The Arctic is believed to contain 22% of the technically recoverable oil and gas resources (that can be produced using currently available technology and industry practices) in the world.

The region accounts for about 30% of the undiscovered natural gas, 13% of the undiscovered oil and 20% of the undiscovered NGL in the world and as conditions – economic, political and meteorological – change, the region is growing in importance.

Melting ice in the Arctic Ocean is freeing up more navigable water, leaving significant petroleum reserves combined with newly opened trade routes up for grabs.

However, there are disputes between Canada, Denmark (through its rights over the Greenland), Norway, Russia and the US regarding rights to use resources and security of transportation through Arctic ship routes.

There are also major ecological concerns exemplified by the recent oil spill in the Gulf of Mexico (GOM), a disaster which, if it had happened in the arctic, would have been irreversible and even more difficult to contain.

Stricter regulations combined with the right technology and careful implementation by companies to tap the vast potential of reserves will therefore be crucial for any significant exploration activity to be carried out in the region.

A new frontier for oil and gas exploration

“The Arctic is believed to contain 22% of recoverable oil and gas resources.”

According to the US Geological Survey (Usgs) assessment of 2008, there are 25 geologically defined areas expected to have petroleum, containing around 90 billion barrels (bbl) of undiscovered, technically recoverable oil, 1,670 trillion cubic feet (tcf) of technically recoverable natural gas, and 44 billion bbl of technically recoverable natural gas liquids (NGL).

Only areas north of the Arctic Circle are included in the estimates.

Of the estimated numbers for the Arctic, more than 70% of the undiscovered oil resources are located in five geologic provinces of West Greenland / East Alaska (7.2 billion bbl), East Barents Basin (7.4 billion bbl), East Greenland Rift Basins (8.9 billion bbl), Amerasia Basin (Canning-Mackenzie) (9.7 billion bbl) and the Arctic Alaska (30 billion bbl).

Undiscovered natural gas in the Arctic is approximately three times that of oil in the region. Out of the undiscovered natural gas in the Arctic, more than 70% is estimated to be present in three provinces comprising the Arctic Alaska (221 tcf), the East Barents Basins (318 tcf) and the West Siberian Basin (651 tcf).

Regional disputes will see production take time to materialise

There are disputes between Canada, Denmark (Greenland), Norway, Russia and the US regarding rights to use, and the security of transportation through, Arctic ship routes. Thus the issue of determining military and territorial authority is increasingly gaining importance among the countries.

As the possibility of sailing through an open northwest passage emerges, countries find the Arctic important from the point of view of trade routes.The northwest passage can reduce 7,000km of the trip from Europe to Asia.

A lack of clear authority over maritime law in the Arctic raises security concerns related to transportation in the ocean as the northwest passage may be misused to traffic in weapons of mass destruction, missile components and others.

“Undiscovered natural gas in the Arctic is approximately three times that of oil in the region.”

The United Nations’ (UN) Law of the Seas submission deadline of 2013 demands countries to provide scientific proof of where their shelf ends. Countries may extend their boundaries up to 200 miles from that line.

The US and Canada are disputing over the northwest passage, a water route connecting the Pacific Ocean and Atlantic Ocean. It lies between Canadian islands, and hence Canada claims only Canadian ships are entitled to use the route. This claim, however, is not accepted by the US or other countries.

Another crucial region of dispute is the Bering Sea, for which both Russia and the US continue to make claims. The US had purchased Alaska from Russia in 1863. Both countries have been trying to finalise marine boundaries.

In 1990, the Baker-Shevarnadze treaty was signed. The agreement drew the maritime border from the Bering Sea through the Chukchi Sea into the Arctic ocean. With the fall of the Soviet Union, Russia refused to ratify the treaty and the country intends to re-negotiate some of the agreements made in 1990.

Russia regards the deal to be too favourable to the US, particularly in the case of fisheries and the US has been refusing to re-negotiate the treaty.

