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What Next for the Arctic?

Arctic waters hold vast undiscovered hydrocarbon reserves, but will they ever be exploited?
This article appeared in Vol. 13, No. 1 - 2016

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The US Geological Survey estimates that the Arctic holds undiscovered reserves of about 90 Bbo, 1,669 Tcfg, and 44 Bb of natural gas liquids, the majority of it offshore. When the oil price held steadily at over US$100 per barrel, a number of countries and companies were eyeing these northern riches, but in the present price environment, things look very different. 

Pulling Out 

Exploring offshore in the Arctic is very expensive: a very short ice-free weather window for drilling; massive safety issues; hugely expensive specialised technology; and major environmental regulations. With the present oil price all these add up to make exploring in Arctic waters very unattractive at the moment. 

Arctic Cirlce map (Jakobsson et al, 2008) and inset with ‘Lambert azimuthal equal-area projection’ with Arctic circle (approx. 66.5 degrees north of the equator) highlighted (Source: Strebe). After spending a number of years in litigation and in discussions with environmental authorities to gain permission to restart drilling in the US Arctic Chukchi Sea, super-major Shell finally drilled the Burger J well in the summer of 2015 – to find only a few traces of hydrocarbons. The company promptly announced that it would withdraw from the region completely, despite reportedly having spent an estimated $7 billion on its Arctic efforts. 

Shortly afterwards, in October 2015, the US Department of the Interior cancelled two Arctic offshore lease sales, in the Chukchi and Beaufort Seas, both part of the US current five-year offshore oil and gas leasing programme for 2012–17. The department claimed that its decision was prompted by Shell’s disappointing well, plus the fact that companies had shown very little interest in the sales. The US authorities also turned down requests from Shell and Statoil for lease extensions that would have allowed them to retain their Arctic leases beyond the primary 10-year term, claiming that the companies “did not demonstrate a reasonable schedule of work for exploration and development”. 

Then in November Statoil announced that it would be pulling out of all its leases in Alaska’s Chukchi Sea, saying that “given the current outlook we could not support continued efforts to mature these opportunities”. 

Environmental activists rejoiced. But does this spell the end of exploration in Arctic waters? 

Time to Consider and Plan 

The LNG plant at Melkøya in the Norwegian Arctic processes gas from the Snøvit field, 170 km to the north. (Source: Harald Pettersen – Statoil ASA) Unlikely. The US is only part of the story: Russia, Canada, Norway, Greenland and Iceland all have Arctic coastlines too. Statoil is drilling in the Norwegian Arctic and gas is already coming ashore from the Snøvit fields, about 450 km north of the Arctic Circle. With the enthusiastic backing of President Putin, Russia is actively exploring its Arctic waters, and in April 2014 announced the shipment of its first tanker of Arctic offshore oil, from the Prirazlomnoye offshore field, in the Pechora Sea, less than 100 km from coastal and island wildlife reserves. 

Many people not involved in the oil industry consider the hazards involved in Arctic exploration, particularly from the environmental viewpoint, not worth the potential prize. A major – or even minor – oil spill could have very far-reaching effects on the fragile ecosystems of the Arctic. Even with the very strict regulations in place in the US, it is doubtful if such a spill could be easily contained. Although to undertake further offshore exploration Russia probably needs technical help from US multinationals, unavailable at the moment due to sanctions, the lower regulatory regime there makes exploration in these waters disquieting. 

Cheaper oil is for the moment driving people away from offshore Arctic exploration. Maybe this will give us time to step back, undertake detailed research, and analyse the pros and cons in a more informed and less intense manner. More discussion and cooperation between the Arctic nations is needed, particularly to look at technological solutions which could make drilling there reliably safer, both for the people involved and for the environment. 

At some time, the oil price will go up again. When it does and Arctic drilling becomes more economically feasible, we must have information available to know whether we can do it safely – and if we should do it at all.

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