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Same-Day Analysis

Norway, Russia Near Agreement on Barents Sea Claim

Published: 12 June 2007
Norway and Russia have agreed to sign an accord to settle part of a long-running dispute over their Barents Sea territorial divide, potentially paving the way for an increase in exploration and production activity in the region.

Global Insight Perspective

 

Significance

Norwegian prime minister Jens Stoltenberg and Russian prime minister Mikhail Fradkov have agreed in principle to sign a deal to define the demarcation line in the outer Varangerfjord area of the Barents Sea.

Implications

The agreement could lead to a final settlement on the delineation of the 155,000-square-kilometre Norwegian-Russian disputed zone, considered likely to hold substantial oil and gas deposits.

Outlook

The impending agreement already appears to be creating a stir among potential oil and gas explorers, with Norway's StatoilHydro declaring its ambitions to form partnerships with Russian companies to exploit the resources of the far north and Arctic regions.

The End is Nigh

Norwegian prime minister Jens Stoltenberg and Russian prime minister Mikhail Fradkov have reportedly reached a compromise to settle part of a long-running dispute between the countries over their Barents Sea border. At a meeting last Friday (8 June), the two prime ministers agreed to sign an accord that will define ownership of the waters off the coast of the Varanger peninsula in far north-eastern Norway. "We have agreed in principle to sign a deal on Varangerfjord within the next few days," Fradkov was reported as saying by Russia's Interfax news agency.

Although a promising sign, the deal falls short of providing a complete solution to the decades-old row over the 155,000-square-kilometre disputed zone in the Barents Sea, with the Varangerfjord area falling outside this zone. Norway and Russia have negotiated over the delineation of the disputed area since the 1970s, with Norway calling for the delineation to follow a middle-line principle, while Russia has argued for a sector-line settlement. Nevertheless, indications are that the compromise deal could be a trigger for a wider agreement over delineation of the Barents Sea, with Stoltenberg stating after last week's meeting: "I think that our further work will take us to a stage where we will be able to sign an agreement setting down a demarcation line in unresolved regions of the Barents Sea." Sources close to the negotiations have indicated that the two sides have managed to agree on demarcation of a substantial portion of the disputed zone, with only the division of the southern part of the zone remaining unresolved.

Outlook and Implications

The long-running dispute between the countries has been something of a hindrance to progressing exploration and development of the Barents Sea's oil and gas reserves. So far, Statoil's Snohvit gas field is the only development in the Norwegian sector of the sea and Gazprom's massive Shtokman project one of the few Russian developments. Considerable potential is thought to exist for the Barents Sea to be a major energy-producing region, with some estimates suggesting that the region could hold up to 40 billion barrels of oil equivalent (boe), up to 12 billion boe of which lies in the disputed territory.

The lure of significant discoveries appears to have prompted renewed efforts in recent years to reach a settlement over the disputed zone, with representatives from both sides of the debate calling for greater co-operation (see Norway: 5 January 2007: Norwegian Prime Minister Calls for Cooperation with Russia on Arctic and Barents Sea Energy Development). In this sense, the preliminary agreement between Stoltenberg and Fradkov is a positive sign, solidifying some of the progress made to date and providing positive momentum for a broader settlement of the demarcation dispute.

Indeed, interested energy companies might even be gearing up to expand their operations in the Barents Sea region as a result of this recent progress. Helge Lund, chief executive of Statoil, announced at the St Petersburg International Economic Forum last weekend that StatoilHydro, the company due to be created by the forthcoming merger of Norway's two biggest energy groups, would seek out collaboration with Russian partners in order to develop the resources of the country's far north and Arctic regions. "The aspirations of our two nations in the energy arena meet in far northern areas," Lund said, adding: "Russia and Norway jointly share unique opportunities to liberate the energy potential in this part of the world." The impending agreement between Norway and Russia over the Varangerfjord area indicates that parties on both sides would agree with his sentiments. Governments and energy companies alike will now be hoping that the momentum created through the compromise can be carried forward into a final settlement of the Barents Sea dispute, paving the way for both Norway and Russia to benefit from the potential energy wealth the region is thought to contain.

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