LIMA KAI BJARNE Statoil, Norway

The gas and Arctic shelf conference is an important event for discussion of common challenges in Arctic waters. My presentation will deal with the Snohvit (Snow white) LNG Project; both history, background and status. The Snohvit project has, as quite a few LNG projects, a long and torrid history. First seismic was shot in 1975 - 77. hi 1981 Askeladd was discovered; then Albatross in 1982 and Snohvit in 1984. Two attempts have been made to commercialise Snohvit, first with exports to US in 1988 and then to Italy in 1992; both without success.

Snohvit is our first project in the Barents Sea and our first LNG project. Gas reserves are discovered further and further from the markets, implying strengthening the position of LNG.

Therefore we see it as very important to get a foothold within this market. It also gives us access to new, distant gas markets, which we have not been able to supply through our pipeline systems. Indeed, part of our LNG volumes will go to the US. However, we approach the Arctic frontier with patience and care, not least due to the environmental challenges.

LNG is as of now a product that is mainly traded on long term contracts. Therefore, when planning Snohvit LNG we had to take all elements of the value chain; field development, pipelines, LNG facilities, shipping, receiving facilities and market: into consideration.

For Snohvit we have introduced several new technological solutions:

- Re-injection of CO₂ into an offshore reservoir
- Pre fabrication of compact onshore processing facilities with new process technology

- Multiphase wellstream over 143 kilometers

The activities on the Norwegian Continental Shelf have been a history of breaking new ground through innovative technology. In 1985 we crossed the 300 meter deep trench off the Norwegian west coast with a 36 inch pipeline; a real breakthrough at that point in time. Then we have progressed via the huge gravity based structures to semi submersibles, production vessels and pure subsea developments as Snohvit. Snohvit is the first NCS project where offshore subsea installations are controlled/operated from shore. As a company, we have at intervals revisited our technology strategy to be folly aligned with what we regard as the most relevant business challenges. New technology has been developed together with leading national and international companies.

The development we now name as Snohvit consists of three fields, Askeladd. Albatross and Snohvit. They are located in the Hammerfest basin off the coast of Hammerfest, the world's northernmost city. The offshore development will consist of 20 gas producers. 1 CO₂ injection well, 7 subsea templates, multiphase pipeline of 27", MEG (Mono Ethylene Glycol) pipelines and umbilical connecting the offshore facilities to the onshore LNG facilities and control room. The development will perform in three phases. The drilling of the first wells will start autumn 2004.

The Onshore the facilities consist of wellstream receiving facilities with a slugcatcher of 2.700 m³ capacity, condensate separation and stabilisation, CO2 sequestration and reinjection to offshore reservoir, gas pre-treatment facilities, gas liquefaction, 4 storage tanks and associated utilities including administration building with control room. The Snohvit plant is based on a compact layout, as offshore, due to limited space and to save costs and shorten schedule. Further, the construction is based on a prefabrication strategy. Main reasons for selecting a prefabrication strategy were limited infrastructure in the area, sheer size of the project and potentially harsh weather conditions. Prefabrication of elements has been our base strategy for process facilities and utilities resulting in the process facilities being prefabricated on a barge, the utilities prefabricated as modules and also resulting in most of the interconnecting pipes being prefabricated in racks. Another way of describing this prefabrication strategy, is to look at a map showing where part of the pieces are produced. This really illustrates that the facilities are put together as a jigsaw.

Environmental issues have had, and will continue to have, a high focus all through engineering, construction and operational phases. Fishing and fishing industry is a most important hade in northern Norway, and indeed, also for you our Russian friends and neighbours. For both nations, and, indeed, for both industries, it is important to find a formula for co-existence, a way to live together. Only by achieving and securing such development, sustainability can be achieved. Our work is based on a very thorough and comprehensive environmental impact assessment process. As the first LNG project in the world, we are reinjecting C02 form the wellstream into an offshore reservoir, thus reducing CO2 emissions by 760.000 tons per year. Further, we are using BAT (best available technology) for all environmentally sensitive components, including low Nox burners.

The storage tanks are all full containment tanks with an outer shell of reinforced concrete. The two LNG tanks have a capacity of 125.000 m3 each, and it takes roughly five days to fill a tank. The diameter is 78 metres, and height 47 metres. The condensate tank has a capacity of 75.000 m3 while the capacity of the LPG tank is 45.000 m³. Valuewise LNG constitutes approximately 85%, condensate 11% and LPG 4%.

