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International Arctic
Petroleum Cooperation
Barents Sea scenarios
Edited by Anatoli Bourmistrov,
Frode Mellemvik, Alexei Bambulyak,
Ove Gudmestad, Indra Overland
and Anatoly Zolotukhin
First published 2015
ISBN: 978-1-138-78326-3 (hbk)
ISBN: 978-1-315-76876-2 (ebk)
Chapter 2
Barents Sea oil and gas 2025
Three scenarios
Indra Overland, Alexei Bambulyak, Anatoli Bourmistrov,
Ove Gudmestad, Frode Mellemvik, and
Anatoly Zolotukhin
(CC BY-NC-ND 4.0)
Introduction to the scenarios
What are some of the possible futures for Barents Sea oil and gas? This chap-
ter draws upon the key trends and issues covered by the book’s thematic chap-
ters and presents three scenarios on the prospects for Norwegian–Russian
cooperation in the Barents Sea. Ultimately human interaction will play a large
part in how the Barents Sea is developed, and we have therefore given the sce-
narios metaphorical titles related to interaction between people.
In the first scenario – called “After You, Sir” – petroleum development in the
Barents Sea region is a respectful and cooperative enterprise between Norway
and Russia. However, both countries are also hesitant to make first moves on
investments, because growing production of unconventional resources has sup-
pressed oil and gas prices. Thus we think of Norway and Russia as two British
gentlemen in front of a door, each politely ushering the other to enter first, but
neither of them actually going through the door:
“After you, Sir.”
“No, no, after you, Sir.”
In contrast, the second scenario – “Parallel Play, Not Only for Children” – is
centered on the combination of high oil and gas prices and noncooperative
relations between Norway and Russia in times of growing energy demand and
oil/gas prices. The result is “parallel play”, a term borrowed from the pedagogi-
cal literature to describe the stage at which toddlers take an interest in playing
with other children, but are incapable of interacting directly with them because
of their limited social and language skills.
The third scenario – “Let’s Dance, but Where Is the Music?” – envisages a
future where Russia and Norway cooperate on the development of a few big
petroleum projects, but broader development is hindered by a strict and effec-
tive global climate regime that reduces profits from the sale of oil and gas and
makes smaller Arctic fields commercially unviable.
Figure 2.1 plots the three scenarios on the 12 main uncertainties we have
identified. The shape of each scenario on the radar diagram can be thought of
as its unique fingerprint.
2 Barents Sea oil and gas 2025
Three scenarios
Indra Overland, Alexei Bambulyak, Anatoli Bourmistrov,
Ove Gudmestad, Frode Mellemvik, and
Anatoly Zolotukhin
12 Indra Overland et al.
Approach
In developing the scenarios we have applied the time-honored approach made
famous by Royal Dutch Shell (Cornelius, Van de Putte, & Romani, 2005; Jef-
ferson, 2012; Varum & Melo, 2010). Rather than probability – which cannot
be quantitatively estimated with any degree of accuracy for complex future
developments – the criteria for the scenarios are instead plausibility and internal
coherence. That means that the scenarios are not attempts at forecasting or pro-
jection but rather at identifying alternative possible developments, emphasizing
the unpredictable interaction between multiple factors. The aim is not to predict
the future but to prepare mentally for a full range of possible futures. Neither is
it decisive whether the reader agrees with the scenarios or not, as long as he or
she is stimulated to make his or her own reflections on the future.
The scenarios were developed through four stages. First, the book’s thematic
chapters (3–14) were written to provide input on different topics of relevance
for the future development of the oil and gas resources in the Barents Sea. In
addition to the chapters as they are published here, the authors of each chap-
ter were requested to provide specific written input for the scenarios. Second,
we held a series of internal intensive scenario-building discussions among the
six authors of the scenarios. The authors include both Norwegians and Rus-
sians, and social scientists, natural scientists, and experts on technology, mak-
ing for rich and dynamic discussions. Third, the scenarios were presented at
two dedicated seminars, one in Norway and one in Russia. The participants in
these seminars were well-informed non-academic actors who are involved in
petroleum cooperation between Norway and Russia. These sessions were also
Arcc technology
advancement
Future price of gas
Development of
Lofoten area
Future price of oil
Amount of oil found
Asian growth
Extent of Russia’s
orientaon towards
Asia
Amount of gas
found
Unconvenonals
outside US
Norwegian
–Russian
relaons
Russian–Western
relaons
Strict global climate
policy
Aer You
Parallel Play
Let's Dance
Figure 2.1 Scenario star with all three scenarios
Barents Sea oil and gas 2025 13
interactive, with ample room for feedback and discussion. Fourth and finally,
the written scenarios were submitted to three knowledgeable people for review.
In developing the scenarios we first identified developments that we believe
are likely. These we refer to as “assumptions”, not because it is certain that they
will take place but because we think they are significantly more probable than
many other developments. An example is rising energy demand. Having laid
out our assumptions, we attempted to identify key uncertainties – develop-
ments that we think are fundamentally uncertain and could easily tip one way
or the other. An example is the future price of gas. Subsequently, we pieced
together the three scenarios, each consisting of contrasting combinations of the
assumptions and uncertainties.
Finally, we added a series of wild cards. These are events that have low probabil-
ity but would have a great impact. They are difficult to fit into the scenarios and
are more like miniature scenarios in their own right. We believe that wild cards
are one of the most important components in scenario building, because they
help expose the full range of possible future developments. Unexpected things
often do happen and play an important role in how the world develops. To pre-
pare for the future one therefore needs to prepare for the unexpected, and wild
cards are a good way of remaining attuned to the future’s unforeseeable nature.
