Imagine a landscape with snow covered mountains, pristine seas and extreme wilderness, unscathed by human intervention; a place unparalleled in its beauty, serenity and peace. Suddenly there is a cacophony of ice breakers, clatter of drill bits and sloppy spills of oil around. This is the kind of picture that we tend to paint to depict the story of Arctic Drilling. The usual antagonists here are the oil companies.
The burgeoning energy demand to fuel the economy and fickly energy supply has pushed the oil companies to reach out for new frontiers.
Energy Security
Energy Security in simplest terms is defined as undisrupted supply of energy at an affordable price. The need to ensure energy security and decrease the dependence on supplies from politically tumultuous Middle East and Africa has led the oil exploration business to the Arctic.
Unquenchable Demand
In 2012, the global primary energy consumption was 90 bboe. The Oil and Gas comprised of 57% of the share – 52 bboe.
According to BP, the primary energy demand is expected to increase by 41% between 2012 and 2035. Oil, Gas and Coal will take an equivalent share of 27% each. This implies the primary energy consumption of 127 bboe with Oil and Gas taking 68 bboe of the share.
For simplicity if we assume a linear growth in our energy demand from 2012 to 2035, we would need around 1400 bboe of Oil and Gas during this period. Our current proven reserve estimates which can be recovered with existing technology are 1700 bboe for Oil and 1300 bboe for Gas. A vast majority of these reserves lie in the Middle East.
To ensure energy security and sustainability in our society, it is a necessity to explore and look out for new frontiers. But the question remains, Is Arctic worth taking the risk?
Arctic Geography
The Arctic is defined as the region located north of the Arctic Circle - the 66°34`N latitude. While Antarctica is a continent surrounded by ocean, Arctic is an ocean surrounded by continents.
About 1/3 of the Arctic is occupied by land with another 1/3 consisting of offshore continental shelves located in seas less than 500 meters in depth. The remaining 1/3 is the Arctic Ocean with waters deeper than 500 meters. The maximum depth of the Arctic is 5000m.
It is the offshore continental shelves in the Arctic which is particularly interesting to the geologists. It consists of basins and deltas which imparts favorable condition for oil fields to be found.
Players of the Arctic
There are eight countries that lie in the Arctic – United States, Canada, Greenland/Denmark, Iceland, Norway, Sweden, Finland and Russia. Iceland's portion of territory in the Arctic is small and lacks the potential of incorporating oil field. Sweden and Finland do not border the Arctic Ocean and, thus, do not have any jurisdictional claims in the Arctic Ocean.
Hence, the players in the Arctic are - United States, Canada, Greenland/Denmark, Norway and Russia.
The UN Law of Sea Treaty grants sovereign rights to a coastal nation on the natural (living and non-living) resources up to 200 nautical miles (called Exclusive Economic Zone) from the coastal baseline. The sovereign right over non-living resources can exceed beyond the EEZ in the area called Extended Continental Shelf. The farther the extension of the continental shelf, the more area the coastal nation can claim.
The Lomonosov Ridge discovered by Russia in 1948 is claimed by Russia, Denmark and Canada as part of their continental shelf.
Canada and United States have been disputing their claims in Beaufort Sea due to misinterpretation of the treaty signed by Russia (when Alaska was a part of Russia) and the British (when Canada was under British rule) in 1825.
Norway and Russia had a dispute in the offshore boundary in Barents Sea which was resolved simply by dividing the disputed area in half.
The Arctic Potential
Some of the important features about the Arctic oil fields are:
- About 84% of the estimated resources are expected to occur offshore.
- More than 50% of undiscovered oil resources are estimated to occur in three geological provinces - Arctic Alaska, AmerAsia Basin and East Greenland Rift Basins.
- More than 70% of undiscovered natural gas is estimated to occur in three geological provinces - Arctic Alaska, West Siberian Basin and East Barents Basins.
- West Siberian Basin and East Barents Basin hold 47% of the undiscovered Arctic resources, with 94% of those resources being natural gas and natural gas liquids (NGL).
- While the Eurasian side of the Arctic is more natural gas prone, the North American side is more oil prone. The North American side of the Arctic is estimated to have about 65% of the undiscovered Arctic oil, but only 26% of the undiscovered Arctic natural gas.
Discovered Fields
The above map represents the number of discovered fields with proven reserve greater than 500 mboe.
Risk
Although Arctic Sea is pretty shallow in the areas of potential oil deposits, the harsh conditions imposed makes the drilling intractable. Only the large fields with reserve greater than 500 mboe are economically viable for the companies to drill the wells on. The myriad of environmental, logistical and social problems aggravate the misery of oil companies.
To operate in the conditions of extreme cold, stern darkness and turbulent sea during the winter would require higher investment in equipment and wages for the workers. Icebergs moving at speed of 700 meters per hour could damage the oil rig and riser pipe causing oil spill. The unpredictable weather and devastating waves up to 10m high are common traits of the Arctic.
The construction of pipeline to transport oil from the remote areas to the refineries down south is expensive and difficult due to poor soil conditions. As Arctic is majorly composed of natural gas, construction of LNG liquefaction plant will be necessary which again would add to the expense. The tanker ships carrying LNG to different parts of the world would face challenging condition sailing through the Arctic ice.
The shallow waters of the Arctic provide sanctuary for the wildlife. Any oil spill would be an environmental disaster and threaten their existence.
Oil Spill
One of the most controversial topics on Arctic Drilling is dealing with oil spills. Oil companies are spending huge amounts of money to upgrade their capabilities to prevent oil spills. The footprints of oil spill are largely unknown. The inexorable weather condition and lack of local infrastructure would hamper the relief process.
The following steps are taken in an event of oil spill:
- Containing the oil using booms
- Skimming off the oil atop the water
- Burning off the oil
- Using dispersants to break off the heavier hydrocarbons
- Leaving off the oil for natural degraded by microbes called Alcanivorax Borkumensis
None of these measures would be effective in the ice laden Arctic Sea. The condition would worsen if the spilled oil gets soaked into the ice which could transport it to thousands of miles away from the epicenter.
The only viable solution would be to drill during the summers when ice has retreated north leaving area around the wells ice-free.
Accidents
- In March 1989, Exxon Valdez supertanker hit a reef in Prince William Sound leading to a spill of 260, 000 barrels of oil. The drunken captain was the culprit of the worst spill US had witnessed then.
- In March 2006, a leak in pipeline operated by BP in Prudhoe Bay which went undetected for several days led to a spill of 5000 barrels of oil.
- On 31st December 2012, Shell's Kulluk ran aground off the southern coast of Alaska in a violent storm. Although there was no environmental effect of this accident, it was a realization of technological puniness amidst nature’s fury.
Regulatory Environment
Given the harsh conditions and repercussions of any incident on the fragile ecology of the Arctic, a stringent regulatory environment needs to be imposed. The players in the Arctic should collaborate to broaden their technological prowess and ameliorate their safety measures.
Only the relatively calm area in an ice free condition should be taken into consideration for licensing. The companies with strong commitment towards adherence to the regulatory guidelines, proactive disaster management plans and state of the art drilling technologies should be granted the lease.
Opinion
The ongoing revolution in Shale Oil and Gas has definitely diverted the attention of United States away from the Arctic. With the unproven shale reserves exceeding 1500 bboe, Arctic is not a frontier worth taking the risk, in my view.
The investment done to explore and develop the shale and tight oil and gas reserve would be more lucrative than confronting the Arctic wrath.
Units
- mboe = million barrels of oil equivalent
- bboe = billion barrels of oil equivalent
- tcf = trillion cubic feet
Bibliography
Photos and Maps