ANALYSIS-Norway vote may break Lofoten drilling gridlock

Thu Aug 27, 2009 7:44am EDT

* Oil industry says Lofoten region may hold 2 bln barrels

* Politicians split, environment and fishing concerns weigh

* Minority Labour government seen best chance for drilling

* Govt to receive seismic study of region in early 2010



By Wojciech Moskwa

OSLO, Aug 27 (Reuters) - Norway's election next month offers a chance to break years of political gridlock over oil and gas activities in the pristine Lofoten region, one of the last major stretches of Norwegian coastal waters shut for exploration.

Drilling off the picturesque archipelago, which juts into the North Atlantic above the Arctic circle, has for years been blocked by vehement opposition by smaller political parties that have played king-makers in fractured Norwegian parliaments.

The oil industry says it needs to tap Lofoten waters -- the most prospective region remaining off Norway and seen containing 2 billion barrels of oil equivalent -- to replenish dwindling North Sea resources and extend the country's oil and gas boom.

Environmentalists argue that keeping the region free from drilling is the only way to avoid accidents that may irreparably damage its eco-system, rich fishing waters and image as one of Europe's last tourist destinations unspoiled by modern industry.

The centre-left coalition government is internally split on drilling and has effectively side-stepped the issue for years, ordering new seismic scans of the seabed to gain a better understanding of resources below while avoiding any decisions.

But the government's main Labour party has kept the door open to drilling, prodded by their ally the LO, Norway's main trade union which believes the move would create jobs.

"What is now seen as a probable outcome of the election could help resolve the Lofoten issue," said Jakub Godzimirski, senior research fellow at the NUPI think-tank in Oslo.

The best bet for supporters is offered by the prospects of a minority Labour government after the Sept. 14 election, and cooperation on the Lofoten issue with the two main centre-right opposition parties in parliament, which both back drilling.

The Labour party said it would decide next year whether to back or oppose drilling, with much depending on seismic studies carried out over the past two summers.

Opinion polls are mixed over whether the centre-left coalition will retain its majority. [ID:nLQ196930] If it falls short, Labour is expected to rule in a minority administration.



OPPORTUNITY OR RISK?

Norway's main oil lobby, OLF, says further delays could hurt the country's vast offshore sector -- which accounts for a quarter of gross domestic product and half of the tax revenues.

If politicians approve drilling soon, however, future Lofoten fields could come on line in the late 2020s, just as output from existing Norwegian fields drops sharply.

"If we don't add major resources soon, Norway will have a steep fall in production and investments in the 2020s, which can weaken Norway's offshore supply industry and producers," said Lars Ryssdal, head of industry and environment policy at OLF.

"We hope to get the green light (for Lofoten drilling) in 2010, so that licences can be awarded three-four years later and production could start in the late 2020s," Ryssdal told Reuters.

The Norwegian Petroleum Directorate, a state agency which organises exploration on the Norwegian shelf, is due to present its seismic studies to the government in early 2010.

To appease fishermen during its seismic scans, sound blasts which help map potential deposits under the seabed but can disturb fish stocks, the Directorate paid compensation for those unable to catch cod, herring and salmon in their usual waters.

Nevertheless, some fishermen protested, preventing the conclusion of a small portion of the studies and highlighting lingering apprehension from the region's traditional industry.

Drilling off the Lofotens will present major environmental challenges.

The continental shelf, the shallower part of the ocean floor where oil and gas deposits are found, is narrow there and that will inevitably push developments closer to shore.

In case of leaks, this poses a bigger danger for the coast. Icy Arctic waters mean that oil dissolves more slowly.

Green groups have also turned the Lofoten issue into part of a wider debate about whether Norway should continue to pump up as much oil and gas as possible, or show restraint and mark its turn towards a lower-emission, more sustainable future.

"Norway has a moral obligation to pursue a low carbon future because 2.7 percent of global CO2 emissions come from Norwegian oil and gas," environmentalist Frederic Hauge told Reuters.

"Each time we manage to delay it (the decision on drilling near the Lofotens), we strengthen our hand because environmental issues become more and more important," Hauge added. For a factbox on Lofoten, click on [ID:nLR690537]

(Editing by Sue Thomas)



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