Assumptions
In this section, we briefly outline the main assumptions identified in the book’s
thematic chapters and taken into the scenarios. By “assumptions” we mean
things that we are reasonably confident about and therefore choose to treat as
givens. This does not mean that they are guaranteed, just that we see them as
significantly more probable than other factors we have considered.
Global markets vs. international political bodies
According to Chapter 3 (Overland, Simonia, Vasiliev, and Wilson Rowe), the
Arctic, and especially the Barents Sea, is unlikely to be the setting for a major
geopolitical conflict, and circumpolar political bodies are unlikely to propose
binding agreements that would restrict oil and gas development. The Arctic
Council is an important institution of political discussions but has no power
over the Arctic nation-states and lacks power of enforcement. Also UN organi-
zations cannot stop Norwegian and Russian Arctic offshore petroleum activi-
ties. For the development of the Barents Sea, we therefore assume that the
global market and global geopolitical context will be more important than
circumpolar or other international political bodies.
Demand for energy
According to major world energy market forecasts, including those of the IEA
and OPEC reviewed in Chapter 3 (Overland, Simonia, Vasiliev, and Wilson
14 Indra Overland et al.
Rowe), global energy demand is going to continue growing, driven by a com-
bination of population growth and economic growth. Forecasts also assume
that oil and gas will remain an important part of the world energy supply, even
if their consumption is reduced. The composition of the energy resources port-
folio to cover this increasing demand is, however, uncertain. For example, coal
may or may not be phased out, and the balance between oil and gas is uncertain.
Asian market growth
We also assume that the importance of Asian markets will continue to grow and
that Russia will continue diversifying its exports by expanding infrastructure to
sell oil and gas to the Asia–Pacific region. Although we are relatively confident
about this development and have therefore included it among our assumptions,
we are far from sure how far it will go and its extent is therefore included in
the uncertainties listed below.
Global climate policy
Although we do not know whether an effective new climate agreement will be
reached to follow up and improve on the Kyoto Protocol, we do assume that
climate change will remain on the political agenda. The pressure for transfor-
mation towards a low carbon economy comes from many directions. The UN
report Better Growth, Better Climate (Global Commission on the Economy and
Climate [GCEC], 2014) focuses on how major economies through innova-
tion and changing regulations can combine continued economic growth with
reduced carbon emissions. The question is how quickly such policies will be
developed and what impact they will have on the development and use of oil
and gas resources.
Barents petroleum exploration
Exploration drilling will be extended to cover all parts of the southern Nor-
wegian Barents Sea. On the Russian side, the Dolginskoye, Varandey-More,
Medin-More, and Pomorskoye fields will be explored (see Figure 9.4 in Chap-
ter 9 – Zolotukhin, Sungurov, and Streletskaya). However, outside the poten-
tially interesting structures that have already been identified for test drilling, very
large fields are not very likely to be found, especially on the Norwegian side.
Arctic petroleum production
Oil and gas resources in the Arctic will continue to be explored and developed.
Even though many environmentalists and fishermen are critical regarding Arc-
tic petroleum developments, exploration and production have already started
and further development of new licenses is probable. Probably, the Dolginskoye
oilfield will come into the production phase between 2015 and 2025. It is
Barents Sea oil and gas 2025 15
therefore likely that there will be significant oil and gas production from the
Arctic, although how much will be produced remains uncertain.
The cost of operations, maintenance, and logistics will be higher than in other
parts of the world due to the harsh climate and longer distances that infrastruc-
ture and human resources need to travel. Subsea processing factories can be
hooked up to production centers located relatively far away (say 200 km), mak-
ing integrated area development possible (see Chapter 10 – Bulakh, Gudmes-
tad, and Zolotukhin).
Arctic marine bio-resources
Although biodiversity and catches may be influenced downwards or upwards
by climate change, the Barents Sea will remain an important marine habitat
for Arctic marine species, both in terms of the planet’s ecology and in terms of
commercial fisheries (see Chapter 13 – Kommedal, Bagi, and Hemmingsen).
Arctic weather conditions
Regardless of how the climate changes, Arctic weather conditions will chal-
lenge personnel and hardware (see Chapter 11 – Markeset, Sæland, Gudmestad,
and Barabady). Greater physical and mental pressure on personnel will neces-
sitate higher wages and more time off. For hardware, there will be higher failure
rates as well as higher maintenance costs also when there are no failures (see
example Chapter 14 – Sundsbø). The cost of petroleum exploration and pro-
duction under these conditions will remain high, even if significant technologi-
cal progress is made and the climate heats up.
Northern Sea Route
The Northern Sea Route will remain secondary as a transport route for oil
and gas from the Barents Sea to Asia. It will only be used in summer. Less ice
may actually be more difficult to handle than a firm ice cover that it is pos-
sible to plow a channel through. There will be a limited number of icebreak-
ers, and they will have the capacity to take a limited number of ships in each
convoy because the broken ice slips back into the channel they have created.
This is disadvantageous for the development of the Barents Sea because it limits
the volume of hydrocarbon resources that can be exported via the Northern
Sea Route to Asia and therefore reduces possible synergies that the petroleum
industry in the region can have by building and using a common infrastructure
with the Northern Sea Route.
