Energy giants are investigating the potential riches in the Arctic region, but one has already broken ranks.
Drilling for oil and gas has always been a risky business.The world’s precious hydrocarbon resources are rarely found in convenient locations; overcoming technical, political and environmental challenges is part of the job.
But last week Christophe de Margerie, chief executive of French oil giant Total, broke ranks.
When it came to the Arctic Ocean, he declared, the risk of a spill was simply too high. While many of his peers clearly disagree with his assessment that drilling for oil should not proceed, few would dispute the unique risks of the fragile region.
For the environment and the companies involved, a spill in the Arctic could be catastrophic. In the Alaskan Arctic, where Royal Dutch Shell began drilling offshore last month, temperatures drop to minus 20 degrees celsius in summer.
Gale force winds move giant ice floes – Shell’s drilling rig has already had to get out of the way of one block bigger than Manhattan.
And in winter, when daylight lasts barely a few hours, sea ice forms, makes the region inaccessible.
“The drilling conditions facing oil companies operating in the Arctic are some of the most challenging on Earth,” Greenpeace argues.
“The hostile weather, freezing conditions and remote location present unprecedented challenges for dealing with a spill.Vicky Wyatt, a campaigner with the group, says the lack of infrastructure and the winter advance of sea ice could make cleaning up almost impossible.
“If you can’t cap a leak in time before the Arctic winter, the well will continue flowing until the ice melts again and you can get to it,” she says.
The oil could become frozen underneath individual ice floes – floating hundreds of miles away over the course of the winter before being released into the ocean in the spring.
From a reputational point of view, there could be no worse place to spill the black stuff. “You have a very stark image there with the white of the Arctic ice,” says Dr Mark McClelland of risk consultants Maplecroft.
“It would be devastating. It would be as bad, if not worse, as the reputational damage that BP experienced in the Gulf of Mexico.”
Yet despite the risks, most of the world’s biggest oil companies are eyeing the Arctic. Shell has faced numerous setbacks and delays but is pressing ahead off Alaska; US giant ExxonMobil has signed an exploration deal for the Russian Arctic with Rosneft, as have Italy’s Eni and Norway’s Statoil.
Statoil is also working in the Norwegian Arctic and is partnering Cairn Energy off Greenland. And future Arctic exploration is seen as the implicit long-term goal of BP’s declared interest in Russia.
The reason: the sheer volumes of oil and gas that are thought to be there.
The US Geological Survey estimates that the Arctic may hold 90bn barrels of oil – almost three times annual global consumption and some 13pc of the world’s undiscovered oil reserves.
There may also be 1,669 trillion cubic feet of natural gas – 30pc of global undiscovered reserves. And the vast majority of it lies offshore.
As production in easier-to-access areas declines, oil companies are turning to new, more challenging frontiers. Meanwhile, melting sea ice is making the Arctic more accessible. In the US, questions remain over political tolerance for drilling.
“You have had some senior Democrat senators requesting that the Arctic is removed from the interior department’s leasing programme over the next five years,” McClelland says.
But most of the governments in the Arctic region are eyeing the potential riches, with Canada, Greenland, Norway and Russia seen as key growth areas.
Meeting the high standards required to drill in the Arctic does not come cheaply. Shell has so far spent $4.5bn without even gaining permission to drill into oil-bearing rocks.
“It needs very high oil price to make it sustainable – at least $90-$100 a barrel,” McClelland explains. With infrastructure almost non-existent, development costs are also huge.
The challenges of the Arctic mean the region is likely to remain the province of the supermajors, Stuart Joyner of Investec says.
“You need a lot of capital, the balance sheet to withstand things going wrong and the expertise of running great big multi-billion barrel projects,” he says.
Meaningful production is unlikely to emerge until well into the next decade at the earliest. But, Joyner says, the challenges will eventually be overcome.
“I think you will get commercial production from there in quite large volumes – in the US, potentially in Greenland, and certainly in Norway and Russia.
