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Page added on February 2, 2015
Arctic Oil On Life Support
Oil companies have eyed the Arctic for years. With an estimated 90 billion barrels of oil lying north of the Arctic Circle, the circumpolar north is arguably the last corner of the globe that is still almost entirely unexplored.
As drilling technology advances, conventional oil reserves become harder to find, and climate change contributes to melting sea ice, the Arctic has moved up on the list of priorities in oil company board rooms.
That had companies moving north – Royal Dutch Shell off the coast of Alaska, Statoil in the Norwegian Arctic, and ExxonMobil in conjunction with Russia’s Rosneft in the Russian far north.
But achieving the goals of tapping the extensive oil reserves in the Arctic has been much harder than previously thought. Shell’s mishaps have been well-documented. The Anglo-Dutch company failed to achieve permits on time, had its drill ships run aground, and saw its oil spill containment dome “crushed like a beer can” during testing. That delayed drilling for several consecutive years.
However, the first month of 2015 has darkened Arctic dreams even further. Oil companies are scratching their heads trying to figure out how to deal with a collapse in oil prices, now below $50 per barrel. With virtually every upstream company around the world slashing spending, it is the highest-cost and riskiest projects that are getting scrapped first.
Statoil, the semi-state-owned oil company from Norway, has been an offshore leader and Arctic pioneer. After having watched Shell fumble its Arctic campaign, Statoil put its drilling plans off the coast of Alaska on ice. But now with rock-bottom oil prices, Statoil has even shelved Arctic drilling plans in its own backyard. Bloombergreported on January 29 that Statoil does not plan on drilling in the Barents Sea this year. It also let several Arctic exploration licenses off the coast of Greenland expire.
In December, Chevron suspended its drilling plans in Canada’s Arctic indefinitely.
In Russia, Arctic dreams are also going to disappoint, although for different reasons. Last year, Rosneft – operating in conjunction with ExxonMobil – announced a major discovery in the Kara Sea. Rosneft’s Igor Sechin said that the field could hold as much as 730 million barrels of oil. “This is our united victory, it was achieved thanks to our friends and partners from ExxonMobil, Nord Atlantic Drilling, Schlumberger, Halliburton, Weatherford, Baker, Trendsetter, FMC,” Sechin said in a statement. “We would like to name this field Pobeda,” the Russian word for victory.
But western sanctions may delay the victory. ExxonMobil is prohibited from working with Rosneft, and had to wind down its operations shortly after the discovery was announced. Worse for Rosneft, ExxonMobil was the one that had the drilling rig under contract, apparently the only platform that would work for the well.
Reuters reported on January 30, 2015 that Rosneft would have to delay drilling until 2016 at the earliest. “There will be no drilling in 2015. There is no platform and it is too late to get one. The project was initially created for Exxon’s platform,” a Rosneft source told Reuters. ExxonMobil has already pulled its platform out, and has it under contract until July 2016. Drilling may not begin for another year or two, and production from the world’s most northerly oil field will not begin until sometime in the 2020’s, barring other setbacks.
That leaves Shell, the company with the spottiest Arctic record. Shell announced $4.16 billion in fourth quarter profits, a decline from the previous quarter, but a decent showing relative to its peers. Nevertheless, the company also announced $15 billion in spending cuts over the next several years. “The macro environment has moved against us,” Shell CEO Ben van Beurden said after releasing the quarterly figures.
Curiously, however, amid all the spending reductions, Shell hopes to once again return the Arctic, after a two-year hiatus. Perhaps that is because of the sunk costs – Shell will spend around $1 billion on its Arctic program whether or not it is drilled because of all the ships and other logistics already under contract. Shell still needs to obtain several permits and clear legal hurdles, but if all goes according to plan, the company could begin drilling this summer.
It is up to Shell then to keep the oil industry’s Arctic dreams alive.
12 Comments on "Arctic Oil On Life Support"
Plantagenet on Mon, 2nd Feb 2015 11:08 am
Shell has lower reserves then any of the other oil “majors.”
