The exploration of the Arctic for petroleum is considered more technically challenging than in any other environment so far. However, technological development, high oil prices allow for exploration. As a result, the region has been receiving interest from the petroleum industry.
The region above the Arctic Circle accounts for only about 6 % of the Earth’s surface area, but it could account for as much as 20 % of the world’s undiscovered but recoverable oil and natural gas resources. The existence of hydrocarbon resources in the Arctic has been known for decades, but only in recent years has the opening to full-scale resource development and navigation — such as the fabled Northwest Passage that would connect the Atlantic and Pacific Oceans, or the Northern Sea Route that will connect Europe and western Russia with eastern Russia and Asian markets — become technically and economically feasible. This makes the Arctic an incredibly rich area. It is about the same geographic size as the African continent — about 6 % of Earth's surface area — yet it holds an estimated 22 percent of Earth's oil and natural gas resource.
Only about one-third of the Arctic is covered by land; another third consists of the offshore continental shelf, with waters generally less than 500 meters deep and the remaining third comprises ocean waters, typically deeper than 500 meters. Much (if not most) of the Arctic waters are currently ice-covered for most of the year. However, the polar ice cap has been noticeably receding in recent years, quite possibly as a consequence of global climate change.
Most of the exploration in the Arctic to-date has taken place on land. This work has resulted in the Prudhoe Bay Oil Field in Alaska, the Tazovskoye Field in Russia and hundreds of smaller fields, many of which are on Alaska's North Slope. Land accounts for about 1/3 of the Arctic's area and is thought to hold about 16 % of the Arctic's remaining undiscovered oil and gas resource.
A 2008 United States Geological Survey estimates that areas north of the Arctic Circle have 90 billion barrels of undiscovered, technically recoverable oil (and 44 billion barrels of natural gas liquids) in 25 geologically defined areas thought to have potential for petroleum. This represents 13 % of the undiscovered oil in the world. Of the estimated totals, more than half of the undiscovered oil resources are estimated to occur in just three geologic provinces — Arctic Alaska, the Amerasia Basin, and the East Greenland Rift Basins.
Their estimates place over 87 % of the resource (360 billion barrels oil equivalent) into seven Arctic basin provinces: Amerasia Basin, Arctic Alaska Basin, East Barents Basin, East Greenland Basin, West Greenland East Canada Basin, East Greenland Rift Basin, West Siberian Basin and the Yenisey-Khatang Basin
A recent study carried out by Wood Mackenzie on the Arctic potential comments that the likely remaining reserves will be 75 % natural gas and 25 % oil. It highlights four basins that are likely to be the focus of the petroleum industry in the upcoming years: the Kronprins Christian Basin, which is likely to have large reserves, the southwest Greenland basin, due to its proximity to markets, and the more oil-prone basins of Laptev and Baffin Bay
Portions of eight countries are situated above the Arctic Circle:Canada, Denmark (via Greenland), Finland, Iceland, Norway,Russia, Sweden and the United States. Six of them border the Arctic Ocean and thus have a jurisdictional claim to portions of the Arctic seafloor: Canada, Denmark (via Greenland), Iceland, Norway, Russia and the United States.
Extensive drilling was done in the Canadian Arctic during the 1970s and 1980s by such companies as Panarctic Oils Ltd., Petro Canada and Dome Petroleum. After 176 wells were drilled at billions of dollars of cost, approximately 1.9 billion barrels (300×106 m3) of oil and 19.8 trillion cubic feet (560×109 m3) of natural gas were found. These discoveries were insufficient to justify development, and all the wells which were drilled were plugged and abandoned.
Drilling in the Canadian Arctic turned out to be expensive and dangerous. The geology of the Canadian Arctic turned out to be far more complex than oil-producing regions like the Gulf of Mexico. It was discovered to be gas prone rather than oil prone (i.e. most of the oil had been transformed into natural gas by geological processes), and most of the reservoirs had been fractured by tectonic activity, allowing most of the petroleum which might at one time have been present to leak out.