Technology is moving on all the time and the industry is becoming more capable. It is within the competencies of the industry to get to a position where we can get commercial discoveries.””
telegraph.co.uk
Drilling for oil and gas has always been a risky business.The world’s precious hydrocarbon resources are rarely found in convenient locations; overcoming technical, political and environmental challenges is part of the job.
But last week Christophe de Margerie, chief executive of French oil giant Total, broke ranks.
When it came to the Arctic Ocean, he declared, the risk of a spill was simply too high. While many of his peers clearly disagree with his assessment that drilling for oil should not proceed, few would dispute the unique risks of the fragile region.
For the environment and the companies involved, a spill in the Arctic could be catastrophic. In the Alaskan Arctic, where Royal Dutch Shell began drilling offshore last month, temperatures drop to minus 20 degrees celsius in summer.
Gale force winds move giant ice floes – Shell’s drilling rig has already had to get out of the way of one block bigger than Manhattan.
And in winter, when daylight lasts barely a few hours, sea ice forms, makes the region inaccessible.
“The drilling conditions facing oil companies operating in the Arctic are some of the most challenging on Earth,” Greenpeace argues.
“The hostile weather, freezing conditions and remote location present unprecedented challenges for dealing with a spill.Vicky Wyatt, a campaigner with the group, says the lack of infrastructure and the winter advance of sea ice could make cleaning up almost impossible.
“If you can’t cap a leak in time before the Arctic winter, the well will continue flowing until the ice melts again and you can get to it,” she says.
The oil could become frozen underneath individual ice floes – floating hundreds of miles away over the course of the winter before being released into the ocean in the spring.
From a reputational point of view, there could be no worse place to spill the black stuff. “You have a very stark image there with the white of the Arctic ice,” says Dr Mark McClelland of risk consultants Maplecroft.
“It would be devastating. It would be as bad, if not worse, as the reputational damage that BP experienced in the Gulf of Mexico.”
Yet despite the risks, most of the world’s biggest oil companies are eyeing the Arctic. Shell has faced numerous setbacks and delays but is pressing ahead off Alaska; US giant ExxonMobil has signed an exploration deal for the Russian Arctic with Rosneft, as have Italy’s Eni and Norway’s Statoil.
Statoil is also working in the Norwegian Arctic and is partnering Cairn Energy off Greenland. And future Arctic exploration is seen as the implicit long-term goal of BP’s declared interest in Russia.
The reason: the sheer volumes of oil and gas that are thought to be there.
The US Geological Survey estimates that the Arctic may hold 90bn barrels of oil – almost three times annual global consumption and some 13pc of the world’s undiscovered oil reserves.
There may also be 1,669 trillion cubic feet of natural gas – 30pc of global undiscovered reserves. And the vast majority of it lies offshore.
As production in easier-to-access areas declines, oil companies are turning to new, more challenging frontiers. Meanwhile, melting sea ice is making the Arctic more accessible. In the US, questions remain over political tolerance for drilling.
“You have had some senior Democrat senators requesting that the Arctic is removed from the interior department’s leasing programme over the next five years,” McClelland says.
But most of the governments in the Arctic region are eyeing the potential riches, with Canada, Greenland, Norway and Russia seen as key growth areas.
Meeting the high standards required to drill in the Arctic does not come cheaply. Shell has so far spent $4.5bn without even gaining permission to drill into oil-bearing rocks.
“It needs very high oil price to make it sustainable – at least $90-$100 a barrel,” McClelland explains. With infrastructure almost non-existent, development costs are also huge.
The challenges of the Arctic mean the region is likely to remain the province of the supermajors, Stuart Joyner of Investec says.
“You need a lot of capital, the balance sheet to withstand things going wrong and the expertise of running great big multi-billion barrel projects,” he says.
Meaningful production is unlikely to emerge until well into the next decade at the earliest. But, Joyner says, the challenges will eventually be overcome.
“I think you will get commercial production from there in quite large volumes – in the US, potentially in Greenland, and certainly in Norway and Russia.
Technology is moving on all the time and the industry is becoming more capable. It is within the competencies of the industry to get to a position where we can get commercial discoveries.””
telegraph.co.uk
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