Arctic community still banks on oil

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On a wide-open, windswept expanse of surprisingly lush Arctic seafront, the mayor of one of Norway’s most northerly communities eagerly points to what she sees as her area’s economic future. Kristina Hansen still believes Statoil will build a terminal here at Veidnes in her township of Honningsvåg for one of the world’s biggest oil discoveries in recent years, even though the Norwegian state oil company announced last week that the project is now on hold.

Kristina Hansen, the mayor of Honningsvåg, is originally from the Færoe Islands and accustomed to life in usually blustery, remote places. She has welcomed Statoil's plans to build a new oil terminal here at Veidnes in Honningsvåg, believing it will generation economic development. PHOTO: newsinenglish.no/Nina Berglund

Kristina Hansen, the mayor of Honningsvåg, is originally from the Færoe Islands and accustomed to life in usually blustery, remote places. She has welcomed Statoil’s plans to build a new oil terminal here at Veidnes in Honningsvåg, believing it will generate economic development. PHOTO: newsinenglish.no/Nina Berglund

“I think construction will start in 2015, maybe 2016 with the delay,” Hansen said confidently while showing the site on Friday to a group of journalists from Norway’s Foreign Press Association. “I think it will be finished by 2020, maybe sooner.”
It’s a brilliantly sunny and unusually warm day at Veidnes, located right at the mouths of the Porsanger Fjord and the undersea North Cape Tunnel that connects Honningsvåg to the Norwegian mainland. Honningsvåg and the island of Magerøya where it sits is also home to one of the country’s major tourist attractions that last year drew 245,000 visitors to Europe’s northernmost point.

Arctic_vignetteTraffic out of the tunnel is now mostly camping vans driven by tourists heading for the popular if expensive North Cape. By the end of this decade, Hansen believes the traffic will also include trucks, industrial vehicles and cars driven by oil industry workers, all year round.

Statoil's planned terminal for oil from the Skrugard field may well be a boon to the community near Honningsvåg. Environmental organizations remained skeptical or opposed to oil exploration and production in sensitive Arctic areas. PHOTO ILLUSTRATION: Statoil

This is what Veidnes will look like if Statoil goes ahead with its terminal plans. PHOTO ILLUSTRATION: Statoil

When Statoil announced its plans to build a terminal for its Skrugard and Havis fields in the Barents Sea (now renamed “Johan Castberg” by the state oil ministry) just four months ago, it called its decision to bring oil ashore at Veidnes a “key element” in “the further development of the Norwegian oil and gas industry.” Statoil’s executive vice president for development and production in Norway, Øystein Michelsen, claimed the project “may spark off a new industrial era.” The Veidnes terminal at the end of a 280-kilometer pipeline from the offshore oil fields, Michelsen claimed, would also “facilitate further exploration and help make any future discoveries profitable.”

Jan Tore Berg's family has owned a holiday home for 33 years in the area where Statoil has planned to build its terminal for the newly renamed Johan Castberg field in the Barents. Both it and seaside cabins like the one shown here are likely to be torn down, so Berg seemed happy Statoil has put the terminal project on hold because of the threat of higher taxes. PHOTO: newsinenglish.no/Nina Berglund

Jan Tore Berg’s family has owned a holiday home for 33 years in the area where Statoil has planned to build its terminal for the newly renamed Johan Castberg oil field in the Barents. Both Berg’s home and seaside cabins like the one shown here are likely to be torn down, so Berg seemed happy Statoil has put the terminal project on hold because of the threat of higher taxes. PHOTO: newsinenglish.no/Nina Berglund

Last week, Statoil executives were suddenly singing a very different tune, announcing that development of the Veidnes project and the Johan Castberg oil field itself were halted indefinitely because of higher costs, higher taxes and uncertainty over resources. It’s the prospect of higher taxes that seems to mostly have fueled Statoil’s abrupt change of plan in and off Honningsvåg. Threats to profitability surfaced just last month when the government surprised the entire oil and gas industry by announcing a “tax change,” and it’s said to jeopardize the “stable framework” oil companies have had in Norway when planning major, long-term offshore investments. Oil executives, analysts and professors of economics have claimed the Labour Party-led government that initiated the tax change has underestimated the consequences it will have.

