Energy costs

Study throws cold water on Arctic oil, gas dreams

The Arctic, often presented as the promised land by oil companies, is likely to play only a marginal role in providing for the planet's future energy needs, a Norwegian study claimed Tuesday.

Google,

5 September, 2012

The share of Arctic oil and gas in global energy production is expected to decline by 2050 because of prohibitively high production costs, according to a study conducted by the Centre for International Climate and Environmental Research in Oslo and national statistics agency Statistics Norway.

Oil production in the region is seen doubling in absolute value during the period, but will drop from 10 percent of the global total in 2010 to eight percent in 2050, the researchers said.

Their findings were published in the journal Energy Economics and summarised in Norway's leading daily Aftenposten on Tuesday.

For natural gas, the decline is expected to be even more pronounced, with the share dropping from 27 percent to 22 percent. Volumes will also continue to shrink in absolute value until 2030, when they are expected to begin rising again.

The researchers attributed the decrease to the boom of unconventional oil and gas sources, such as shale gas in North America, and growing conventional gas production in the Middle East -- two sources that are significantly cheaper to exploit than Arctic oil and gas.

According to the US Geological Survey (USGS), the Arctic could be home to 13 percent of the planet's undiscovered oil reserves and 30 percent of its undiscovered gas reserves.

Faced with rising oil demand worldwide, and with the production-obstructing Arctic ice melting faster than ever, international oil corporations have shown a keen interest in the Arctic region -- to the dismay of environmentalists.

But the oil and gas fields are for the most part believed to be out at sea, located far from land and infrastructure and in extreme climate conditions, all of which would send production costs soaring.

One example of the difficulties encountered in the region is the Shtokman natural gas field in the Russian waters of the Barents Sea, whose future remains uncertain almost 25 years after it was discovered.

Russian giant Gazprom and its partners, France's Total and Norway's Statoil, failed to reach agreement by a June 30 deadline on a viable development of the field, which is believed to hold 3,800 billion cubic metres of natural gas, enough to meet the world's entire demand for a year.

Shell's delayed Arctic oil plans worrisome

Alaska Despatch,

5 September, 202

Norwegian oil company Statoil has watched closely Royal Dutch Shell's long and costly quest to sink exploratory oil wells in the Arctic waters off the coast of Alaska. And that struggle has Statoil concerned, so much so that company officials say Statoil won't be exercising its federal leases and drilling in Alaska's Arctic until at least 2015, according to The Financial Times.

Instead, in the near term Statoil is headed to Canada for offshore oil exploration: "...in the coming months Statoil had plans to drill three wells offshore eastern Canada and nine in the Norwegian Barents Sea, where it has already made discoveries. But it will not be drilling in the Chukchi Sea before 2014," The Financial Times reported this week.

In Alaska's Arctic, Shell is on the verge of starting a limited drilling program that will entail sinking a drill bit up to 1,400 feet into the seabed -- several thousand feet shy of the oil and gas deposits. Nonetheless, this partial drilling effort signifies a breakthrough for Shell, which has spent more than $4.5 billion and years to get to this point.

Tim Dodson, head of exploration for Statoil, told The Financial Times that the costs -- many related to complying with regulations and fighting off lawsuits -- that Shell has absorbed to get this far is worrisome. “Some of these regulations can make the costs of exploration prohibitive,” he told the newspaper.

One possible way to reduce the financial risks could be for oil companies to partner on offshore exploration wells in the far north. The Financial Times reports.

“You will see more shared equity on these wells, to spread the risk and limit the cost exposure,” (Dodson) said. He added that Statoil was already discussing this option with other companies that have leases in the northern seas, such as Chevron, ExxonMobil and ConocoPhillips