Business-to-business cooperation
Norwegian and other Western oil companies will continue to want access to
the Russian part of the Barents Sea; and Russian oil companies will want access
16 Indra Overland et al.
to the Norwegian part of the Barents Sea (see Chapter 5 – Bourmistrov, Borge
Doornich, and Krivorotov). However, there will be limited room for small sup-
ply companies to play a role in the Barents Sea petroleum province, especially
local small players and especially on the Russian side – except if there are very
many large developments and the authorities make a special effort to facilitate
their participation.
Uncertainties
Having presented the points that we are relatively sure about in the previous
section, here we summarize the points that we see as most uncertain. When
forecasting the future, the aim is to reduce uncertainty as much as possible. This
is of course not the aim in a scenario project such as this one. Uncertainties are
rather at the core of the project and actively cultivated in order to define the
range of possible scenarios. The uncertainties discussed here are also presented
visually in Figure 2.1.
Price of gas and oil
As discussed in Chapter 3 – Overland, Simonia, Vasiliev, and Wilson Rowe –
some of the uncertainties that will affect the development the Barents Sea are
related to energy demand: will the prices of oil and gas rise, stabilize, or fall,
and will they be high enough to justify the development of Barents Sea fields?
Historically, the prices of oil and gas were tightly correlated, in large part due
to the linking of gas contracts to oil prices. However, from 2005 to 2015, the
prices of oil and gas increasingly diverged, as increasing amounts of gas were
traded in spot markets and shale gas in the US pressed gas prices downwards.
Thus, in our work on the uncertainties, we treated the future price of oil
and future price of gas as two separate factors. This does not mean that they
will not interact with each other, just that they will not necessarily move in
tandem.
Asian growth
Although oil, and increasingly gas, is traded in global markets, location still
makes some difference. As the Barents Sea is located as far away as it is pos-
sible to get from the Asia–Pacific region, it makes some difference whether
demand for oil and gas imports will be concentrated in the Atlantic basin area
or Asia. The effect of Asian growth on the development of the Barents Sea is
nonetheless uncertain. Currently, import growth is concentrated in Asia, but if
there is a slowdown in China’s growth, Asia’s importance may diminish (which
might be positive for the Barents Sea) at the same time as oil prices would fall
(which would be negative for the Barents Sea). On the other hand, if growth
continues unabated in China, it could have a converse double effect on the
Barents Sea: on the one hand it would help support higher oil and gas prices,
Barents Sea oil and gas 2025 17
which would promote the development of the Barents Sea; on the other hand
it would continue to drive Russian prioritization of its eastern provinces. Thus,
the total impact of this double effect on the development of the Barents Sea is
an important uncertainty.
Unconventionals outside the US
Another key question is whether the rapid development of unconventional oil
and gas will spread beyond the United States, and how expensive unconven-
tionals will be. If they are cheap enough, they will be prioritized over Arctic
resources, as they are less risky and available to more countries. Even if uncon-
ventionals stall, will there be room for large volumes of Barents Sea gas in the
EU market, given the growing EU imports of LNG from Qatar and other
countries, possible LNG deliveries from the US, coupled with deliberate EU
efforts to cut dependence on Russian energy? This is not only a market ques-
tion, but also a political one: will the EU show any serious interest in support-
ing developments in the Barents Sea, and would the support only apply to the
Norwegian part of the sea (in an effort to reduce import dependency on Rus-
sia) or also extend to the Russian side (in an effort to maximize overall supply)?
Global climate policy
A focus on green growth policies during the decade 2015–2020 could result in
a new set of incentives and mechanisms that simultaneously promote growth
and reduce carbon emissions. However, there is uncertainty as to whether and
how quickly governments can produce a common international agreement on
those issues. Will there be a global, binding, and strict agreement to follow up
the Kyoto Protocol, and what would its impact be on demand for oil and, espe-
cially, gas? Coal is an obvious priority target for such an agreement, oil could be,
but its status is less clear, and natural gas even more so. A stricter climate regime
might even end up promoting natural gas.
Moreover, how will global climate change affect climatic conditions for
petroleum activities in the Barents Sea, especially north of Bjørnøya? Will there
be less ice but more dispersed icebergs and storms? In spite of a long-term
trend towards global warming, could there be shorter-term (e.g. 20-year) oscil-
lations that make the region colder?
Amount of oil and gas found
As we can see from Chapter 8 – Verba, Ivanov, and Zolotukhin – and Chap-
ter 9 – Zolotukhin, Sungurov, and Streletskaya – the Barents Sea has important
hydrocarbon resource potential both in terms of oil and gas. The Fedynsky
High prospect is being drilled by Norwegian and Russian companies, but the
outcome is not known. If there is a major find, this may spearhead devel-
opments in the Barents Sea due to proximity to land and infrastructure in
18 Indra Overland et al.
Kirkenes. It may be important whether it is oil or gas that is found, depending
on which is better priced in the market. Gas is also more difficult and expensive
to transport long distances.
Development of Lofoten area and infrastructure
As explained in Chapter 6 – Overland and Krivorotov – the Lofoten Islands
area in Norway can be an important factor in the development of petroleum
fields in the Barents Sea by serving as the gas transportation infrastructure
bridge between well-developed southern gas fields in the Norwegian Sea and
prospective gas fields in the Barents Sea. If the Lofoten area is opened, the effect
on the Barents Sea is still not certain. At first it might distract attention from the
Barents Sea, but if major gas resources are found and the Norwegian pipeline
grid is extended northwards to the Lofoten Islands, it could provide an impor-
tant bridge to the Barents Sea that could make many more natural gas projects
there feasible in the long term.