Denmark and Canada have continued to dispute over Hans Island for more than 60 years. It is a tiny island of half a square mile, located in the strait between Denmark (Greenland) and Canada’s Ellesmere Island, which is currently under Danish control.

Russia, Canada and Denmark are also in dispute over the Lomonosov Ridge. The countries claim the ridge is a continuation of their continental shelf, which they believe entitles them to rights over it and an additional 200 miles adjacent to it.

Territorial disputes have not dampened the spirits of most prospectors

Canada’s Beaufort Sea is witnessing increased activity – Oil & Gas companies are showing increasing interest in the deepwater Canadian Beaufort Sea. Major players include BP, ExxonMobil and its 69.6% subsidiary Imperial Oil, Chevron Canada, Shell, ConocoPhillips Canada and Devon Energy. So far, 90 wells have been drilled in the Beaufort.

Russia will begin production in 2011 – Russia intends to begin production at its first offshore oil field in the Arctic-Prirazlomnoye, located in the Pechora Sea, by early 2011. The field has resources of up to 41 million tons and annual peak production is estimated to be about six million tons. In total, 36 wells are planned to be drilled on site by 2019.

US plans to open Arctic waters for leasing after 2012 – On December 1, 2010, the US announced it was opening up Arctic waters for ‘cautious’ leasing after 2012. It has also cleared the way for full review of a proposed new exploratory well in the Beaufort Sea.

Greenland awarding new licenses – In November 2010, Greenland awarded seven new licenses for oil and gas exploration in Baffin Bay, off its West coast. The companies get to ecologically fragile areas in the Arctic. According to the Greenland’s Bureau of Minerals and Petroleum, the country has granted licences to Norway’s Statoil, US major ConocoPhillips, Anglo-Dutch Shell, UK company Cairn Energy, France’s GDF Suez, Denmark’s Maersk and DONG Energy and Greenland’s national oil company Nunaoil.

But extreme environmental caution is required

“To produce oil and gas in a frontier region like the Arctic requires massive infrastructure.”

As the climate is continuously changing in the Arctic, melting its ice surface; shipping, oil and gas exploration opportunities and fishing are increasing. With the pace at which the climate of the region is changing, the current regulatory and governance regime for protection of the arctic marine environment needs to be revised.

To protect and preserve the marine environment and sustainably use the Arctic’s marine resources, new measures must be adopted. To produce oil and gas in a frontier region like the Arctic requires massive infrastructure.

This has direct consequences in the form of habitat destruction, erosion, gravel mining for harbours and roads, fragmentation of migration routes and draining freshwater resources for ice roads. Indirectly, creation of new infrastructure will lower the barriers to entry for other kinds of resource exploitation, like logging of sensitive timberline forests, mining, commercial fisheries and other commercial use of wild species. Sub-sea infrastructure such as pipelines can damage corals and other sea floor habitats.

The problem of oil spills is also more challenging in the Arctic as there is no effective method for containing and cleaning up an oil spill in ice conditions. A major spill in the Arctic would travel with currents, in and under sea ice during the ice season.

This would cause acute mortality in plankton, fish, marine mammals and birds. Also, there would be physiological damage, altered feeding behaviour and reproduction, genetic injury that could endanger or bring species to extinction.

Low temperatures and slow degradation rates could make the spill worse as oil would persist in the environment for decades. A major concern is the oil spill in the ice could be worse than the GOM spill of April, 2010. The GOM is located in a warm tropical climate, while the Arctic is characterised by vast expanses of wilderness, and an extreme climate of ice, wind and freezing temperatures.

Oil, when extracted from wells, has a temperature of more than 110 degrees celsius, while it cools at 0 degrees. In summers too, the Arctic region has temperatures ranging from -10 degrees celsius to 10 degrees. Now, to handle exploration and production operations in such uncertain temperatures is pushing the very edge of technological capacity.

For More Details on the full GlobalData report “Oil & Gas Exploration In the Arctic Region – Analysis of Exploration & Development Plans in this Environmentally Sensitive Area”

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