Securing the Barents Region: Norwegian-Russian Strategies
By Nicolai Due-Gundersen
Published on April 25, 2014
Introduction
The Barents Sea is a region bordering the Arctic, located between the Eurasian and North American continents. Its location became of geostrategic importance during the Second World War and the Cold War.
During the Cold War especially, the Barents region provided a direct route between Russia and North America in the shortest possible distance. Likewise, from Canada, it was possible to travel to the Russian town of Murmansk in the same distance of 2500 kilometres.
The possibility of Soviet missiles or submarines reaching North America,or North American attacks via the Barents route, led to mutual suspicions and surveillance between NATO members and the USSR. As a NATO member, Norway was part of the increasing tensions over security concerns in the Barents Sea, hosting a NATO buildup of military infrastructure in Northern Norway, intimately close to Barents Sea access shared with Russia.
However, in contemporary times, Russia and Norway have reversed their mutual animosity and turned to cooperation as the Barents Sea has begun to be regarded as an increasingly important site of hydrocarbon resources. For Norway, a small oil state that has enjoyed the privilege of exporting to a Western European market, the prospect (as of 2010) of maturing reserves in the North Sea and lack of further significant discoveries has begun to emerge.
For the first time, there is talk of Norway becoming an importing state. Russia, on the other hand, continues to be a significantly larger exporter of hydrocarbons, having 7.5 times greater gas reserves than Norway and being the largest global oil exporter as of 2009.
Nonetheless, with high domestic resource consumption and ongoing disputes with Ukraine over gas routes, the prospect of resource insecurity looms.
Hence, both countries have an increasing interest in exploiting Barents Sea resources. Russian-Norwegian cooperation seemed almost cemented with the 2010 Agreement between Russia and Norway on the delimitation of Barents waters between the two nations. This essay will explore Norwegian and Russian resource interests in the Barents Region and attempt to evaluate to what extent long-term cooperation between the two nations is likely.
Norway’s Energy Outlook
Having the largest proven gas and oil reserves in Western Europe and with a relatively small population, Norway has had the luxury of being an exporting state since the 1970’s. The bulk of Norway’s oil production is yielded from the North Sea, which is also shared with other European countries, including the United Kingdom, Denmark, Germany and the Netherlands.
Of particular note is how Norway has built up its hydrocarbon sector into one of the most technologically advanced, granting Norway much independence in the field of resource extraction. Since the creation of Statoil in 1971, Norway focused on balancing national interests with corporatism.
Hence, the newly-created Statoil was never to be entirely nationalized. Norway used state regulation over Statoil and partial private ownership to ensure competition between foreign oil firms on the Norwegian Continental Shelf.
Furthermore, Norway implemented new policies in 2005 that allowed foreign oil firms to be refunded up to 78 percent of exploration costs if discoveries are successful. This latter method of increasing the presence of foreign companies and their involvement in Norwegian resource projects is linked to Norway’s policy since the inception of Statoil to ensure technological competence and eventual independence in resource extraction. Independence of resource extraction was prioritized by ensuring national supervision of all projects on the Norwegian Continental Shelf.
The Norwegian state supervised every stage of each new project, gaining understanding and possession of advanced resource technology through both supervision of and technology transfers from foreign oil firms active on the Norwegian Continental Shelf.
The aforementioned tactic allowed Norway to gradually become not only independent of foreign technology but leaders in their own right of increasingly advanced oil and gas technology recovery methods. Norway has become especially known for its subsea technology, which specializes in hydrocarbon extraction from reservoirs located beneath the seabed. Such technology will likely give Norway in future resource extraction in the Barents region.
Russia’s Energy Outlook
Russia has maintained a steady domestic consumption rate of its resources for the past decade. Steady consumption has been assisted by Russian gas providing for up to 50% of domestic energy needs, freeing up oil for exportation. Gas has thus allowed Russia to hold the status of 2nd largest global oil exporter.
Both Russia and Norway share (and thus compete in) European gas and oil markets (especially Western European nations such as Germany and the Netherlands). It is worth noting, however, that competition within Western Europe between Norway and Russia only emerged after the collapse of the Soviet Union. During the Soviet era, therefore, Russian exports were mainly concentrated in Eastern Europe and the Soviet satellite states. Contemporary Russian exports have seen an increasing foray into Western European markets, but also Turkey and Asian countries, the gas demands of which have risen over recent years.
However, Russia’s recent increasing gas exports have had to contend with decreased gas production. Although some experts have estimated Russian gas to be abundantly available for the next100 years , gas production of Russian reserves decreased in 2009, hitting the lowest seen levels since 1992. Furthermore, issues of stable gas exportation have been compounded by gas pipeline disputes with Belarus and Ukraine in the 2000’s. Russia-Ukraine disputes over prices for pipeline transport occurred in 2006 and 2009. On both occasions, Western Europe was plagued by the threat of fuel shortages due to Russia halting gas shipments that were typically transported through Ukrainian pipelines to the rest of Europe.
