WoodMac, Fugro Downplay Arctic's Role in World Oil Supply

The USA can no longer consider the Arctic as a long-term strategic energy supply source, according to a new Wood Mackenzie and Fugro-Robertson Study "Future of the Arctic." The study found the Arctic potential is significantly less than previous assessments suggested, also the mix of resources themselves have been found to contain much less oil and more gas.

"These findings are disappointing from a world oil resource base perspective," says lead study author, Andrew Latham Vice President Energy Consulting at Wood Mackenzie. The study shows around one quarter of the oil volumes previously assessed in key North American and Greenland basins. Crucially the Arctic is a gas province with 85% of the discovered resource and 74% of the exploration potential being gas. "This oil:gas mix is not ideal because remote gas is often much harder to transport to markets," explains Latham.

The method used by Fugro Robertson to assess Arctic resource potential uses detailed geoscience analysis of individual basins and their various petroleum reservoirs, ground-truthed by industry data on exploration wells and existing discoveries.

Under the most optimistic case it is projected that production from the Arctic will contribute some 4.6 mboepd liquids and 9.7 mboepd gas at peak, with the proportion of production from US basins lower than previously anticipated. This means that the long considered view that the Arctic represents one of the last great oil and gas frontiers and a strategic energy supply cache for the USA may have to be revised. The findings indicate the USA must look elsewhere to meet its rising demand, namely to OPEC nations such as Venezuela, and to Russia. Whilst it is expected that these supply options do not face long term technical challenges there are broader issues relating to security of supply due to geopolitics.

While these findings are disappointing to the US as a whole, the Arctic still holds great potential for individual oil and gas companies with the advanced technology, money and time to develop the challenging resources and build the infrastructure required to transport it. The distribution of the resources will do little to alleviate supply issues currently dominating the thinking of energy advisors. With many of the required technologies still in their infancy, peak Arctic production is not expected for at least 20 years. This means that in the short term Arctic resources are unlikely to compete favorably with lower cost sources such as the Middle East.

Wood Mackenzie and Fugro Robertson are currently reviewing the next joint thematic non-exclusive study for 2007 as a follow-on to the study entitled "The Future of the Deepwater" and the recently completed "The Future of the Arctic."


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