Shale Presents Competition for Arctic Oil, Gas Development

The Arctic region holds significant untapped oil and gas resources, but Arctic development faces major competition from unconventional oil and gas resources and other alternative hydrocarbon sources, according to a panelist speaking at the Arctic Technology Conference Wednesday in Houston. The conference highlighted the latest in technology and strategies for all aspects of Arctic exploration and production, from drilling and operations to logistics.

Oil and gas exploration is not a new phenomenon in the Arctic. Approximately 500 wells were drilled above the Arctic Circle in the 1970s and 1980s. The oil and gas industry and academia have conducted extensive research and development into Arctic exploration and production, including full-scale modeling and testing. According to the U.S. Geological Survey’s 2008 Circum-Arctic Resource Appraisal, the Arctic contains 412 billion barrels of oil equivalent, 25 percent of the world’s oil and gas resources.

The decline in oil prices in the mid-1980s prompted the oil and gas industry to abandon Arctic drilling. The Exxon Valdez incident of 1989 didn’t help the industry’s image in terms of Arctic oil and gas activity.

Today, global oil and gas companies are refocusing their exploration and production efforts on the Arctic due to high oil prices in real and normal terms; the fact that oil and gas resources are becoming harder to replace due to resource nationalism; and incentives within Russia to encourage development, Edward Richardson, analyst with London-based Infield Systems, told conference attendees.

“Oil and gas companies are turning to the Arctic to fill their hopper with discoveries for the next generation of projects,” said Richardson.

As a result, capital expenditures (capex) for Arctic exploration and production are expected to grow between 2014 and 2018. However, some spending plans earmarked for 2017-2018 could be delayed until the early 2020s.

Much of the planned capex for Arctic oil and gas activity will focus on Norway, northeastern Canada, the Russian sub-Arctic and the Russian Arctic Shelf. From 2014 to 2018, $3.4 billion is expected to be spent in Norway, $3.2 billion in northeast Canada, $3.2 billion in the Russian sub-Arctic, and $2.7 billion on the Russian Arctic shelf.

The vast majority of oil and gas activity will focus on the sub-Arctic regions, and will include platform and pipeline projects, Richardson noted. Liquids-focused projects and shallow water projects will also fare better than gas and deepwater projects, Richardson noted.

The Arctic, which encompasses 21 million square kilometers of acre, or 6 percent of the Earth’s surface, contains substantial untapped resources. To date, 82 discoveries have been made, and 138 billion barrels of oil equivalent of 2P reserves have been found. Only a small portion of these resources have been developed, most in sub-Arctic regions such as the Barents Sea and offshore eastern Canada.

Arctic oil and gas development faces competition not only from unconventional resources, but floating liquefied natural gas, non-Arctic offshore resources and production growth from existing fields made possible through liquefied natural gas.

Arctic oil and gas exploration and production also faces challenges from the fluctuations in oil prices and rising project development costs. Richardson noted that the price of Brent crude is forecast to decline to $92/bbl by the end of the decade, and the major divergence seen in global gas benchmarks – and outlook for the global gas market to remain regionally focused – could present challenges for determining whether projects are economically feasible.

Unconventionals pose the greatest competition not only for Arctic exploration and production, but to the deepwater Gulf of Mexico as well. In 2007, 183 deepwater development projects were planned in the U.S. Gulf; last year, 31 were announced. The number of shallow water platforms installed in the U.S. Gulf also declined from 84 in 2007 to six in 2013.

For Arctic exploration and production to continue, the oil and gas industry must learn to adapt to lower commodity prices and capex as well as intense competition from other sources, Richardson noted.

Oil price will remain the most important factor in the equation of whether Arctic exploration and production is commercially feasible, said Abdel Ghoneim, engineering manager with Atkins Global, during a panel presentation at the conference. A good public image is the second most important factor after oil price that will decide the future of Arctic exploration.

The most important discoveries made in the Beaufort Sea were drilled in the mid-1980s, including the Amajuligak field. Ghoneim noted that exploration would have continued if oil prices hadn’t declined.

