OSLO/MOSCOW Statoil's half-a-billion barrel oil find in the Barents Sea will shift Norway's oil industry away from the North Sea and toward the Arctic -- a harsh region where costs and technical challenges mount.
Further east, in the Russian part of the Barents, a long awaited offshore boom may also soon begin as foreign partnerships help supply knowhow to tap potentially huge resources.
Statoil said on Friday it had made the most significant discovery off Norway in the past decade at its Skrugard prospect in the western Barents, breathing new life into Norway's hitherto declining oil prospects.
But producing oil and gas in Norway's remote "High North" entails higher costs and possibly greater risk of spills.
Appetite for Barents Sea exploration had declined in past years due to mainly lackluster drilling results off Norway prior to Skrugard, and growing concerns over safety after BP's oil spill in the Gulf of Mexico a year ago.
Norway's oil production, already down some 40 percent from its 2001 peak to around 2 million barrels per day, is set to decline significantly after 2020 unless new deposits are found and tapped.
"This discovery is certainly a trigger for Statoil and could definitely open new possibilities on the Norwegian shelf," said Anne Gjoeen, analyst at Handelsbanken in Oslo.
She said the "mature" North Sea will remain Norway's production and planning hub. "But when it comes to exploration activities," she said, "this will shift the focus north... and I would expect this to increase interest in the Barents."
Carnegie analyst John Olaisen called the Skrugard discovery "great news for the entire Norwegian oil services industry."
On Tuesday, a major conference on Arctic energy is expected to shed more light on prospects in the High North following the Skrugard find, with Oil Minister Ola Borten Moe and Norwegian Petroleum Directorate chief Bente Nyland due to speak.
Official forecasts from the start of 2011 put Norway's potential oil and gas resources in its section of the Barents Sea at some 6 billion barrels of oil equivalent.
Tantalizingly, these forecasts do not include reserves that could lay hidden in the recently drawn border zone between Norway and Russia, an area half the size of Germany that for four decades was closed to oil and gas activities.
Norway seeks to start the process of opening up its part of the zone as quickly as possible after Russia finalizes the border treaty signed last year. Statoil hopes to start producing oil from Skrugard within 5-10 years.
"There will definitely a much more intense pressure to explore now (after Skrugard)," said Arnfinn Joergensen-Dahl, senior research fellow at Ocean Futures, an influential Oslo-based energy policy think-tank.
So far only Statoil's Snoehvit gas field is in operation in the Barents Sea. Italian operator ENI seeks to start producing oil from its nearby Goliat find in 2013.
Both projects -- which are much closer to shore than Skrugard -- have been hit by delays. Snoehvit has had lots of teething problems after start-up as Statoil scrambled to make the facility more robust in the unforgiving Arctic.
Greenpeace has warned that the Skrugard discovery was made in "a highly vulnerable area" near iceberg-strewn waters and Arctic islands that attract large numbers of sea birds.
About 200 km from Norway's coast, three times as far from shore as BP's blown-out Macondo well in the Gulf of Mexico, Skrugard will prove a challenge for emergency monitoring.
"Greenpeace is watching with concern as the oil industry marches into areas near the edge of the ice sheet which have unique ecosystems," said the group's adviser Frida Bengtsson.
Ocean Futures' Joergensen-Dahl said that geology suggests much more oil and gas on the Russian side. Analysts have long said that the number and size of reservoirs tends to increase further east in the Barents.
There are three big developments in Russia's Arctic: Gazprom's Prirazlomnoye, where the platform has been under construction for years, Gazprom's Shtokman gas project in which Statoil plays a role and three Kara Sea fields in a deal between BP and Rosneft.
Peter Kaznacheev, an oil industry consultant and head of London-based Khaznah Associates, said joint development by Russian groups with foreign companies was the way forward.
"The main issue is not commerciality, the issue is mainly lack of decisiveness" by the Russian authorities, he said.
"The second issue is the high overall upfront costs," he said. The first phase of developing Shtokman, one of the world's largest gas finds, is set to cost tens of billions of dollars.
The Norwegian Barents Sea offers a stable and tested energy regime, complete with a 78 percent tax on oil and gas activities, and may also prove more hospitable weatherwise.
"When you look at all the different areas in the Arctic, the western Barents Sea is less inhospitable. The more east you go, the more ice you get," said Joergensen-Dahl.
(With additional reporting by Gwladys Fouche, Henrik Stoelen and Walter Gibbs)