As discussed in Chapter 3 – Overland, Simonia, Vasiliev, and Wilson Rowe –
during the entire post-Soviet period, Gazprom has had a monopoly on exports,
but there has been some discussion of unbundling the company and mov-
ing the control over exports to an independent government body. Novatek
has already been permitted to export LNG from the Yamal Peninsula, but this
is considered an exception from the rule that was only possible for LNG. If
Gazprom loses the monopoly, it could open up the way for more dynamism in
the Barents Sea, as other companies could handle the opportunities there more
creatively. On the other hand, if Gazprom keeps the export monopoly, it may
result in other companies being forced to produce more LNG if it is seen as
easier to get exemptions from the monopoly for LNG than pipeline exports.
Therefore, an important question is: will there be a gas pipeline to the European
market in place providing access for Barents Sea gas to this market and facilitat-
ing further developments in the area? Related questions are: will this pipeline
go through Norwegian waters or through the Republic of Karelia, and will the
Norwegian and/or Russian governments reduce taxes in order to kick-start
field developments and infrastructure?
Arctic petroleum technology development
As follows from Chapter 10 – Bulakh, Gudmestad, and Zolotukhin – another
important uncertainty is how fast remote operation and subsea technologies
will develop in the future. These technologies can lower the cost of field opera-
tion and be decisive for whether fields are sufficiently profitable to be brought
online. For instance, will the Johan Castberg oilfield and nearby fields be devel-
oped together, creating enough infrastructure to spearhead other developments?
The technology to be developed should reflect growing environmental, pre-
paredness, and safety concerns related to expanding petroleum operations in
Barents Sea oil and gas 2025 19
the Arctic (see Chapter 10 – Bulakh, Gudmestad, and Zolotukhin – Chapter
11 – Markeset, Sæland, Gudmestad, and Barabady – and Chapter 12 – Njå and
Gudmestad). For instance, the effect of hydrocarbon pollution on Arctic species
and ecosystems and especially the effect of long-term exposure have not been
researched thoroughly. Future research may show that it is worse or better than
thought. It is also not clear whether environmental legislation will be devel-
oped adequately for the Arctic environment, and whether effective legislation
will be adopted and upheld by Arctic states and operators. If environmental and
safety demands are strict, they will push up the cost of petroleum projects. If
they are not coordinated by Norway and Russia, they can create obstacles to
cooperation and joint development (see Chapter 4 – Bambulyak, Golubeva,
Sydnes, Sydnes, Larsen, and Streletskaya).
When there is another major oil spill somewhere in the world it could con-
tribute to holding back the development of the Barents Sea, especially if it is an
Arctic offshore oil spill that looks bad on television. Spills that have occurred
in the past, such as the Exxon Valdez and Deepwater Horizon accidents, have
received broad media coverage but have, nonetheless, only briefly slowed down
petroleum sector developments. The main route of influence for such an inci-
dent on the development of the Barents Sea would most likely be through a
tightening of environmental regulations that drive up the need for new tech-
nology and thus the cost of field development.
Russian–Western relations
It will be difficult to build good Russian–Western relations during the
first half of the decade from 2015–2025. Over time, the EU will attempt
to steadily reduce energy imports from Russia. Although news fades fast
and, for example, the conflict in South Ossetia was forgotten quite eas-
ily, the conflict in Ukraine has brought some serious negative components
into Russian–Western relations and could turn the relationship into a
self-reinforcing negative spiral.
Thus, due to the conflict over Ukraine, Western–Russian relations could
potentially be bad for a long period of time, especially if Russia succeeds in
reorienting its economic focus towards Asia and the EU reduces its economic
dependence on Russia. At the same, there is also a possibility that the conflict
over Ukraine will subside and relations improve. So the question is first, will
Russian–Western relations improve or worsen, and, second, how will that affect
Norwegian–Russian relations?
Understanding Russian–Western relations is particularly important because
it will affect Russian attitudes towards the role of Western companies in the
development of Russian Arctic offshore fields (see Chapter 5 – Bourmistrov,
Borge Doornich, and Krivorotov). To what extent will Russia allow for direct
foreign investment in developing its Arctic offshore fields, and how actively will
Norwegian companies pursue these opportunities? What changes might there
20 Indra Overland et al.
be in elite attitudes in either country towards the other, due to a change of
government or other political developments?
Norwegian–Russian relations
The relationship between Norway and Russia will never be entirely divorced
from the broader Russian–Western relationship, but neither is it entirely
dependent on it either (see Chapter 6 – Overland and Krivorotov). Countries
other than Norway are more likely to be at the forefront of Western quarrels
with Russia. In spite of asymmetries, it will be in the shared interest of both
Russia and Norway, as the two countries sharing the Barents Sea, to cooperate
in meeting common challenges, e.g. exploration and development, environ-
mental protection, resource management, and promoting regional growth and
employment. However, the degree of cooperation depends on the approaches
of both sides, as well as all the other contextual factors discussed here.
Although we do not expect Russia’s relationship with Norway to be one of
its worst European relationships, there is a considerable range within which it
can move. One of the great successes of Norwegian–Russian cooperation was
the partial decentralization of the bilateral relationship to the local and regional
level through the Barents Euro-Arctic Region. As Russian–Western relations
have soured, there has been a de facto recentralization of Norwegian foreign
policy towards Russia. A question for the future is therefore whether the prov-
inces near the Barents Sea will have the possibility to cooperate locally across
the border and especially in the traditional areas of cooperation such as educa-
tion, research, and people-to-people (see Chapter 7 – Bourmistrov, Gudmestad,
Salygin, and Zolotukhin). A related question is whether Norway will continue
to have ambition to be a leading Arctic state focusing on Arctic oil and gas and
relations with Russia in the North, or might an emphasis on climate change
under a future Norwegian government alter Norway’s strategic priorities?
