April 10 (Bloomberg) -- An ice chunk that can swell to the size of Russia will shape Norway’s future oil income.
The Arctic ice cap floats above vast deposits of oil and gas while sustaining along its perimeter one of the most biologically productive ecosystems on earth, supporting polar bears, walruses, commercially important fisheries and huge populations of migratory birds.
The Norwegian government, seeking to sustain oil revenues that have fueled the country’s prosperity, has floated plans to let drillers push closer than ever to the ice cap -- only to run into the strongest opposition yet. The uproar frames a larger and increasingly contentious fight over whether the Arctic Ocean’s mostly untouched oil and gas reserves can be safely or economically exploited.
Key political allies of Norway’s Conservative Party-led government that help keep it in power are pushing to cut plans to offer 54 blocks in the Arctic Barents Sea to explorers like Statoil ASA and France’s Total SA. Almost two thirds lie in an entirely new exploration area bordering Russian waters. Liberal Party members “take it for granted” the acreage will get reined in, according to deputy leader Ola Elvestuen.
“We can’t risk having activity in biologically important areas and where there is ice,” Elvestuen said in an interview. “What’s been proposed is too comprehensive.”
Unexpected costs, lawsuits, technical challenges and political opposition have tripped up oil companies for years. Royal Dutch Shell Plc, for example, had to halt drilling off Alaska twice in two years after investing $5 billion.
The Arctic accounts for more than 20 percent of the undiscovered hydrocarbon resources in the world, with an estimated 90 billion barrels of oil, 1,669 trillion cubic feet of natural gas and 44 billion barrels of natural gas liquids, according to the U.S. Geological Survey. About 84 percent is expected to lie offshore, hidden beneath the seabed off the coasts of Alaska, Canada, Russia, Greenland and Norway.
The Norwegian Petroleum Directorate estimates the Barents Sea holds more than 40 percent of the country’s undiscovered resources, or 8 billion barrels of oil equivalent, and is key to maintaining Norway’s production after a 20 percent slump over the past decade.
For Norway, whose oil and gas industry provides more than 20 percent of its gross domestic product, settling the trade- offs between earning riches and protecting wildlife has consequences. Taxes, direct stakes in output and dividends from state-controlled producer Statoil feed its $840 billion sovereign wealth fund, the world’s biggest, which is used to plug budget deficits. Statoil spokesman Oerjan Heradstveit didn’t reply to two calls seeking comment.
The government’s proposal violates its pledge to ban drilling near the ice cap, a condition for gaining the Liberals’ and Christian Democrats’ support for passing everything from budgets to social legislation, Elvestuen said.
The government and its allies are at odds over how to measure the ice’s edge. While Parliament last year passed a bill banning drilling closer than 50 kilometers (31 miles) to the ice’s location from Dec. 15 to June 15, opponents say restrictions should instead be based on the ice’s maximum extent over a longer time period.
“We won’t accept anything but a scientific study of where the ice edge is today and in a 10-year perspective,” Christian Democratic energy spokeswoman and lawmaker Rigmor Eide said in a phone interview.
The government sees no need to tighten the ban or change its proposal, Petroleum and Energy Minister Tord Lien said in an interview in Oslo today. A public consultation that ended last week, in which two government bodies and seven environmental groups recommended pulling at least half of the blocks, didn’t uncover “new, important information,” he said.
“If Parliament were to change its mind, which nothing indicates, I’ll relate to that,” Lien said.
Leif Harald Halvorsen, a spokesman for Total’s Norway branch, declined to comment on the political options over blocks. “These are areas where we’re absolutely capable of exploring,” he said. “The ice-edge isn’t a challenge creating issues for us.”
Erling Kvadsheim, manager for licensing policy at the Norwegian Oil and Gas Association, a lobby group for producers and explorers, said “technology is progressing fast, both when it comes to exploration technology and not least oil-spill protection.”
The Liberals and Christian Democrats are demanding the Petroleum and Energy Ministry withdraw as many as 15 blocks. Thirteen of those are in the so-called Barents Sea South-East. That’s an area opened to explorers last year, after being disputed by Russia until a 2010 delineation deal between the countries.
Talks with the government could start as soon as this week, Elvestuen said. The demands are based on recommendations from the Norwegian Polar Institute. The Norwegian Environment Agency has recommended 28 blocks be withdrawn.
In addition to the 54 blocks in the Barents Sea, the government wants to offer seven in the Norwegian Sea. A final decision on what will be offered is set for the second half of the year.
The ice cap spreads out and shrinks each season and year depending on temperatures. While its average extent has been shrinking for decades, the ice moved south into the Barents Sea South-East as late as 2003.
Environmentalists want rigs far away from where the ice meets water, because that’s where algae blooms, providing nutrition for copepods, a sort of fatty plankton which is a cornerstone for the food chain for fish to birds and mammals in the region.
“In the spring, there’s an explosion of life in an area south of the ice edge,” WWF’s expert on the Arctic in Norway, Nils Harley Boisen, said in an interview in his Oslo office. “It’s the biological motor of the arctic.”
An oil spill close to the ice edge would be difficult to clean up because of the distance to shore, a lack of infrastructure and harsh weather, he said.
Some Artic projects that won environmental clearance have had tougher-than-expected challenges.
Shell has spent about $5 billion preparing to explore offshore Alaska. It was forced to halt drilling after a ship was caught in the ice and after a rig was stranded in 2012. A U.S. court in January ruled the decision to allow exploration in the area was illegal.
--With assistance from Tony Barrett in London.