The process facilities are assembled on a barge of 154x54x9 metres. Barge including topside will have a weight of 35.000 tonnes and be transported to Melkoya on a heavy lift vessel (Blue Marlin). There the barge will be moved into a pre-excavated and prepared dock. The barge is scheduled to be transported northwards summer 2005. The capacity of the plant is 5,75 billion Sm3 (4,3 tonnes) of LNG per year. Resources, market opportunities, efficiency and unit costs were important elements in deciding on the size of the train at the time of submission of the Plan for Development and Operation (PDO). The main process consists of a Linde/Statoil cooling process named MFC (Mixed Fluid Cascade) Process. The facilities have its own energy plant for generation of electrical power and heat. The overall energy efficiency is approximately 70%, which is very good, hi summary, the selected technology is based on life cycle cost, value creation and limitations of emissions.

Melkoya was selected as the location for the Snohvit LNG plant due to its closeness to Hammerfest, good harbour and possibility to land pipelines. Relative closeness to a city gives some synergies and advantages; you are close to an airport, close to hospital and fire brigade and close to a place where people can enjoy a normal life. Indeed, the working hours during operation will be based on normal shift hours. Prior to start of excavation there were a few summerhouses on the 175 acres big island. After excavation of more than 3.000.000 m3 solid rock, the acreage is now 250 acres, and a solid breakwater wall is established. Excavation started June 2002, and summer 2003 work on the outer shell of the storage tanks started. In parallel a sub sea tunnel of 2,3 kilometres was constructed to connect Melkoya with the mainland. And this is how it looks today. From the left you can see the slugcatcher, which was transported to the island in two modules of more than 4.000 tonnes each. Then you have piperacks, construction jetty, storage tanks and the product jetty. The barge with the process facilities will be placed just left of the storage tanks, and the area will also be prepared for a further process train. The administration building is on the north of the island, while the building seen close to shore is the camp for the workers, in fact, it is Norways largest hotel with 1.300 beds!

The templates which are now placed on the seabed are ready for the drilling operations which will start late 2004. The templates are constructed in a way that makes it possible to use trawls also across the installations. They are trawl safe, as we put it. Indeed, I could also mention that as part of our cooperation with the fishing industry, they were also involved in the process of finding an optimal route for the main pipeline to shore; thus avoiding important fishing areas.

The slugcatcher, which is one of the largest in the world, was made in the Netherlands and transported to Melkoya in two pieces on two barges. The slugcatcher was installed on its foundations this summer. The assembly work on the process barge is ongoing at the Dragados yard in Cadiz. Spain. Tow-out from yard is planned for July 2005. The compressors were made at a Nouvo Pignone factory in Massa, Italy. The compressors are now transported to Dragados for installation on the barge.

Then to a quite different issue. So far nearly six thousand persons have been working on Melkoya. People have been coming from all over the world; in fact so far 38 nationalities have been represented. The northernmost counties of Norway have been well represented - so far with 1.200 persons. In the operational phase approximately 170 persons will work at Melkoya. In addition support personnel and consumer generated activities will give 300 - 350 new jobs in the area. In the construction period peak manning will be in the range of 1.500 people. For a local society like Hammerfest. with continuously decreasing population over many years prior to Snohvit, this is an important boost for the local community.

With regard to national and local participation, we have a 50% national share compared with an estimated national share of 36% at PDO stage. Local deliveries have been at 1.8 bill NOK (approx 230 million USD). Also this compares favourably to the estimates prior to start construction, which was 600 million NOK (approx 80 million USD). One of the reasons for the higher than expected local share is the cooperation between the operator Statoil and the local Snohvit Nceringsforening. Snohvit Nceringsforening is a body organising and coordinating potential local suppliers of various goods and services. The body has approximately 400 members. Statoil is requesting all contactors of some size to come to Hammerfest to present themselves and their needs and to listen to what the local business community can offer, in that way contacts are made and it has led to lots of business to the mutual benefit of contractor and local business society, and indeed, also to the project as such.

The Arctic is an important future area for the petroleum industry. Indeed, most experts are of the opinion that approximately 25% of the worlds undiscovered resources are in this area.

Snohvit is our first project in the Barents Sea. The project is opening the Barents Sea and could serve as a stepping stone for a strategic push towards the north east. Through the Snohvit project we are accumulating competence on Arctic E&P activity. The project is introducing Statoil to the technology and market of LNG and gives us important knowledge for further projects. Indeed, we have already started importing LNG to US where we have capacity rights in the Cove Point import terminal. But, as said before, it is important to approach the Arctic frontier with patience and care. And a co-operation between Russian and Norwegian interests should be beneficial to both parties and nations.

ARCTIC SHELF OIL AND GAS CONFERENCE 2004