Extent of Russia’s orientation towards Asia
Giving the potential for Chinese–Russian petroleum cooperation described in
Chapter 3 – Overland, Simonia, Vasiliev, and Wilson Rowe – if Russian–Western
and Norwegian–Russian relations stay negative or worsen, Russia could diver-
sify and give Chinese companies an important role in the Barents Sea. This
could affect the prospects for Norwegian–Russian cooperation. The relevant
uncertainty in this respect is: will political relations between Russia and the
West and the instability and risks that they bring deter Norwegian and Russian
companies from investing in each other’s countries in the long term?
As noted in Chapter 9 – Zolotukhin, Sungurov, and Streletskaya – Rus-
sia is the world’s largest country by surface area and has many locations to
choose between for hydrocarbon production. Thus Russia may prioritize the
Barents Sea or other areas such as the Russian Far East, the Yamal Peninsula, or
enhanced oil recovery from its old West Siberian fields.
Barents Sea oil and gas 2025 21
One strength of Norwegian–Russian cooperation is that previous coopera-
tive initiatives between the two countries are already close to institutionalization,
particularly attempts to harmonize education (see Chapter 7 – Bourmistrov,
Gudmestad, Salygin, and Zolotukhin) and some business practices (see Chap-
ter 5 – Bourmistrov, Borge Doornich, and Krivorotov). However, the extent to
which Russia can shift towards Asia will also depend on how active and efficient
the Norwegian and Russian authorities will be in promoting petroleum-related
joint industrial investments in the coastal Barents Sea region: cross-border
Russian–Norwegian business-to-business and people-to-people contacts (cre-
ating cooperative institutions, lifting administrative and cultural barriers, etc.).
Interaction between different uncertainties
The uncertainties identified in the previous section can be thought of as the
building blocks for a time machine: how each of them works out and how they
interact with each other will determine what the future looks like. Figure 2.2
is a simplified illustration of how we have thought about this interaction. The
darker an arrow, the more strongly we assume a factor influences another. Dot-
ted lines indicate that a factor reinforces the effect of another factor.
Scenarios
In line with Shell’s methodology, we have striven to avoid scenarios that are
simply optimistic or pessimistic. Instead, each of them is meant to be balanced
Gas price
Oil price
Climate
agreemen
t
Russia turns east
Norwegian–Russian
relaons
Much oil found in
Barents Sea
Amount
of gas
found in
Barents Sea
Unconvenonals
spread
Asian growth
Russian–Western
relaons
Lofoten is
developed
SPEED OF
BARENTS
Cooperaveness of
Barents development
Arcc
technol.
Figure 2.2 Time machine – how the future may be shaped by the interaction of factors
22 Indra Overland et al.
and multifaceted. We tried to avoid getting caught up in discussions of current
events or simply extending current trends. That is always difficult. An informed
observer can often make good predictions for the coming six or 12 months, and
while we have worked on our scenarios we have experienced that some of our
visions have already become true. Although that gives one the feeling that one
is on the right track, it is not necessarily a good thing, as the scenarios should
strive to relate to a future beyond what we know now. It is also worth noting
that the diversity of the people involved in making the scenarios, while enrich-
ing and providing a sound basis for them, has also had a limiting effect as it
was necessary to compromise between sometimes highly divergent worldviews.
Tables 2.1 and 2.2 provide an overview of how the different assumptions and
uncertainties are related to each other in the three scenarios.
Scenario 1: “After You, Sir”
– Good relations, but surging unconventionals reduce oil and gas prices
In the scenario “After You, Sir”, Russian–Western relations had not fully recov-
ered from the Ukrainian crisis, but the crisis did not have a similar degree of
influence on the cooperation between the two states in the Arctic. Because
of this, the relationship between Norway and Russia was respectful, and their
interaction in the Barents Sea was cooperative. But the price of oil and, espe-
cially, natural gas, was low and combined with the high costs of infrastructure
Arcc technology
advancement
Future price of gas
Development of Lofoten
area
Future price of oil
Amount of oil found
Asian growth
Extent of Russia’s
orientaon towards Asia
Amount of gas found
Unconvenonals outside
US
Norwegian–Russian
relaons
Russian–Western relaons
Strict global climate policy
Figure 2.3 Fingerprint of the scenario “After You, Sir”
Barents Sea oil and gas 2025 23
that meant that many fields were not commercially viable. Thus, in spite of the
cooperative atmosphere, the two countries were like two British gentlemen in
front of a door, each politely ushering the other to enter first, but neither of
them actually going through the door.
A new climate regime was agreed upon in Paris in 2015, but it lacked teeth
and failed to limit greenhouse gas emissions seriously. Unconventionals, espe-
cially shale gas, spread across the world as the Chinese, Argentineans, and others
successfully copied the US approach, flooding the market with gas. The interest
of companies in developing Arctic petroleum technology was consequently
low. Even in Russia, unconventional natural gas became more interesting than
the expensive Arctic offshore developments – especially as the Chinese came
to fully master shale gas technology and not only used it to expand their own
production but in parallel flooded the world market with cheap drilling rigs,
often leased along with cheap, disciplined Chinese engineers.
