US Envoy: Barents Border Dispute an Energy Security Issue

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OSLO (Dow Jones Commodities News via Comtex)--Copyright (c) 2006 Dow Jones & Company, Inc.

Norway should resolve its decades-old Barents Sea border dispute with Russia as it's a security of supply issue for the U.S., the new U.S. ambassador told Dow Jones Newswires late Thursday.

Disagreement between Moscow and Oslo about how to demarcate the border stretching into the Arctic sea has made the 173,000-square-kilometer disputed area - estimated to hold 12 billion barrels of oil equivalent - all but untouchable for exploration and development for the past 30 years.

"We see the border dispute...from an energy security perspective," newly-appointed ambassador Benson Whitney said on the sidelines of a U.S. Chamber of Commerce event here. "We have an interest in it and would like to see it resolved."

The political uncertainty caused by the dispute can inhibit development and production in the Barents Sea, "and that can have an impact on the global market."

As the world's largest consumers of energy, the U.S. is increasingly looking to diversify its imports away from politically unstable areas such as the Middle East. The Barents Sea - estimated to have a total of more than 40 billion BOE in the combined Norwegian, Russian and disputed areas - could offer the U.S. a stable alternative supply of both crude and liquefied natural gas.

Top level Norwegian and Russian officials recently restarted border talks, and have expressed optimism over reaching an agreement.

Norwegian diplomats have told Dow Jones that much progress has already been made, with most technical aspects already agreed upon. "Now it's much more (a matter) of a political agreement more than anything," one of the diplomats close to the situation said.

Since getting new oil and gas supplies, including from the Barents, is a critical energy issue for the U.S., "America must be involved in the Barents Sea," Whitney said.

Although two U.S.-based companies, Chevron Corp. (CVX) and CononcoPhillips (COP), have been shortlisted for a stake in Gazprom OAO's (GSPBEX.RS) 3.6 trillion cubic meter Shotkman LNG project in the Russian Barents Sea, there are no U.S. oil majors exploring on the Norwegian side.

The companies have said the exploration risk is currently too high on the Norwegian side. Out of nearly 65 wells drilled only a handful have found commercially producible volumes. But industry experts say increased political risk inflamed by Norway's new coalition government - whose environment minister has campaigned against Barents Sea oil and gas development - has provided further grounds for companies to avoid the region.

"Governments need to create a positive business environment so industry can do the most effective work that it can," Whitney said.

Comments from both Norway's environment ministry and oil ministry recently raised uncertainty over whether Eni SPA (E) would be allowed to develop and explore around the new 250 million BOE Goliat crude discovery in the Norwegian Barents Sea.

The government has also delayed awarding five exploration blocks between Goliat and Statoil ASA's (STO) 400 billion cubic meter Snoehvit project.

In Russia, Gazprom said it planned to award the Shtokman project to two to three companies in April. Analysts said the final partnership will include a U.S. company for its strategic access to the U.S. market, one of the fastest growing LNG consumers in the world.

Copyright (c) 2006 Dow Jones & Company, Inc.