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Companies Race for Gas in Arctic

September 10, 2007 at 6:50 PM EDT

TOM CLARKE, ITV News Correspondent: There’s a problem with reindeer in Hammerfest. Nuisance nibbling of parks and gardens is the price you pay for being one of the world’s northernmost places. Another is suddenly finding your tranquil Arctic town home to a tongue of flame reaching 100 meters into the sky.

The flare marked the coronation of the Snow White gas project. Far more than a fairy tale for Statoil, Norway’s state-owned petroleum firm, who took us through the tunnel they built connecting the island plant to the town.

GEIR PETTERSEN, Statoil: You’re now standing at nearly 71 degrees north, close to the Barents Sea, it’s nothing between here and the North Pole. So it is the first big development in the Barents Sea.

The effects of climate change

TOM CLARKE: Which is why this plant is crucial. It cools raw natural gas until it becomes a liquid, vital if you want to ship gas from somewhere as remote as the Arctic to customers.

This is Europe's first large-scale liquefied natural gas plant. And when production starts here in just a matter of weeks, it will be shifting somewhere around the equivalent of six billion cubic meters of natural gas every year to markets in Europe and the U.S.

But the significance of this project, not just for Statoil, but possibly to the Arctic as a whole, is what's going on at the other end of the gas pipe, 143 kilometers out there in the Barents Sea.

A normal rig drills Snow White's wells, but it's since been towed away, having planted all the gas harvesting hardware on the seabed out of the way of the Arctic severe weather, but more importantly ice. The idea being, in future, you can get gas or oil out of virtually anywhere. The cold irony in the Arctic is that climate change, due in part to burning oil and gas, is luring oil and gas companies in, as troublesome ice vanishes from the north.

WILLY OSTRENG, Ocean Futures Project: You have lesser ice, and ice is not as strong as it used to be, implies that the industry will move in and use this area for the needs of the south.

The history of Hammerfest

TOM CLARKE: Hammerfest hasn't had the happiest of histories. It was ransacked by the English navy in the 1800s. At the end of the war, it was razed to the ground by the Nazis. Then in the 1980s and '90s, its fishing industry went into decline, and people started to leave.

But things are getting better now. As one of the world's most northerly towns, it's in a perfect place to benefit from an Arctic energy boom. The plant means millions of pounds in extra taxes each year, enough to put a smile on the face of any small town mayor.

MAYOR KRISTINE JORSTAD BOCK, Hammerfest, Norway: The town was very tired and dirty and there was no optimism. And all the young people moved.

TOM CLARKE: And then Snohvit came along. What happened then?

MAYOR KRISTINE JORSTAD BOCK: And all the negative things stopped. The young people came back.