Russian Arctic opportunities may in fact be the big prize. Over the last few years, Russia has intensified the development of the vast hydrocarbon resources of its continental shelf, through state incentives aimed at stimulating offshore oil and gas production. The area of Russia’s shelf and continental slope totals 6.2 million square kilometers, with the vast majority in the Arctic area. The defined area of the continental shelf may be increased as Russia prepares an application to extend its borders over 1.2 million square kilometers of Arctic waters, an application expected to be finalized by the end of 2013. The Government of Russia is also completing development of the state program on exploration and development of mineral resources of the Arctic continental shelf for 2012–30. Intensifying geological/ exploration activity is one of the program’s main priorities, to be supported primarily by investments from private Russian oil and gas companies. Twenty major oil and gas provinces and basins have been discovered on the Russian shelf, 10 of which have proved oil and gas reserves. The largest Arctic sedimentary basins are the East Barents, South Kara, Laptev, East Siberian and Chukchi basins. The majority of local resources (around 94 % of the total) have been found in the western part, while the hydrocarbon potential of the eastern part, along the slope and in the deep Arctic basin, is mostly regarded as inferred or contingent. Gazprom and Rosneft are currently the only companies allowed to receive new licenses to explore Russia’s continental shelf. The two companies hold the majority of licenses (29 for Rosneft and 16 for Gazprom), with the licenses mainly located in the Okhotsk, Kara and Barents seas. However, according to Russia’s Arctic shelf development program, more companies may gain the right to explore and produce oil and gas in the offshore strip, including some smaller, private companies or subsidiaries of state-controlled companies.
Greenland has offered 8 license blocks for tender along its west coast by Baffin Bay. Currently 7 of those blocks have been bid for by a combination of multinational oil companies and the National Oil Company NUNAOIL. Companies that have participated successfully in the previous license rounds and have formed a partnership for the licenses with NUNAOIL are, DONG Energy, Chevron, ExxonMobil, Husky Energy, Cairn Energy. The area available known as the West Disko licensing round is of an interest due to its relative accessibility compared to other Arctic basins as the area remains largely free of ice. As well as a number of promising geological leads and prospects from the Paleocene era.
Prudhoe Bay Oil Field on Alaska's North Slope is the largest oil field in North America, The field was discovered on March 12, 1968, by Atlantic Richfield Company (ARCO) and is operated by BP; partners are ExxonMobil and ConocoPhillips Alaska.
In September 2012 Shell delayed actual oil drilling in the Chukchi until the following summer due to heavier-than-normal ice and the Arctic Challenger, an oil-spill response vessel, not being ready on time. However, on September 23, Shell began drilling a «top-hole» over its Burger prospect in the Chukchi. And on October 3, Shell began drilling a top-hole over its Sivulliq prospect in the Beaufort Sea, after being notified by the Alaska Eskimo Whaling Commission that drilling could begin.
In September, 2012, Statoil chose to delay its oil exploration plans at its Amundsen prospect in the Chukchi Sea, about 100 miles northwest of Wainwright, Alaska, by at least one year, to 2015 at the earliest.
As of October, 2012, Conoco still plans to drill at its Devil's Paw prospect (part of a 2008 lease buy in the Chukchi Sea 120 miles west of Wainwright) in summer of 2013.
Their claims to oil and gas beneath the Arctic Ocean seafloorhave historically been determined by unilateral decrees, however the Law of the Sea Convention provides each country an exclusive economic zone extending 200 miles out from its shoreline. Under certain conditions the exclusive economic zone can be extended out to 350 miles if a nation can demonstrate that its continental margin extends more than 200 miles beyond its shore. Russia, Canada and the United States are currently working to define the extent of their continental margin.
This provision has led to some overlapping territorial disputes and disagreements over how the edge of the continental margin is defined and mapped. For example, Russia claims that their continental margin follows the Lomonosov Ridge all the way to the North Pole. In another, both the United States and Canada claim a portion of the Beaufort Sea in an area that is thought to contain significant oil and natural gas resources.