In the Russian part of the Barents Sea, the Russian authorities and compa-
nies were slow to act, while Rosneft and Gazprom continued monopolizing
all opportunities. On the Norwegian side, the authorities and Statoil disagreed
on infrastructure choices and environmental principles, and the Lofoten Islands
area remained closed for exploration. Both the Norwegian and Russian author-
ities were reluctant to give tax breaks. The 1.8 trillion-bcm trans-boundary
gas field identified in the Fedynsky High in 2016 was developed jointly by
Gazprom and Statoil and is due to come on stream in 2029. The gas would be
piped through Russia to the EU and partly replace volumes from West Siberia
that were being diverted to Russia’s Altai pipeline to western China.
A number of smaller oilfields were identified on the Norwegian side, whereas
exploration stalled on the Russian side. But beyond Johan Castberg and Fedyn-
skoye fields, there were few actual field developments.
As there were not so many projects, the development of the local supply
industry in North Norway and Russia was slow. Fields were mostly developed
from the Norwegian side, where Kirkenes was used as a main supply hub. The
volume of contracts had not been high enough to justify a high level of local
content and therefore most of the contracts were awarded to internationally
well-positioned Norwegian firms that used only a few local Russian subcon-
tractors, mostly those who had cooperated with Gazprom/Shtokman Develop-
ment AG previously.
Scenario 2: “Parallel Play, Not Only for Children”
– Intensified but noncooperative development of the Barents Sea under
conditions of rising energy demand and political polarization
In this scenario – “Parallel Play” – the market context for the development of
the Barents Sea was good, especially because of continuous economic growth
in Asia and correspondingly growing demand for energy. But the relationship
between Norway and Russia was not so good, and the two countries both tried
to go it on their own. The result was parallel play, a term borrowed from the
24 Indra Overland et al.
pedagogical literature, where it refers to the stage at which small children want
to play but are unable to interact directly with each other.
In this scenario, no climate agreement had been reached. Unconventionals
failed to spread significantly outside the US because other countries failed to
adopt the legislation necessary to secure the property rights that were indis-
pensable for the success of unconventionals in the US. Especially the oil price,
but also the gas price, was high, providing strong market support for field
developments in the Barents Sea. But the Norwegian–Russian relationship had
been drawn into the maelstrom of persistently worsening Russian–Western
relations, and, beyond the regulation of cod stocks, there was little cooperation
in the Barents Sea.
In 2022 there was a military confrontation off the coast of the Svalbard archi-
pelago over a fisheries incident. Although the violence was minor, it was not
good for cooperation in the Barents Sea. As a result both sides were working
actively but not in coordination, and Russian activity in the Barents Sea had
been weakened by the intensive efforts to develop Far East and East Siberia as
the country reoriented itself towards Asia.
It also turned out that the procedure for unitization of trans-boundary oil and
gas fields under the 2010 Murmansk Treaty was not quite clear after all, and in
the prevailing atmosphere the sides were unable to iron out the wrinkles. Com-
bined with the generally negative political atmosphere, this made it difficult to
develop any trans-boundary fields. The major oil finds happened to straddle the
Arcc technology
advancement
Future price of gas
Development of Lofoten
area
Future price of oil
Amount of oil found
Asian growth
Extent of Russia’s
orientaon towards Asia
Amount of gas found
Unconvenonals outside
US
Norwegian–Russian
relaons
Russian–Western relaons
Strict global climate policy
Figure 2.4 Fingerprint of the scenario “Parallel Play”
Barents Sea oil and gas 2025 25
boundary delimitation line, meaning that little happened on the oil front. Some
smaller fields deeper into the Norwegian part of the sea were however developed.
The Chinese company, CNPC, had taken a central role on the Russian side
after it offered to take full responsibility for the Shtokman field in return for a
49% stake and little security apart from assurances from Russia’s top politicians.
Norway’s conservative coalition government was reelected in 2017, with,
among other things, a strong vote in North Norway based on a promise to
finally open the Lofoten area for exploration. Although the pro-oil part of the
North Norwegian population was dissatisfied with the government’s recent
performance, the green turn of the competing coalition led by the Labor Party
gave pro-oil voters little choice.
An unprecedented number of blocks were opened for exploration on the
Norwegian side in 2018 and the industry grasped the opportunity and went
on a hectic exploration campaign. On both sides, companies heavily invested in
the development of Arctic petroleum technologies, but the lack of cooperation
across the border limited progress on both sides as well as the potential market
for new technologies. There were sufficient discoveries to extend the Nor-
wegian pipeline grid northwards to the Lofoten archipelago, but there were
insufficient gas finds in the Norwegian part of the Barents Sea to extend it any
further, and the Chinese and Russian companies working in the Russian part
of the Barents Sea opted for LNG instead, deploying a floating LNG plant to
export the gas from the Shtokman field.
Supply industries on both the Norwegian and Russian sides had developed,
aimed at delivering products and services to the fields in each country. On both
the Norwegian and Russian sides, the volume of contracts awarded to the local
supply industries had increased considerably because of the high volume of
contracts awarded. However, local content policies motivated Chinese compa-
nies to work mainly with Russian partners, while the Norwegians worked with
Western oil companies – there was little cooperation between Norwegian and
Russian companies.
Scenario 3: “Let’s Dance, but Where Is the Music?”
– Good cooperation in the Barents Sea, but demand is hampered by
climate policy
In the scenario “Let’s Dance”, Norway and Russia were keen to cooperate in
the development of the Barents Sea, but the international market conditions
were not conducive for investment.
