High oil prices, new technology to offset freezing conditions and prospects that global warming may melt polar ice are making once inaccessible reserves in the polar region suddenly attractive to oil and gas firms.

Hammerfest, perched on the tip of Europe and home to around 9,600 people, has become a testing ground for how remote communities will be affected if the Arctic becomes Europe's biggest construction site in coming decades.

The US Geological Survey said a quarter of all undiscovered oil and gas may be in the Arctic. Countries from the United States to Russia are looking north, partly to help break dependence on supplies from the volatile Middle East.

At the heart of Hammerfest's optimism is the Snoehvit natural gas field, 140 km (90 miles) offshore, and a gas processing plant being built by Norwegian energy group Statoil on nearby Melkoya island at a cost of US$9.6 billion.

Snoehvit will be the world's most northerly plant for liquefied natural gas -- gas super-cooled for transport by ship -- when it comes on stream in December 2007. It is the biggest industrial project ever for Norway's northernmost county.

WARY WELCOME

With estimated reserves of 193 billion cubic metres of gas, Snoehvit has brought an army of 3,000 workers to Melkoya, vast investments and the odd drunken fight between the new arrivals and locals in crammed bars.

Many people in Hammerfest, a port of box-shaped wooden houses that is separated from Melkoya by a 2.4 km (1.5 mile) tunnel, welcome the project but have reservations.

"People are more optimistic," said Sigrid Viken, a 44-year-old librarian who said Snoehvit would help fill a gap left after a fish processing plant closed in the 1990s. "The environment is being damaged but we're getting lots of money."

Mayor Jakobsen said most effects so far had been positive, and he hoped Snoehvit could make Hammerfest a hub for developing other Norwegian fields in the Arctic.

The town's unemployment rate has fallen to 2.5 percent, there is heavy investment in schools and kindergartens and they have put up a 20 km-long (12 mile) wire fence to keep out reindeer which roam the town in summer in search of grass.

"The reindeer are a nuisance every year," Jakobsen said.

New property taxes paid by Statoil amount to 100 million Norwegian crowns (US$16.5 million) a year -- almost 20 percent of the municipal budget. The fence is costing around 2.5 million crowns.

Since the Snoehvit project was approved by parliament in 2002, some house prices have more than doubled.

"My flat was worth 600,000 crowns (US$98,900) before Snoehvit and now it's worth 1.3 million," said Reidun Johanessen, 63, waiting for her bus in the town centre.

Hammerfest's transformation from a sleepy backwater has a historical precedent -- a century ago it was the first town in north Europe to get electric street lights and there were consulates from six countries in what was then an important ice-free port for trade with Tsarist Russia.

"MELKATRAZ"

Now, Melkoya's gleaming steel towers, cranes, grey concrete buildings and red-painted hotels for workers stand in sharp contrast to the barren snow-capped hills on the mainland.

"The locals call it 'Melkatraz'," quipped Statoil spokesman Sverre Kojedal, likening Melkoya to the former Alcatraz Island prison off San Francisco.

Melkoya has been largely paved over.

"The cloudberries have gone but the seagulls are still here," Kojedal said. Workers sometimes eat boiled seagull eggs -- a delicacy with beer.

Partly because of the Arctic conditions, costs of developing Snoehvit have surged -- to 58.3 billion crowns (US$9.6 billion) from an original estimate of 39.5 billion.

Analysts say that could be a cautionary tale.

Another big project for the region will be Russia's Shtokman field, one of the world's biggest offshore gas fields. Located to the northeast in the Barents Sea, it is estimated to hold reserves of 3.7 trillion cubic metres in an iceberg-strewn area.

Cost estimates of the Gazprom field, 550 km (342 miles) from land, range from US$12 billion to US$34 billion.

Norway has said it will impose tough environmental demands on energy companies looking to explore in the pristine region.

Snoehvit's labour costs are also far higher than expected -- staff on the project work 12-hour shifts for three weeks, then get three weeks off. And the big industrial facilities had to be built in warmer climates and then shipped from as far as Spain.

"We've had a lot of new challenges with the Arctic conditions," said Odd Mosbergvik, head of the Snoevhit project.

Repairs at Snoehvit cost four times more than in the North Sea, the heart of Norway's oil industry. Norway is the world's number three oil exporter behind Saudi Arabia and Russia.

Temperatures can fall as low as -20C (-4F) in winter and the sun does not shine from Nov. 22-Jan. 21, the downside of living in a region bathed by the midnight sun for two summer months.