If they want to stay in the oil biz, they need to find some oil, and the Arctic is about the only place left where large conventional fields might be found
Dredd on Mon, 2nd Feb 2015 11:36 am
There are no conventional fields in the Arctic.
They are all very dangerous, so they are quite unconventional.
Shell found that out last time (Barry & Oil-Qaeda vs Arctic Wilderness), and will find out again if they mess around in that environment that is in a flux because the Arctic is warming at a rate greater than lower latitudes (“The Arctic is warming at twice the rate of anywhere else on Earth” – NOAA).
It is risk writ large.
dave thompson on Mon, 2nd Feb 2015 11:37 am
Going to the arctic for new oil deposits is all about peak oil.
MSN Fanboy on Mon, 2nd Feb 2015 11:39 am
Not at this price plant lol
maybe 200 dollars a barrel.
Speculawyer on Mon, 2nd Feb 2015 11:51 am
It is not on life-support . . . it has been put into the deep freeze.
They’ll be back up there drilling when the price goes back up past $100/barrel. Don’t know when that will happen though.
Plantagenet on Mon, 2nd Feb 2015 12:10 pm
Any new oilfields discovered now are going to take ca. 10 years to bring into production.
Shell is smart to be looking for oil now so they will have oil to sell when the oil glut ends and the price goes back up.
Kenz300 on Mon, 2nd Feb 2015 1:07 pm
Maybe the Majors should wake up and diversify AWAY from OIL ………
BP once used the slogan Beyond Petroleum……. then walked away from the slogan and their alternative energy investments.
It is time for oil companies to wake up and see that oil resources are finite and that the world as begun to realize the damage from fossil fuels to the environment and are moving away from them…..
Pope Francis On Climate Change: Man Has ‘Slapped Nature In The Face’
http://www.huffingtonpost.com/2015/01/15/pope-francis-climate-change_n_6477388.html?utm_hp_ref=generation-change
Plantagenet on Mon, 2nd Feb 2015 3:32 pm
Oil companies are in the oil biz.
Past efforts to diversity haven’t worked out well for them. When I worked at an oil major we looked into diversifying—but there just isn’t any other biz that is big enough to even show up as blip on the balance sheet of a major oilco.
Bob Owens on Mon, 2nd Feb 2015 8:25 pm
Large oil projects, pretty much anywhere, are dead. You have the unseen drop in oil prices, not even foreseen by the Pope, oil price future volatility, long lead times of about a decade, no more available financing, a soon to be decimated work force from retirements and layoffs, wars, corruption, etc. Let’s call it: new oil projects are over, forever. Contrast this with utilities quietly turning to solar farms to get more of their power at cheap and stable prices. It will be clear in a few years that the oil ship has sunk. The question for the future: will solar power be enough to keep the lights on?
Davy on Mon, 2nd Feb 2015 8:58 pm
Bob, nope solar won’t be enough to keep the lights on but let’s build like hell anyway. Solar is an essential lifeboat energy source arguably the best and most effective. We need lights for nighttime productivity. A large amount of tasks will need to be performed at night. We must accept that the descent is going to require longer hours than we put in now at least until food and other vital basics have reached stability post FF.
The shiny green AltE world is a farce of exceptionalism preaching just another failed substitution scheme instead of acknowledging limits and a cumulative destruction of a global ecosystem in population overshoot. This false reality preaching is true with many of the AGW folks and environmentalist of all stripes. These folks need to stop the lies and distortions. We are done. There is no amount of wishing and hoping going to change that. Let us be adults and face this with courage and take it like men.
GregT on Mon, 2nd Feb 2015 9:49 pm
“The question for the future: will solar power be enough to keep the lights on?”
Answer: Yes. If you install a standalone off grid system before things really fall apart, add a nickel iron battery bank and you should be good to go for
up to 25 years. Make sure to stock up on parts though, because they could very well be unobtanium for most people and in most places.
http://ironedison.com
Davy on Mon, 2nd Feb 2015 10:01 pm
Greg thanks for the link. I am going to dig deeper into that site