Shale Presents Competition for Arctic Oil, Gas Development

Article title
The Arctic region holds significant untapped oil and gas resources, but development faces major competition from shale and other sources, an analyst tells attendees at the Arctic Technology Conference.

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.

WHAT DO YOU THINK?

Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Doug Matthews | Feb. 14, 2014
The 1980s slowdown in the Canadian Beaufort was the result of a combination of lower world prices and the end of Canadas National Energy Program, a program that provided significant public financial support to companies drilling in the Beaufort.


Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE



Most Popular Articles

From the Career Center
Jobs that may interest you
Cost Accountant
Expertise: Accounting
Location: Midland, TX
 
Facilities Engineering Manager
Expertise: Engineering Manager|Facilities Engineer|Refinery / Plant Operations Supervisor
Location: Lake Charles, LA
 
United States Houston: Accountant
Expertise: Accounting|Financial Analyst
Location: Houston, TX
 
search for more jobs

Brent Crude Oil : $52.72/BBL 3.31%
Light Crude Oil : $48.51/BBL 3.01%
Natural Gas : $2.89/MMBtu 1.36%
Updated in last 24 hours