun.
"Snohvit represents the first step in an environmentally acceptable and long-term development of an area, where further volumes of oil and gas are likely to be proven," says Carlsen. "We have now started to drill three new exploration wells in the Barents Sea and will know if they prove any additional reserves by spring next year."
Few oil and gas development projects have been subject to more environmental concerns than Snohvit. Statoil has addressed these issues by developing the world's most environmentally friendly solution. The company's permit application was accompanied by an environmental risk analysis and an emergency response plan for the operation. The wells are designed to result in no discharges to the sea - except for the hole section for surface casing - in other words, the topmost 400 metres.
In October, the Norwegian government invited oil companies to suggest new blocks to be explored, and will accept applications for these blocks before next summer.
Frustration and disappointments
"We have experienced frustration and disappointments with dry wells along the way at Snohvit," admits Carlsen. "However, we have gained valuable knowledge. The geology in the Barents Sea seems to be different from other parts of the Norwegian continental shelf. We must think in new ways and use new models to trace those hydrocarbons. We realise that we do not understand this geology well enough yet." Carlsen has initiated substantial research to learn more about this geology.
One of Carlsen's primary tasks is to develop Statoil's exploration programme for the Barents Sea. The results obtained from this effort will be used to determine whether or not the process plant at Melkoya should be expanded.
The LNG solution opens up new market opportunities for gas from Norway. Analysts agree that demand for gas will increase significantly in the North American market over the coming years, and Statoil has signed an agreement with the operators of the CovePoint terminal. At present, they are considering whether or not to expand the terminal's capacity by a factor of three. Statoil supports the initiative, but worry that capacity might exceed Snohvit's supply. As a result, gas from the Russian part of the Barents Sea is very interesting.
Cooperation with Russian companies
Norway and Russia have a common border up north Barents Sea. Statoil's objective is to establish cooperation with Russian companies.
For some time, Russia has been trying to position itself in the Barent's Sea in gas development. This effort involves seeking western technology and capital to develop its huge gas reservoirs, especially the giant field of Shtokman. Located 600 kilometres north of Murmansk.
Together with Gazprom and Rosneft, Statoil signed a Memorandum of Understanding (MoU) in September to assess opportunities for developing Shtokman on the basis of gas liquefaction. The agreement covers the development options for the first phase of the gas condensate field, including LNG plant construction, Russian participation in Snohvit and use of the CovePoint regasification facility for marketing Russian gas to North America.
"Having maintained a representation office in Moscow since 1991, this agreement opens a new chapter in our cooperation with the Russians," says Carlsen. The Russians have signed MoU's with other companies as well and hope generate some healthy competition to find the best solutions. "At Statoil, we will do our best to come up with the best concept and solutions," says Carlsen.
One of the challenges is to find out whether it is possible to transfer a well stream through a 500 km pipeline to land. Statoil will have to use all its expertise in this project.
The next step will then be to look into the possibility of Gazprom and Rosneft investing in Snohvit.
"Statoil currently has a 33 per cent share of Snohvit. We may consider to go down to 25 per cent if we in return gain a share in Shtokman," says Carlsen. However, the company's priority is to make Shtokman a profitable development. Carlsen notes that the region is home to the toughest environmental regulations in the industry, long transportation distance, rough weather conditions, a water depth of 350 m, drifting sea ice and the risk of icebergs.
"We must prove that we can develop and operate Snohvit without causing any harm to the environment. Only then can we make an effort to find out whether the environmental legislation really needs to be as strict as it is today," says Carlsen.