Russian–Western relations were reasonably good and Norwegian–Russian
relations were even better. Asian growth had stagnated, resulting in lower demand
for energy. Consequently Russia had reduced its interests in Asia beyond keeping
up deliveries of gas to China in accordance with the agreement on the Power of
Siberia Pipeline reached in 2014. The Altai pipeline was only partially filled. The
world had also become increasingly worried about climate change – and willing
to do something about it. Both the Norwegian and Russian governments had
26 Indra Overland et al.
answered the call of the UN for green growth policies and implemented those.
The Lofoten area was permanently closed for petroleum development, mainly
due to local environmental concerns and fisheries interests.
At the global level, a serious follow-up agreement to the Kyoto Protocol
was finally agreed upon just before the extension of the Kyoto Protocol ran
out in 2020. Strict measures were swiftly ratcheted up, putting downward pres-
sure on the price of oil. The price of natural gas was higher, as gas was used to
replace coal, which had become prohibitively expensive under the new climate
regime. This also put pressure on the development of unconventionals, espe-
cially shale oil.
The new climate regime was accompanied by much stricter environmen-
tal regulations and requirements for Arctic offshore petroleum operations in
Norway and Russia. This put pressure on companies to advance their Arctic
petroleum technologies. Due to the cooperative climate, the Russian and Nor-
wegian petroleum majors managed to develop new advanced technologies at
a reasonable cost, due only to close research cooperation. However, the lack
of development in the Lofoten area meant that there was no infrastructure
to connect the Barents Sea with the rest of the Norwegian continental shelf.
Instead, a pipeline was finally completed in 2025 to take Shtokman gas from
Murmansk through Karelia to Vyborg, and Shtokman was to come on stream
in 2026 – with the same consortium of companies as in the initial agreement:
Gazprom, Statoil, and Total. However, apart from the Shtokman and Johan
Castberg projects, there were few developments, especially oilfields, in the Bar-
ents Sea as demand was subdued by the new climate agreement. Faced with
Arcc technology
advancement
Future price of gas
Development of Lofoten
area
Future price of oil
Amount of oil found
Asian growth
Extent of Russia’s
orientaon towards Asia
Amount of gas found
Unconvenonals outside
US
Norwegian–Russian
relaons
Russian–Western relaons
Strict global climate policy
Figure 2.5 Fingerprint of the scenario “Let’s Dance”
Barents Sea oil and gas 2025 27
limited capacity and uncertainty about the future of the petroleum industry in
the High North, the local supply industry in both Norway and Russia had to
make U-turns in their strategic priorities to answer the call for green growth
policies. Most of the firms had chosen to diversify market portfolios and to
develop and supply products and services for projects other than petroleum
industrial ones, related to, for example, green cities, building wind turbines, etc.
There were several interesting examples of how technological innovation had
stimulated Norwegian and Russian companies to cooperate.
Wild cards
Wild cards are events that have low probability, but high impact if they do
occur – similar to the concept of “black swans”. They are, thus, clustered in
the top left corner of the graph in Figure 2.6. The fact that such unexpected
events do happen all the time is one of the reasons for using Shell’s imaginative
scenario-building methodology rather than forecasting and projecting trends.
Frequently – but not always – they are exogenous to the system and trends
that underpin the main scenarios. Alternatively, they may arise when a trend
reaches a threshold or tipping point (cf. Anker, Baev, Brunstad, Overland, &
Torjesen, 2010, p. 131; Brunstad, Magnus, Swanson, Hønneland, & Overland,
2004, p. 163). Wild cards are thus often stand-alone events that would throw
other variables into the air and impact on many different trends. In that regard
they are mini-scenarios in their own right, therefore standing alone rather than
being integrated into the main scenarios.
Probability
Impact on
Barents Se
a
WILD CARDS
ASSUMPTIONS
UNCERTAINTIES
Figure 2.6 Wild cards in the development of petroleum resources in the Barents Sea
28 Indra Overland et al.
In working on the wild cards for this book, it was noticeably difficult to think
of unpredictable events that would lead to rapid petroleum development in the
Barents Sea. Most events that we have managed to think of would reduce the
likelihood of rapid petroleum development.
Wild card 1: a massive oil spill
We have considered an oil spill per se as only an uncertainty rather than a wild
card, but a massive oil spill is a wild card, especially if it occurs somewhere in the
Arctic. It is not certain how it would affect the oil and gas industry, as there have
previously been big spills that did not lead to major changes in the industry in
spite of broad media coverage and changes in regulations. However, changes in
regulations could make fields more expensive to develop, and the Lofoten area
is already closed (at least for the time being) due to environmental concerns,
showing that such concerns can in fact have an impact.
For the development of the Barents Sea, the massive oil spill was the death knell.
Oil had been the most attractive resource due to higher oil than gas prices, but,
due to the costly new regulations, only very large oilfields could be developed.
Wild card 2: a big earthquake in the US blamed on fracking
A 2017 earthquake in Oklahoma City killed 12 people and brought down many
buildings, as well as several railway and highway bridges. The event received
television coverage around the world. It led to a temporary ban against frack-
ing near residential areas in the US and all-out bans on fracking in many other
countries. The knock-on effect of this was that oil and gas prices rose, especially
in the US, but gradually also in other parts of the world.
For the Barents Sea, this meant that the Shtokman project was revived, with
a floating LNG terminal and aimed largely at the North American market.
Wild card 3: one of the major economies crashes
During the coming years, one of the world’s major economies may crash, with
a major negative impact on the development of the petroleum resources in the
Barents Sea. The economies we consider here are China, the EU, and the US.
