The quest for Arctic oil and gas resources “is not for the faint of heart, nor for those with less-than-deep pockets,” Ernst & Young said in a special report, adding operators confront a harsh climate, limited infrastructure, exceptionally long lead times, and complex logistics for spill containment and recovery.
The Arctic contains portions of Canada, Denmark, Greenland, Finland, Iceland, Norway, Russia, Sweden, and the US. Costs must be considered in every country, but perhaps less so in Russia, estimated to hold more than half of total Arctic resources, E&Y said in its report entitled “Arctic Oil and Gas.”
Access to existing infrastructure is most favorable in the US, given the Trans-Alaska Pipeline System (TAPS). Production from the Norwegian Arctic would likely have the easiest access to markets, E&Y said.
The report highlighted five areas:
• Russia: Looking forward to 2020, E&Y said OAO Rosneft and OAO Gazprom will remain the main drivers in developing Russia’s continental shelf. Rosneft is expected to target the Barents shelf (including its southeastern part, the Pechora Sea) and Okhotsk Sea, while Gazprom is expected to concentrate on Kara Sea projects.
• Canada: Currently, there is no offshore drilling in Canada’s Arctic and no applications for drilling are pending before the National Energy Board, although a number of companies hold exploration licenses for areas in the Beaufort Sea, E&Y said. An estimated 90 wells were drilled in the Beaufort after exploration drilling began in 1972, but only one well was drilled since 1991. Chevron and Statoil plan to launch a 3D seismic program this year in the Beaufort.
• Greenland: The government plans a second licensing round to offer blocks this year in the Greenland Sea and offshore northeast Greenland. Cairn Energy, with interests in eight offshore areas but no commercial discoveries, is evaluating its next steps.
• Norway: The Barents Sea was opened for exploration in 1981, and over the next 30 years Statoil and others developed a strong foothold. Faced with rapidly falling reserves in the North Sea and Norwegian Sea, Norway believes that its hydrocarbon future lies in Barents Sea prospects. Development of the region remains controversial given its environmental sensitivity. Resolution in 2010 of a maritime border dispute between Norway and Russia could see both countries supporting each other in the wider international race over the Arctic, E&Y said.
• US: The Alaskan Arctic is projected to hold the largest undiscovered Arctic oil deposits: some 30 billion bbl. E&Y said Beaufort Sea production could start as early as 2020, while Chukchi Sea production is unlikely before 2022. The operator and owners of TAPS are eager to identify the new supplies that will be needed to keep the line economic. TAPS operates at less than half its total capacity because North Slope production has declined.
Meanwhile separately from E&Y’s report, an Arctic Oil Spill Response Technology Joint Industry Program (JIP) is working to expand an existing knowledge base about Arctic offshore oil spill response expertise already developed through 40 years of research by individual companies and other organizations (OGJ Online, Dec. 12, 2012).