Norwegian Grand Strategy and the Arctic
The Viking state has seen the prize, and is quietly positioning itself for victory
The Arctic is once again at the centre of Norwegian foreign policy. Indeed, Norway seems to be a step or two ahead of its Arctic peers – Russia, Canada, Denmark and the US – in implementing a very practical, results-oriented Arctic strategy.
To be sure, polar exploration and industry have played a signal role in forging the modern-day Norwegian state and its strategic self-perception. Fridtjof Nansen, Ronald Amundsen and their fearless crews fostered national pride through their exploration of polar regions in what was widely seen as a contest with other nations led by the likes of Robert F. Scott, Robert E. Peary and many others. Antarctic whaling grew into an important national industry, and Svalbard (Norway’s Arctic archipelago) was home to trappers and coal miners.
Today, with rising energy prices and diminishing prospects for extraordinary oil and gas profits in mature areas of the Norwegian continental shelf, the ongoing international claims process under the UN Convention on the Law of the Sea (UNCLOS) and the ever-growing pace of climate change, the Arctic has again climbed to the top of Norway’s strategic agenda. It is, as it were, Norway’s key strategic theatre for the 21st century.
The Norwegian Arctic is in the midst of securing its future as an offshore oil and gas province, with record interest having been registered for the Barents Sea among companies participating in the 2010-2011 licensing round. Norway’s claims under the UNCLOS process in 2009 have gained international legal support, and Norway and Russia recently brought closure to their 40-year old Arctic border dispute (see below). Moreover, 2011 may still be the year when Russia’s Gazprom, Norway’s Statoil (the country’s semi-national oil company, or semi-NOC) and France’s Total finally commit to joint development of the daunting, but seminal Shtokman project. Note: Even if this does not happen, Norway’s oil and gas industry will still develop its ties to Russia, as Arctic exploration and production move inexorably eastward, and as the new Barents Sea border and cross-border operations gain significance relative to Norway’s more traditional bilateral relationship with the UK in the North Sea.
Norway’s present-day Arctic strategy is focussed on cooperation, rather than on contest. Cooperation with other Arctic nations – and with Russia, in particular – is essential for ensuring sustainable resource management, and for supporting UNCLOS as a framework for Arctic governance; and not least for avoiding too much open dispute over Svalbard – where all signatory states to the Svalbard Treaty of 1920 are given non-discriminatory access (at least onshore), and where the equal access provisions apply to the archipelago’s potential economic zone.
Norway’s coalition government – comprising the Labour Party, the Centre Party and the Socialist Left Party, and headed by Prime Minister Jens Stoltenberg (Labour Party) – launched its High North Initiative in 2006. The Initiative put the Arctic and the High North (a concept in fact coined by the Norwegian government to cover Norwegian Arctic territory, and especially the Barents Sea and neighbouring foreign areas) at the very centre of Norwegian foreign policy. (Other Norwegian strategic priorities have been support for NATO and the UN – including in the wars in Afghanistan and now in Libya – as well as action on global climate change and on third world development.) The Initiative created strong linkages to domestic policy; that is, to regional development efforts for Norway’s northernmost provinces.
This Initiative has three principal pillars: resource extraction (oil and gas, fisheries, and new types of marine and biological resources); knowledge accretion; and, to be sure, Norway’s relationship with Russia. The Initiative has received domestic criticism for not being genuine or credible – at least in terms of budget allocations – and for not producing concrete results. Nonetheless, from an outsider’s perspective, Norway’s achievements in the Arctic are marked, and include extension of the Arctic shelf, the recent border deal with Russia and, more globally, a burgeoning oil and gas industry.
Snohvit – outside of Hammerfest, Norway’s northernmost city with a shopping mall – was discovered in 1981 during the last surge of Arctic exploration. With development approved by Parliament in 2002, Snohvit became, in 2007, the first productive offshore gas field above the Arctic Circle, and broke the world record for northernmost liquefied natural gas (LNG) following government tax concessions and major cost overruns.