Statoil executive Rune Adolfsen was back in Honningsvåg last week and confirmed that Statoil has halted work on the local terminal project, but said he thinks it would "contribute to the community." PHOTO: newsinenglish.no/Nina Berglund

Statoil executive Rune Adolfsen was back in Honningsvåg last week and confirmed that Statoil has halted work on the local terminal project, but said he thinks it would “contribute to the community.” PHOTO: newsinenglish.no/Nina Berglund

Statoil clearly decided to make the now uncertain future of its big Castberg field and terminal project in Honningsvåg an example of such consequences. The tax change “really came out of the blue,” said Rune Adolfsen, Statoil’s vice president of logistics who’s been active in the planning for the terminal at Veidnes. Adolfsen, who was in Honningsvåg last week, confirmed it was a “big surprise” and that work on the terminal project has stopped.

That’s come as a blow to Hansen, the Honningsvåg mayor, and her colleagues in the local government. It’s also put her in an awkward position because she hails from the Labour Party herself. She said she will “remain loyal” to the Labour-led state government and its tax change, even though it’s now endangered her own community’s hopes for economic development.

Honningsvåg Mayor Kristina Hansen and Statoil executive Rune Adolfsen remained on good terms last week, even though Statoil has put its much-vaunted terminal project on hold, mostly because of new tax policies initiated by Hansen's Labour Party colleagues in Oslo. PHOTO: newsinenglish.no/Nina Berglund

Honningsvåg Mayor Kristina Hansen and Statoil executive Rune Adolfsen remained on good terms last week, even though Statoil has put its much-vaunted terminal project on hold, mostly because of new tax policies initiated by Hansen’s Labour Party colleagues in Oslo. PHOTO: newsinenglish.no/Nina Berglund

Not everyone in Honningsvåg was crushed by the news that Statoil was at the very least postponing work on the terminal and may not build it after all. Jan Tore Berg, who came bicycling from the holiday home his family has had at Veidnes for 33 years, isn’t at all happy with the terminal plans and wants to preserve the scenic area for recreational purposes. He and other owners of holiday homes (hytter) along the coastline where Statoil planned to build “will receive compensation,” Hansen said, but Berg said he’s had no concrete offer from Statoil and complained of a lack of information. The land where the holiday properties are located is owned by the township and leased long-term to the hytte owners, so Honningsvåg officials presumably have leverage although Berg intends to demand “a good price” for his family’s property from Statoil. Homeowners across the bay from Veidenes will receive no compensation for spoiled views from either the township or Statoil, Hansen said, but had been consulted by Statoil during the planning process.

‘Tourism isn’t enough’
There also are some scattered tourism businesses in the area, including a “King Crab Safari” and assorted holiday rentals, but neither Hansen nor Honningsvåg’s tourism manager Åse Lill Barstad sees a conflict between oil industry activity and tourism. Even though the North Cape is a major tourist magnet, “tourism isn’t enough” to provide a stable and adequate economic base for Honningsvåg, Barstad said.

“I think it’s because of the situation we’re in,” Barstad added, given the loss of fish processing plants to cheaper Asian operations and the seasonal nature of local tourism. The vast majority of tourists come in summer, when the Midnight Sun shines brightly when the weather is good. Local hotels that now close in the winter would gladly remain open for traveling oil company employees and their suppliers, and Honningsvåg needs to generate more local year-round jobs.

Adolfsen of Statoil said the terminal at Veidnes would generate as many as 600 jobs during its construction phase and at least 30-40 permanent jobs once operational. “We think it will contribute to the community,” Adolfsen said, noting that Statoil underestimated the number of jobs that its Melkøya plant off Hammerfest has generated. That’s meant higher costs for Statoil and its partners, but was good for Hammerfest.

Political ploy?
Adolfsen predictably wouldn’t comment on whether Statoil’s decision to put Johan Castberg development on hold is merely a political maneuver made to pressure government officials into relenting on the tax issue. “I do think there are many discussions going on” within the ministry, he said, though, and Hansen does, too, before the tax change is expected to become law when up for a vote in Parliament on June 17.

She laughed off a suggestion that she simply call Labour’s Finance Minister Sigbjørn Johnsen and explain that he was causing problems for her. On the contrary, Hansen loyally noted that while the tax change can increase taxes on offshore operations, they may be offset by tax relief at land-based facilities.

“We welcome Statoil,” Hansen stressed, and remains optimistic that the terminal will be built. Even Berg, who faces losing his holiday home at Veidnes, conceded that the majority of Honningsvåg residents also welcome Statoil, its partners on the Johan Castberg field and others, and that oil industry activity in Norway’s far north “is bound to come.” He’s worked as a carpenter himself on offshore oil installations, and admitted to benefiting from that. He just wishes the terminal would be built in someone’s else’s backyard: “We’re the ones most affected by this.”

Views and News from Norway/Nina Berglund

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