China
Escalating tensions with Japan finally caused Japanese companies to start with-
drawing from China. Municipal and company debt reached unsustainable lev-
els, and, in a series of attempts to bring the situation under control, the real
estate market unraveled at the same time as many municipal and corporate
bonds matured. China had been on an upward spiral for a long time, now it was
on a downward one and from 2018 to 2021 it went steeply downwards. This
forced the Chinese to reduce their rapidly rising wage and other costs, which
in turn led to (even) lower imports and to social unrest in China, which in
Barents Sea oil and gas 2025 29
turn further undermined Chinese growth. The Chinese threw out their envi-
ronmental ambitions, stopped replacing coal with natural gas, and reduced oil
imports. At the same time, the West was reducing its consumption of fossil fuels,
both for economic and climate reasons. This brought oil and gas prices down,
which in turn brought developments in the Barents Sea almost to a halt.
The United States
The US economy had been the first to overcome the financial crisis that started
in 2008. However, the US recovery was driven by printing money, which led
to a new stock market bubble rather than sustainable growth. Although US
exports improved with the lower value of the dollar and lower energy costs
from shale gas, the trade balance continued to be seriously off balance, and the
US could not pay its debt. When attempts were made to reduce the printing of
money, economic growth quickly slowed, so the printing was resumed again.
This led to an economic crash in the US in November 2018. As the markets
were no longer convinced by promises of quantitative easing, the crash was
even worse than that in 2008 and the American dollar lost more than half its
value. The Chinese lost one of their main export markets and the whole world
economy fell two years in a row. Along with the world economy, oil and gas
prices fell, undermining the development of the Barents Sea.
The EU
There was stagnation, continued high unemployment, debt, and increasing polit-
ical instability in some countries. Increasingly unruly member countries saw less
and less benefit in the union and started challenging it – in particular Denmark,
Hungary, and the UK. These developments led to a downward spiral, including
another economic crisis, the rise of Euroskeptic parties (mostly right-wing, but,
in a few places, left-wing), the weakening of environmental policy, and increased
use of coal. For the Barents Sea this meant chaos and low demand in its main gas
market, making it even more difficult to develop new gas fields.
Wild card 4: an energy technology revolution
There was a breakthrough in Canada in 2015 in the storage of CO2 from a
coal-fired electricity plant, leading to a revival for coal. Electricity companies
joined forces to develop a pipeline network for capturing and transporting CO2
to suitable locations for storage, and managed to cut costs for the production of
the necessary materials for the pipelines. This led to reduced investment in the oil
and gas sector. Furthermore, in 2020 another energy technology breakthrough
was achieved when Lockheed Martin finalized the technology for mass produc-
tion of mobile fusion reactors. The prospect of cheap and abundant electricity
led to a substantial reduction in the development of new gas fields. For the Bar-
ents Sea, the effect was that all new field developments were put on hold and fur-
ther exploration drilling in the prospective Fedynsky High area was abandoned.
30 Indra Overland et al.
Wild card 5: cooling of the Barents Sea
After a volcano eruption in Indonesia in 2018, a large cloud of volcano ash cov-
ered most of the earth’s atmosphere. The result was a global cooling that lasted
for six years. During the cooling period the ice cover in the Arctic increased
considerably, causing a setback in development work. The cooling also caused
reduced temperatures worldwide, increasing the need for fuel for heating. For
the Barents Sea projects, the situation resulted in an increased interest in Arc-
tic technology, with a delay, however, in exploration drilling and development
studies due to the increased ice coverage.
Table 2.1 Overview of common assumptions for the three scenarios
Assumptions Scenario 1
“After You, Sir” Scenario 2
“Parallel Play” Scenario 3
“Let’s Dance”
World markets vs. international
political bodies World markets and the geopolitical context will
be more important than circumpolar or other
international political bodies
Demand for energy Global energy demand is going to continue growing,
driven by a combination of population growth and
economic growth
Asian market growth Asian markets will continue to grow. Russia will
continue diversifying its exports by expanding
exports to the Asia–Pacific region
Global climate policy Climate change will remain on the political agenda
Barents petroleum exploration Large fields are not very likely to be found outside
the potentially interesting structures that have
already been identified for exploration, especially
on the Norwegian side
Arctic petroleum production There will be significant interest in oil and gas
production from the Arctic, but development
will be dependent on the costs of operations,
maintenance, and logistics. The cost of petroleum
exploration and production will remain high in the
Arctic, even if significant technological progress is
made.
Arctic marine bio-resources The Barents Sea will remain a globally important
marine habitat important for Arctic marine species
and commercial fisheries
Arctic weather conditions Arctic weather conditions will continue to challenge
personnel and hardware
The Northern Sea Route The Northern Sea Route will remain secondary as
a transport route for oil and gas from the Barents
Sea to Asia
Business-to-business
cooperation Oil companies will continue to want access to each
other’s parts of the Barents Sea, but there will be
limited room for small players, especially on the
Russian side
Barents Sea oil and gas 2025 31
Table 2.2 Overview of uncertainties for the three scenarios
Uncertainty factors Scenario 1
“After You, Sir” Scenario 2
“Parallel Play” Scenario 3
“Let’s Dance”
Future price of gas Low High High
Future price of oil Low High Low
Asian growth High High Low
Unconventionals outside US High Low Medium
Strict global climate policy Medium Lax Strict
Amount of oil found Medium Medium High
Amount of gas found High Medium Medium
Development of Lofoten area No Ye s No
Arctic technology advancement Low Medium High
Norwegian–Russian relations Good Bad Good
Russian–Western relations Medium Bad Good
Extent of Russia’s orientation
towards Asia Ye s Ye s No
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