Russia, which has 70 percent of the world’s Arctic resources and 43 of the world’s 61 most significant oil and gas fields, will be a major focus point of Arctic exploration. This summer, Exxon Mobil Corp.– which took over from BP plc in its partnership with Rosneft – and Rosneft will drill the first of 14 wells in the Kara Sea.

Alaska in the United States is home to 14 percent of the world’s Arctic oil and gas, while Canada has 10 percent. The United States is expected to have Arctic specific regulations completed by this year. However, first oil and gas production from the Chukchi and Beaufort seas will not likely begin production until 2028 to 2029 after Royal Dutch Shell plc’s delay of its 2014 Arctic drilling plans offshore Alaska. Shell has put its plans to drill in the Chukchi Sea this year on hold. Shell will not likely drill there until 2015 to 2016.

Greenland also has significant oil and gas resources. ExxonMobil, Chevron Corp. and Shell are expected to drill offshore Greenland over the next few years.

The Arctic’s receding ice has opened up the region not only to shipping and adventure tourism opportunities, but to oil and gas exploration. However, new regulations, standards, recommended practices and guidelines are need for Arctic exploration and production, as well as infrastructure such as platforms, shore bases and pipelines, Ghoneim noted.

The industry also faces long lead times in developing Arctic projects. Offshore Arctic developments in less than 328 feet (100 meters) of water will likely need 14 years for completion, while deepwater Arctic projects will like take more than 18 years for completion of development.

– See more at: http://www.rigzone.com/news/oil_gas/a/131617/Shale_Presents_Competition_for_Arctic_Oil_Gas_Development/?all=HG2#sthash.70Uu3Ldk.dpuf

5 Comments on "Shale Presents Competition for Arctic Oil, Gas Development"

Davy, Hermann, MO on Fri, 14th Feb 2014 2:23 am 



Rock, we need you to digest this!

I just don’t see how the capex is going to maintain growth in the arctic region. It is going to come under pressure everywhere. Those areas with the greatest risk will be shut out first. My bets are on the arctic getting the boot!

Northwest Resident on Fri, 14th Feb 2014 3:38 am 



Davy — I read an excellent article somewhere that made a few very good points about drilling for oil in the arctic. One of those points was that even if they began in earnest to start projects in the Arctic, it would take at least 5 or 6 years (?) from now before that first dose of liquid gold got sucked out of the ground, and that’s if everything went like clockwork. Actually, I think the article put a 10-year future date, but I can’t remember exactly. Hopefully our resident expert will come along and shed some light on this.

In the meantime, from Greenpeace, here’s the top ten reasons why drilling in the Arctic is a really stupid idea:

1. It’s extremely dangerous. The Arctic environment is one of the harshest in the world, and everything you do there is more complicated than anywhere else.

2. Our climate can’t afford it. As the impacts of climate change become more visible and the danger becomes greater, drilling for and burning more fossil fuels is pretty much the last thing we should be doing, especially in somewhere as fragile and untouched as the Arctic.

3. Relief wells are harder to drill. In the case of a blow-out – like happened with Deepwater Horizon – a relief well must be drilled, but the arrival of winter ice cuts the drilling season short. This means oil could be left gushing unstopped for up to two years.

4. Oil recovery is near impossible in ice. Standard spill technologies like booms become useless in thick ice. According to a senior official at a Canadian firm specializing in oil spill response, “there is really no solution or method today that we’re aware of that can actually recover [spilt] oil from the Arctic.”

5. There isn’t nearly enough oil spill response capacity. The Arctic is remote — it has a small population, and few facilities available. About 6,000 ships were used to skim oil in the Deepwater Horizon disaster. Cairn Energy had a mere 14 ships available in the Baffin Bay in Greenland; Shell has named only nine in their oil spill response plan for the Chukchi Sea.

