The carve-up of the Arctic

US allows Royal Dutch Shell to drill in the Arctic

Royal Dutch Shell has been granted permission by the US government to begin tentative drilling in the Chukchi Sea off the Alaskan coast.

RT,

31 August, 2012

Getting the right for preliminary drilling is a step forward in the company’s long-delayed effort to develop lucrative Arctic reserves.

Shell will be allowed to begin preparatory work, but cannot drill in the oil fields until the government verifies its spill containment system, the US Interior Department said. The company has already spent $4.5 billion in exploring for oil and gas off Alaska's coast.

Shell has faced several delays in its planned Arctic drilling, and has been eyeing offshore in Alaska since 2005. Fierce opposition from environmentalists impeded previous plans. The groups say Shell had not met the commitments laid out in its drilling plans and should not be allowed to move forward at this point.

Shell's vice president for Alaska Pete Slaiby put the government's decision to allow some drilling as "exciting", saying that even if Shell's drilling this year was limited, that would be an important accomplishment.

Shell has asked the government to extend its oil drilling season in the Chukchi Sea beyond the September 24 deadline currently in place. Without an extension, the chances of completing a well this year are slim, Slaiby said.

Rival Exxon Mobil has already teamed up with the Russian oil company Rosneft to explore the vast Arctic regions of Russia.

In another development Exxon Mobil and Shell are reportedly seeking greater stakes and operating control in the one of the world’s biggest oil fields – the $46 billion Kashagan field in Kazakhstan. Both companies are said to be in talks with the Kazakh government to extend their production-sharing agreement for 20 more years according to Bloomberg Businessweek.

Shtokman is not put on hold indefinitely - Total

French oil company Total, Russian group Gazprom, and Norway's Statoil have not decided to postpone the Shtokman project in the Barents Sea indefinitely, according to Total.

RT,

31 August, 2012

In a statement on Friday Total said it "would like to point out that there has been no decision by partners to postpone Shtokman project." The company said it and partners in the Shtokman project were studying the viability of the project as current financing cost were too high.

Earlier this week Gazprom, the main shareholder in the project, said the Shtokman partners had decided the project was too expensive to proceed with. Gazprom hasn’t commented on Total’s statement yet.

Launched in the 1990s the huge Shtokman project, has been put off by several factors, including the shale gas revolution in the United States which had been viewed as a primary export market for Shtokman. High costs and disagreements between partners have also hampered the development of Shtokman.

Located in Russia’s Arctic, the Shtokman gas field is one of the largest deposits holding almost 4 trillion cubic meters – enough to meet global demand for about a year. Gazprom holds a controlling stake of 51% in Shtokman, while Norway’s Statoil owns 24% and Total holds 25%.

US shale gas threat to Shtokman

Though Russia’s Gazprom named high costs as the reason for the Shtokman project being put on ice, experts say the US shale gas revolution contributed to the decision. The day before Gazprom's announcement on Shtokman, Russia's Minister of Economic Development Andrey Klepach said he sees "serious" risks posed by shale gas to the revenue of Gazprom from 2014, as higher supply from the US may hurt prices and demand for Russia's pipeline gas.

"Gazprom undervalued the importance of shale gas, but is starting to look at it seriously," Deputy Economy Minister Andrei Klepach said as he presented a weaker outlook for the country’s exports in 2012. 

 

“Thanks to booming shale gas production the US could become a gas exporter by 2022. In 2011 gas exports from the US rose by 36.2%,” said Yulia Voitovich from Investcafe. As US gas imports decline, its traditional sources Algeria, Qatar, Nigeria and Australia are beginning to tap new markets such as Europe and the Asia-Pacific region, she explained.

“The US shale gas itself won’t compete with Russia’s pipeline gas, but growth in US production could result in reduced gas exports from Russia”.

The country’s Energy Ministry has already announced plans to adjust its strategy through to 2030. Meanwhile Gazprom has set up a committee to review the development of shale-gas projects.