The Arctic is a cold, remote, dark, dangerous and expensive place to explore for oil and natural gas. The Arctic's vast oil resource and the high price of oil are what currently attract attention to the Arctic area.
Where ice-free water is available, oil can be produced from a well, placed on a ship and transported to refineries. It can also be transported by pipeline, however, construction of pipelines in the Arctic are projects of enormous difficulty and scale.
Natural gas is much more difficult to transport to market. It has a much lower energy density and must be supercooled to a liquidfor movement by sea. This requires a large, complex and expensive facility that takes several years to design, permit and build. Pipeline construction for natural gas encounters the same expenses and problems as those required to transport oil.
Offshore exploration in the Arctic currently targets oil instead of natural gas. The relative ease of transport is what causes companies to favor oil.
Because of these difficulties and expenses, bringing wells into production in the Arctic requires a very large oil or gas field. The large field is necessary to support the infrastructure required to drill the wells and transport products to market. However, once an initial infrastructure is in place, smaller fields can be developed if the existing infrastructure has the capacity to support them.
A short list of reasons why oil and gas exploration in the Arctic is so expensive:
1) Harsh winter weather requires that the equipment be specially designed to withstand the frigid temperatures.
2) On Arctic lands, poor soil conditions can require additional site preparation to prevent equipment and structures from sinking.
3) The marshy Arctic tundra can also preclude exploration activities during the warm months of the year.
4) In Arctic seas, the icepack can damage offshore facilities, while also hindering the shipment of personnel, materials, equipment, and oil for long time periods.
5) Long supply lines from the world's manufacturing centers require equipment redundancy and a larger inventory of spare parts to insure reliability.
6) Limited transportation access and long supply lines reduce the transportation options and increase transportation costs.
7) Higher wages and salaries are required to induce personnel to work in the isolated and inhospitable Arctic.
Russia has not been immune to social and environmental opposition to its Arctic resource development ambitions. As in the North American Arctic, the most vocal groups have been local indigenous groups and global ENGOs such as Greenpeace. In August 2012, Greenpeace environmental activists scaled the side of Gazprom’s Prirazlomnaya oil platform in the Pechora Sea, claiming that Gazprom had failed to produce a comprehensive spill response plan for its Arctic operations. The Association of Indigenous Peoples of the North, Siberia, and the Far East (RAIPON) has expressed its grievances with energy exploitation in Russia’s resource rich northern territories, particularly the Yamal Peninsula, arguing that such activities could have a negative impact on members’ semi-nomadic lifestyle and disrupt the sensitive ecosystem. Russia has attempted to alleviate environmental concerns through a series of environmental protection agreements with its Arctic joint venture partners. The agreements outline measures to protect the Arctic ecosystem during oil and gas exploration, and to minimize the impact of oil and gas activities on indigenous communities. Furthermore, Rosneft is considering opportunities to cooperate with Russia’s federal space agency, transport ministry, and emergency situations ministry. The declaration could set a precedent for bilateral agreements on responsible Arctic resource development among North American Arctic countries, or between Russia and Canada.
In an effort to address concerns from environmental groups, offered a compromise to leave large areas in the northern Barents Sea and northeastern Norwegian Sea off limits to exploration activities for the time being. The fishing industry and environmental groups have expressed fears about the disastrous impacts pollution or an oil spill would have on a region that is critical to commercial fish species, seabirds, marine mammals, and what is believed to be the world’s largest cold-water coral reef.
These difficulties make the cost of oil exploration and production in the Arctic to be nearly double the cost of other areas. However, the enormous resource has attracted a lot of oil and gas activity. This will continue into the future. Interest in the Arctic will only increase as oil and natural gas fields in other areas are depleted and the cost of oil and gas rises.
1. An overview of the petroleum geology of the Arctic; Anthony M. Spencer, Ashton F. Embry, Donald L. Gautier, Antonina V. Stoupakova
3. Opportunities and challenges for Arctic oil and gas development; The Wilson Center, Washington, D.C.