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RUSSIA - Arctic Deal With Norway.

After more than 40 years of negotiations, the governments of Russia and Norway on April 27, 2010 concluded an agreement on their maritime borders in the Arctic and Barents Seas. The All-Russian Petroleum Exploration Institute estimates that the 175,000km[sup.2] of formerly disputed area in the Arctic and Barents Seas - now split into two equal sections - holds 36.7-51.3bn barrels of oil equivalent of crude and gas.

However, their exploration and development will be a challenge. An exploration well in the southern section could cost $55-60m, and only fields with reserves over 350m barrels could be developed. The two states have identified areas where they can co-operate, and set out rules of development of reserves straddling their border.

Scientists of the US Geological Survey (USGS) say the Arctic holds as much as 90bn barrels of undiscovered oil and has as much undiscovered gas as all the reserves known to exist in Russia. In the first US governmental assessment of the region's resources published on July 24, 2008, the USGS added impetus to the race among polar nations, such as Russia, the US, Denmark, Norway and Canada, for control of the region.

The USGS believes the Arctic holds 13% of the world's undiscovered oil, while its 1,669,000 BCF of natural gas were equivalent to 30% of the world's undiscovered conventional gas reserves. The USGS says: "The extensive Arctic continental shelves may constitute the geographically largest unexplored prospective area for petroleum remaining on earth".

In August 2008 Russia planted its flag on the sea-bed four km under the North Pole, raising fears of a rush to grab the Arctic's mineral resources, particularly its oil and gas deposits. Denmark in May 2008 called a summit of the five Arctic powers in Ilulissat, Greenland, to try to restrain competition and reiterate the countries' joint commitment to the UN Law of the Sea Convention which governs territorial waters.

The April 27, 2010 deal was followed by then president Medvedev's two-day state visit to Norway, where he said Gazprom and Stateoil could jointly develop the 607m barrel field of Prirazlomnoye. But lying on the Russian side of that territory, the field has a complex geological profile and its peak oil output will be relatively low. Gazprom had said the field would be on stream in 2011 - originally set for 2008 - and would hit a 130,000 b/d peak in 2017. Statoil has been cautious on this project, however, partly due to Gazprom's lack of experience in offshore operations.

Shell has been urging to help Russia develop gas from the Yamal region. In the US, companies are pushing ever further into the Arctic regions of Alaska, while Denmark has attracted a number of large companies interested in exploring for oil and gas off the coast of Greenland.

Wood Mackenzie in 2006 estimated the Arctic basins, including those already being developed, held 233bn barrels of discovered oil and gas with another 166bn yet to be found, the majority of it gas. Alan Murray, who headed its exploration unit and co-authored the 2008 report, noted that the USGS was often more optimistic about potential resources than other research organisations. Murray said: "These are huge potential volumes, but they are not going to impact supplies or price any time soon. There are still a lot of undeveloped resources that are easier and closer".

The USGS report used a probabilistic methodology and included only undiscovered resources which could be exploited using today's technology. USGS Director Mark Myers on July 24, 2008 said: "Before we can make decisions about our future use of oil and gas and related decisions about protecting endangered species, native communities and the health of our planet, we need to know what's out there. With this assessment, we're providing the same information to everyone in the world so that the global community can make those difficult decisions".
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Publication:APS Review Gas Market Trends
Geographic Code:4EXRU
Date:Aug 13, 2012
Words:645
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