6. Nature is even less capable of absorbing oil there than in lower latitudes. Lack of sunlight in winter and cold weather means that oil will take more time to break down. Oil will stay locked under the sea ice. More than 20 years after the Exxon Valdez disaster in Alaska, oil can still be found in the environment of Prince William Sound.

7. The local wildlife is very vulnerable to oil. Many bird species migrate to the Arctic in summer, as well as whales and seals. Polar bears and Arctic foxes, which rely heavily on marine and coastal resources to live, will be directly impacted by industrialization.

8. It’s hugely expensive – because of the extreme nature of operating on the frontiers of the world’s last great wilderness, looking for Arctic oil is incredibly expensive. In the last two years Cairn Energy has spent over a billion dollars to drill a handful of wells – and still found no oil.

9. A three year fix – the US Geological Survey estimates the Arctic could hold up to 90 billion barrels of oil. This sounds like a lot, but that would only satisfy three years of the world’s oil demand. These giant, rusting rigs with their inadequate oil spill response plans are risking the future of the Arctic for three years worth of oil. Surely it’s not worth taking such a risk?

10. We don’t really need to. Carmakers are perfectly capable of making only fuel-efficient vehicles. If companies like Volkswagen stopped blocking key efficiency laws, fuel-efficient vehicles would become the norm. This way, we would reduce our need for oil, help the planet, and save consumers some gas money.

Davy, Hermann, MO on Fri, 14th Feb 2014 4:09 am 



N/R, I spent time in the arctic and seen many documentaries. The thought of losing this wilderness hurts my soul. I am in total agreement with the reasons not to be there. It is common sense to us folks. Kind of like the Anglo American mine proposal talked about on “Frontline” in the upper Bristol Bay watershed. That is a F**king sin to mine there!

rockman on Fri, 14th Feb 2014 3:59 pm 



Davy – I’m no more against drilling in the Arctic then the Gulf of Mexico. Are you? Being completely self-centered for the moment I live in the Gulf coast and not the Arctic. Which doesn’t mean there shouldn’t be a concern about any environmental impact of drilling up there. But more concern then for the GOM? The GOM where we recently saw the greatest environmental disaster in US history? The world wants more oil. The Arctic has some unproven oil potential. Thus the Arctic will be explored IMHO.

Now about the capex expenditure. Again, being self-centered, it ain’t my money so I don’t really care how much the companies piss away up there. For almost 4 decades I’ve seen companies chase foolish dreams and never lost a night’s sleep. LOL. Will they find enough oil to make the effort worthwhile? Actually I do care but from the same self-centered viewpoint: I don’t need Arctic oil competing against my oil sales. Competing against it just like that dang Canadian oil sands production. OTOH drilling the DW GOM isn’t that easy or cheap. Drilling/producing the Arctic will obviously be more difficult and expensive. But if (and that’s a huge IF IMHO) they find comparably large reservoirs it might prove to be an economic venture.

Every time a drill rig spuds a well there’s environmental risk. Doesn’t matter if it’s above the Arctic Circle or in the mesquite brush in S Texas. You do your best not to screw up the environment or kill anyone. But accidents happen. Always have…always will. But if I had to bet I don’t think the Arctic will ever be developed regardless of how much oil is there. The cost would likely be so high that if the world were faced with such high prices it would crash the global economy just like it did back in the mid 80’s and even kill more economical projects.

90 billion bbls is a lot of oil. But if it costs $150+/bbl (today’s $) to develop then that equates to zero bbls of future production IMHO.

Davy, Hermann, MO on Fri, 14th Feb 2014 4:57 pm 



@Rock, Well definite point why should anywhere be more special to the necessary rape and pillage?? One word on the arctic is we are running out of undisturbed places. It would be nice to know something is left. If you look at how big it is up there I imagine the foot print of exploration probably is pretty minuscule. IMHO the capex, people, infrastructure, and political climate will limit any significant development in the arctic. If the Peak dynamics turns negative the risk and cost will steer companies elsewhere. Besides Rock, you want to move up there! I bet you might visit but live up North is probably not your cup of tea! = You probably are not the only one not enthused about arctic circle livin.