In the case of the 2007 Russia-Belarus energy dispute, disagreement again centered on the price of Russian gas (and also oil). Russia’s increase of its hydrocarbon prices resulted in Belarus imposing a transit tax for all Russian oil transported through its territory. Eventual mutual disagreement over these respective prices and taxes led to Russia halting all exports that typically went through Belarusian pipelines.
Both the Ukrainian and Belarusian disputes led to many European clients questioning Russia’s ability to deliver steady energy supplies. The issue of Russia’s reputation as a stable energy supplier is particularly relevant to Russia’s economic survival, due to Russia’s status as a global hydrocarbon producer and exporter.
For the aforementioned reasons, Russia has begun to consider the increased production of liquefied natural gas (LNG). Within this context, Russian hydrocarbon giant Gazprom has announced prospective plans to abandon pipeline transport of Arctic gas from their Shtokman field, turning instead to the Barents Sea. LNG from the Barents Sea would provide a far more stable form of supply for Russia’s European clients due to both territorial clarification and form of transport.
With the delimitation treaty signed between Russia and Norway in 2010, the Barents Sea provides a site of resource extraction without the burden of rival territorial claims by other states (as opposed to the Arctic, especially with regards to the Lomonosov Ridge ). In addition, LNG can be transported via tanker shipments from the Barents region. While tanker shipments may increase flexibility of transport (and decrease costs of storage) compared to pipeline transport, typical consideration constraints have been limited tanker sizes and higher transportation costs. Other cost considerations that must be taken into account include the re-gasification process, which can carry significant economies of scale. However, as technology advances continue, storage capacity of tankers continues to increase and costs of re-gasification will continue to drop due to improved energy efficiency of the involved technology.
However, the environmental conditions and location of resources in the Barents Sea likely means turning to subsea extraction. Here, Russia is far behind Norway’s subsea advances. Although Gazprom has been engaged in subsea research since 2000, Russia’s resource extraction equipment has, until recently, been telescopically trained on surface/land extraction (i.e. extraction from oil and gas wells below landmass) rather than subsea extraction. Hence, Russia’s foray into subsea technology is much behind Norway’s leading firms.
Although Russia has engaged Norwegian subsea firms such as FMC Technologies in Gazprom projects, Russia has also examined (and continues to consider) non-Norwegian subsea firms. Such firms include British firm Cameron and also Swedish firm ABB. Russia’s consideration of non-Norwegian firms for future projects and for subsea knowledge acquisition is likely a diversification tactic designed to prevent Norwegian technology dependence. Nonetheless, dependence on foreign subsea technology will likely give Norway a medium-term edge in its relations with Russia’s energy sector, given both Norway’s superior technology and Russia’s own admission that domestic subsea technology production is a quantum leap, showing how far behind Russian extraction technology may be compared to Norway.
The structure of Gazprom is important to consider when analyzing the political aspects of Russia’s energy partnerships. Although a private business, Gazprom is under partial state ownership, with the Russian government owning 50 percent of Gazprom shares. Like Norway’s Statoil, Gazprom is not a purely nationalized operation. Equal state and private ownership balances the profit motive of business with larger political considerations. Hence, state regulation carefully monitors Gazprom activity to ensure that state energy goals are achieved.
These goals include state control of gas routes (especially pipelines), stable domestic supply of gas and the obligation of Gazprom to constantly invest in improved resource technology. State control can push diversification of Gazprom’s technological partnerships with subsea firms to reduce prospective technology dependence on one company. In addition, the Russian state exercises control and oversight of Gazprom exports and monopolizes all pipeline exports through its nationalized pipeline network, Transneft.
State control of pipeline transport and exports will be important within the context of Barents Sea discoveries, ensuring that Russian energy security and stable supply is prioritized over medium-term commercial profit.
Working Together: Beyond the Barents Sea
The 2010 Delimitation Agreement between Norway and Russia will no doubt make cooperation in the Barents region easier for both parties. In addition, Norway and Russia have begun to share a closer partnership in the Arctic, holding joint military drills in 2010 and 2011 in the Barents and Norwegian seas (both of which are proximate to the Arctic).
The proximity of these drills to the Arctic cannot be ignored. Although both Russia and Norway claim that such drills are designed to ascertain each side’s degree of operability in the environmentally sensitive areas of the Arctic Sea, the exercises have included the firing of live rounds and anti-submarine warfare simulations.
The militaristic nature of such exercises must be put within the context of aggressive claims upon the Arctic by various states, including Canada’s and Russia’s conflicting claims of the Lomonosov Ridge. At times, Canada’s claim to the Lomonosov Ridge has been aggressively asserted (at least through rhetoric).
In response to Russia claim of the Lomonosov Ridge by planting a Russian flag on the Arctic seabed in 2007, Canada announced plans to construct several navy patrol boats capable of penetrating ice obstructing Arctic routes (known as Icebreakers), in addition to the construction of two military bases to enforce Canada’s ‘Arctic Sovereignty’.
