EIA: Arctic Crude Oil and Natural Gas Resources

Resource basins in the Arctic Circle region (click to enlarge)

Source: U.S. Geological Survey.

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The Arctic holds an estimated 13% (90 billion barrels) of the world's undiscovered conventional oil resources and 30% of its undiscovered conventional natural gas resources, according to an assessment conducted by the U.S. Geological Survey (USGS). Consideration of these resources as commercially viable is relatively recent despite the size of the Arctic's resources due to the difficulty and cost in developing Arctic oil and natural gas deposits.

Studies on the economics of onshore oil and natural gas projects in Arctic Alaska estimate costs to develop reserves in the region can be 50-100% more than similar projects undertaken in Texas.

Profitable development of Arctic oil and natural gas deposits could be challenging due to the following factors:

• Equipment needs to be specially designed to withstand the frigid temperatures.
• On Arctic lands, poor soil conditions can require additional site preparation to prevent equipment and structures from sinking.
• Long supply lines and limited transportation access from the world's manufacturing centers require equipment redundancy and a larger inventory of spare parts to ensure reliability, while increasing transportation costs.
• Employees expect higher wages and salaries to work in the isolated and inhospitable Arctic.
• Natural gas hydrates can pose operational problems for drilling wells in both onshore and offshore Arctic areas.

Natural gas development could be especially challenging. Although the Arctic is rich in natural gas, the development of Arctic natural gas resources could be impeded by the low market value of natural gas relative to that of oil. Furthermore, natural gas consumers live far from the region, and transportation costs of natural gas are higher than those for oil and natural gas liquids.

Overlapping and disputed claims of economic sovereignty between neighboring jurisdictions also could be an obstacle to developing Arctic resources. The area north of the Arctic Circle is apportioned among eight countries—Canada, Denmark (Greenland), Finland, Iceland, Norway, Russia, Sweden, and the United States. Under current international practice, countries have exclusive rights to seabed resources up to 200 miles beyond their coast, an area called an Exclusive Economic Zone (EEZ). Beyond the EEZ, assessments of "natural prolongation" of the continental shelf may influence countries' seabed boundaries.

Along with economic and political challenges, environmental stewardship and regulatory permitting may also affect timelines for exploration and production of Arctic resources. Environmental issues include the preservation of animal and plant species unique to the Arctic, particularly tundra vegetation, caribou, polar bears, seals, whales, and other sea life. The adequacy of existing technology to manage offshore oil spills in an arctic environment is another unique challenge. Spills among ice floes can be much more difficult to contain and clean up than spills in open waters.

See further information on the Arctic's energy resources and the challenges associated with their development in the December 21, 2011 edition of  This Week In Petroleum.

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Arctic Melts, But no Big "Cold Rush" for Oil

A retreat of Arctic ice in summers is changing indigenous peoples' livelihoods and will threaten the survival of polar bears, writes Alun Anderson in "After the Ice" (HarperCollins), packed with anecdotes about shifts already under way. "The Arctic is seeing a more dramatic change to its environment and ecosystems than any part of the planet has seen for many thousands of years," he writes in the book, subtitled "Life, Death and Geopolitics in the New Arctic". Oil companies are looking north but Anderson, a former editor of New Scientist magazine, shows huge problems of icebergs, waves, cold and currents that would complicate drilling as well as transport of any oil or gas to shore.

"My bet is that the oil and gas boom will be short lived and will not go far beyond the shallow seas of Russia and perhaps some of the regions close to the Alaskan shores," he writes. Anderson, a former research biologist who lives in London, quotes experts as agreeing that prospects of a "Cold Rush" for riches of the central Arctic lie far in the future. Still, Russia planted a flag in the waters deep beneath the North Pole in 2007 in a symbolic claim. And the U.S. Geological Survey estimated last year the Arctic could hold 90 billion barrels of oil, enough to meet world demand for three years. Among offshore fields closer to land, Gazprom's (GAZP.MM) is planning to tap the big Shtokman gas deposit.....Read the entire article.

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Artic May Hold More Undiscovered Oil

Is the Artic the new frontier for crude oil discoveries. The Heritage Foundation's Ben Lieberman talks about the possibilty of the Artic holding 40-160 billion dollars worth of crude oil beneath the polar ice caps.