Arctic 'last great frontier' for gas exploration

Arctic ‘last great frontier’ for gas exploration

By Javier Blas in London

Published: August 10 2007 21:22 | Last updated: August
10 2007 21:22

The Arctic Sea region is one of the last great
frontiers for oil and gas exploration. But developing
its resources and, crucially, transporting them to
consumer markets would be difficult and costly.

Geologists know little about the area compared with
other oil and gas provinces. Some of the surveys,
dating from the cold war when US and Soviet submarines
played cat-and-mouse in the area, remain secret even
now.

Wood Mackenzie, in one of the most detailed studies of
the area, estimates that the Arctic basins, including
areas already in production such as the Prudhoe Bay
oilfield in Alaska, contain about 233bn barrels of oil
equivalent – a measure that covers both oil and gas.
It believes there are another 166bn boe yet to be
found.

Adam Sieminski, chief energy economist at Deutsche
Bank in New York, said: “There is a good chance of
finding more oil and gas there. We know already of oil
deposits in northern Canada, the Barents Sea near
Russia and Alaska.”

The US geological survey plans as soon as next year to
assess whether the Arctic region, as some early
studies have indicated, contains up to 25 per cent of
the world’s yet-to-be-found oil and gas reserves.

Russia’s attempt to extend its sovereignty up to the
North Pole, however, is seen in the oil industry as a
political stunt. Moscow’s exclusive economic zone in
the Arctic Sea already contains giant basins, such as
the East Barents Sea, home of the huge Shtokman gas
field.

The East Barents Sea alone is expected to contain more
than 10bn boe and is the cheapest to exploit in the
region, with production costs of about $20 a barrel,
according to calculations by Wood Mackenzie. In other
areas, such as Canada’s Southern Arctic Island,
production costs can be twice as high.

The remoteness and extreme climate conditions of some
corners of the Arctic present the energy industry with
a technological challenge that would long delay their
development, industry executives said.

Liv Monica Stubholt, Norway’s deputy foreign
min-ister, said this week: “We have decades ahead of
us before the technology to do this in a safe and
sustainable way is there.”

The recently published US National Petroleum Council
report on the future of oil and gas supplies said some
of the technology needed to exploit the Arctic’s
hydrocarbons would not be ready until 2050.

But Mr Sieminski said while the Arctic region was too
remote and hostile to make investment sense when oil
prices were about $20 a barrel, “with oil prices well
above $50 a barrel the outlook has changed”.

To complicate the scene, geologists say the region is
rich in natural gas but not in the more sought-after
crude oil.

Andrew Latham, of Wood Mackenzie, said remote natural
gas was harder to transport.

Natural gas needs to be super-cooled before being
shipped to consumer countries in complex and costly
liquefaction plants.

Pipelines are not an option for most of the Arctic
because of the huge distances that need to be covered.

Copyright The Financial Times Limited 2007