Amid ongoing Arctic territorial disputes (of which Norway is a member), the performance of joint military drills illustrates Norway’s military inferiority when compared to Russia. This inherent weakness in power politics illustrates how the Norwegian-Russian Barents/Arctic relationship is based on mutual need for energy security, but with different perspectives. For Russia, there is a need to increase its understanding and eventual ownership of subsea technology. For Norway, on the other hand, there is a need to possess military support in order to increase the chances of bolstering Arctic territorial claims outside of the Barents region.
Norway’s relations with Russia may extend beyond military support, however. Given Russia’s very recent research into subsea technology, it is safe to say that Norway will continue to have an edge in this technology, having started its own research and ‘exchange program’ with foreign oil firms in 1971. Although Russia has also tried to diversify its own ‘exchange program’ through UK and Swedish companies, it is likely that such firms do not have the same experience of subsea drilling under Arctic conditions. Hence, Norway can use its greater influence in this technological area to forge a closer bond with Russia.
In exchange, Russia may be willing to allow Norway to bandwagon on Russia’s political influence in the West to increase Norway’s global importance. This increase of Norwegian presence would allow Norway to diversify markets from hydrocarbons to attracting foreign businesses, including funding for renewable energy projects and companies.
However, at the same time, Norway and Russia may still compete in Western European energy markets. Such competition may be further affected by recent EU competition regulation. Such regulation has put pressure on Norway’s structure of gas retail, with the state monopoly of gas distribution, the Gas Committee, forced to revise its contract selection process with private firms, decreasing the Committee’s autonomy of prioritizing national resource management in exchange for maximizing competition. Russia, on the other hand, possesses stronger bargaining power within EU markets.
This bargaining strength is due to Russia’s importance as a main gas supplier. Through Gazprom, Russia has gained strategic distribution control throughout Europe, with Russia’s importance as a European gas supplier illustrated by European gas shortages during the latest Ukraine-Russian gas disputes in 2009. Due to Russia’s supply significance and Norway’s somewhat lesser status as a gas player, Russian-Norwegian competition within European markets will likely not be mutually fierce.
However, as both sides discover hydrocarbon supplies in their respective Barents territories, increased energy assets may shift the balance of energy supply and increase competition rather than cooperation.
Conclusion
From a region of geopolitical suspicion, the Barents Sea has become a source of cooperation for the sake of addressing the prospect of exhausting current reserves (Norway) and secure gas routes (Russia). Due to Norway’s energy strategy since the creation of its hydrocarbon firm Statoil, Norway has ensured its dominance in subsea technology. However, Norway’s small size and subsequent lack of political influence has formed a degree of socio-economic isolationism.
Combined with oil wealth, Norway has had the luxury of ignoring world politics. However, with dwindling reserves, some Norwegian critics are calling for increased participation in European affairs for the sake of attracting foreign investment.
To accomplish its shift from isolationist state to European player, Norway must ensure cordial relations with the much larger Russia, trading its own advanced extraction technology for greater access into European politics.
Russia, on the other hand, maintains its status as the 2nd largest global oil exporter. Plans to increase gas exportation, however, require stable supply routes. For this reason, Russia’s interest in the Barents region means a need to catch up with the status quo of subsea extraction. As the Arctic Ocean has ongoing claims by various states, including Canada, Denmark and the USA, turning to a region with now clear delimitations is the easiest option.
While Russia may be dependent (to a point) on Norwegian subsea technology, Norway’s participation with Russia in joint military drills in 2011 in the Arctic is further evidence of Russia’s superior military strength in contrast to Norway’s own.
Norway needs to send the message that it has Russian military protection, should Arctic claims by non-Russian actors aggressively eye Norwegian resources. At the same time, Norway’s military dependence on Russia in this context reveals how, in the long-term, once resource drainage sets the backdrop for resource war, Russia’s might may lead it to attempt to expropriate all resources in the Barents Region, knowing that Norway will be unable to resist without the help of the US or European allies. If the US is by then preoccupied with domestic hydrocarbon production and consumption and Russia can guarantee stable gas routes from the Barents region to Europe, Norway may be left to stand alone.
The Author
Nicolai Due-Gundersen is a Jordan-based researcher with the Amman-Sydney Oval Office for Research and Studies, specialising in higher education in the MENA region with their Jordan branch. His research also focuses on the rise of Islamaphobia post 9/11 and the potential compatibility of Muslim values with traditionally Western secular (legal) frameworks.
His work on the MENA region has been published by geopolitcalmonitor.com, the Oil, Gas and Energy Law Journal (OGEL), the Small Wars Journal, Open Democracy and the Journal of Energy Security
He is a former Adviser, to the Arab Institute for Security Studies (ACSIS) in Amman and a former researcher of the Jordanian Interfaith Coexistence Research Center.
Article picture: simonstones via Pixabay