Goliat was discovered nearby in 2000, and promises to become the first productive Arctic offshore oil field when it comes onstream in 2013. Having said this, Russia’s Prirazlomnaya platform is supposed to be towed to site in the summer of 2011, making this Pechora Sea project the very first Arctic offshore oil field. However, considering that project’s track record of repeated delays over the last decade, there is no guarantee that this will happen, or that production will follow suit.
For many years, Snohvit and Goliat seemed to be all that there was to find in the Norwegian Barents Sea. Poor exploration results raised doubts about whether the region could become the industrial locomotive that Norwegian strategists had envisioned. But just when hopes were at an all-time low, Statoil announced a substantial oil discovery on the Skrugard prospect (150 to 250 million barrels of extractable oil equivalents), north of Snohvit – calling it the most significant petroleum ‘event’ of the last decade on the Norwegian continental shelf. Indeed, for an oil nation that has seen discovery sizes diminish as the shelf has matured, a new, semi-large discovery has engendered new national excitement and optimism about the Arctic, and Statoil claims to be positioning itself for ‘swift’ development.
April 27th, 2010 marked the end of a 40-year dispute between Norway and the Soviet Union – and later Russia – over the border in the Barents Sea. Some 175,000 square kilometres that were previously off limits for petroleum exploration and production were split into two equal parts, opening up a new province for the Norwegian oil industry – all the while laying the groundwork for future cooperation with Russia on development of cross-border fields. The deal is seen as significant not only because of the area’s sizeable oil and gas potential, but also because it increases general investor (and indeed political) interest for exploration and development in the Norwegian Eastern Barents Sea. (Of course, alongside oil and gas, Norway will continue to cooperate with Russia on the management of the fish stocks of the Barents Sea – arguably the best managed and richest fishing ground in the world.)
For its part, Russia is lagging on Barents Sea development, which may before long prove to be a constraint for Norwegian projects. Despite ambitious strategies, the Russian government has granted state-controlled Gazprom and Rosneft a monopoly over Arctic exploration and production – depriving other stakeholders (including the state-owned majors themselves) of incentives to invest. Of course, should Russian Arctic development pick up speed, there is no guarantee that the focus of this pickup will be in areas close to the Norwegian border.
Thus far, the Shtokman project – among the world’s ten largest gas fields, located 550 kilometres north of Murmansk – has been at the centre of Russian-Norwegian cooperation in upstream oil and gas. But Shtokman is but a one-off for the Russian Barents Sea, and more and more people are losing faith that it will be developed at all. In the future, Norway will require adequate industrial development not only indigenously, but also on the Russian side – both to develop potential cross-border fields and to reach an activity level in the region that is sufficient to unleash economies of scale. The challenge is that Russia does not seem willing to reform its offshore licensing policy in ways that would make exploration and production commercial. Indeed, in Russia, inadequate, ad hoc solutions are still preferred to a fundamental policy review that introduces a clear and predictable role for private and foreign companies.
Without a doubt, Norway’s High North Initiative is also about territorial conquest; that is, securing Norway’s sovereignty over Svalbard and surrounding natural resources, as well as shelf extension under UNCLOS. Norway gained – as mentioned, as the first among the Arctic States – UNCLOS support for shelf extension in 2009. This extended the Norwegian shelf by some 10 percent – roughly the area of Great Britain. However, the extent of the Kingdom’s exclusivity rights to the seabed under the exclusive economic zone (EEZ) around the Svalbard Archipelago is still contested. Norway has claimed that the Svalbard Treaty gives Norway the right to the seabed and economic zone around Svalbard, and that the treaty’s equal access provisions for other nations only apply to the islands themselves. Other signatory states disagree.
In the aggregate, Norway’s grand strategy will involve managing all of these complex dynamics to ensure continued national wealth and advantage as an oil and gas producer and exporter. Growth potential in hydrocarbons south of the Polar Circle having all but vanished, if Norway’s GDP and employment are to avoid devastating contractions, then there is little doubt that exploration and development of national Arctic petroleum resources will be among Norway’s key priorities in this early new century.
Daniel Buikema Fjaertoft is a Russian and Arctic affairs analyst with Econ Pöyry, a Norwegian think-tank and consultancy firm.