CP/Bob Weber
Mark 2012 as the year the Arctic rush for oil and gas was put on ice.
The harsh reality of finding – and the even more cumbersome process of extracting – petroleum from beneath a frozen ocean with little or no infrastructure nearby, coupled by the expensive price tag, have dented industry’s plans to exploit the polar region.
Thinning Arctic ice cover and an ever expanding search for resources has shone a spotlight on Canada’s Arctic. Arctic energy rush is the second in a series by James Munson and Michelle Zilio that focuses that light tightly on the ambitions, challenges and dilemmas that Canadian policy makers face as they enter 2013. For more on the series, click here.
Beefed-up technology designed for Arctic work has crumbled during testing. Exploration programs have been cancelled. Other seismic testing missions have come up empty. And some companies even swore off ever drilling for oil in the Arctic.
“This year was a more sobering one,” said Mikhail Babenko, a Moscow-based oil and gas officer for the World Wildlife Fund’s Arctic Programme. “In 2011, they started to make decisions to drill. This year, they started to assess the real costs.”
Oil and gas fields lie in huge deposits along both sides of Greenland, throughout the frozen seas that cover Russia’s northern coasts and in the Beaufort Sea shared by Canada and the United States, according to the U.S. Geological Survey assessment that triggered the Arctic rush when it was published in 2008.
Seismic and drilling exploration quickened after the report declared that up to 90 billion barrels of oil and 1,670 trillion cubic feet of natural gas could be extracted from beneath the Arctic.
Gazprom’s Prirazlomnaya platform, built with a massive concrete base, or caisson, to exploit oil found 60 kilometres off Russia’s northwestern coast in the Pechora Sea, was suppose to be the first project to actually exploit this newly-discovered potential, said Babenko.
But the company has repeatedly postponed first production because Gazprom could not ensure the site’s safety, said Babenko. The Russian petroleum giant’s website says production was slated to begin in 2012 but there are no updates and no declarations that the platform is operating.
The much bigger Shtokman natural gas field – set way out in the Barents Sea hundreds of kilometres from shore – has also fallen through for the time being.
Despite years of preparation and partnership with other global oil giants, Gazprom iced the project due to costs, says an August Financial Times report on the company’s plans.
The Yamal natural gas megaproject, also run by Gazprom, is the exception to the industry’s bad news. Yamal is not far from existing producing fields on land, and the first production facility was commissioned in October. The company considers the project, which will grow over the next decade, as a critical strategic asset.
Across the pole in the United States, Royal Dutch Shell faces roadblocks of a different kind.
A steel protective dome – designed to cover a blown oil well under the sea and minimize environmental damage – crumbled during testing in Washington states’ Puget Sound, according to internal Shell emails obtained by by an NPR-affiliated radio station in Seattle.
“As bad as I thought,” said Mark Fesmire, the regional head for Alaska at the Bureau of Safety and Environmental, a national regulator for the offshore oil and gas industry in the U.S., in one of the emails published in September. “Basically the top half is crushed like a beer can.”
In several rounds of testing, the dome falls out of place, gets tangles in some anchor lines, shoots to the surface and then falls and crumbles on the sea floor.
In Norway, exploration has been happening in the Norwegian and Barents Seas for years with some success like the Snohvit gas field. In Greenland, seismic and drilling exploration has taken place but without a breakthrough.
At the end of 2011, Scotland’s Cairn Energy finished the first phase of an exploration program on Greenland’s west coast but came up without a viable project. A Shell-led consortium and several other firms currently have oil leases along the coast.
The scene is much quieter in Canada.
Imperial Oil published a preliminary information package on its plans to exploit several license blocks in the Beaufort Sea, but the document is not even detailed enough to be considered a regulatory filing.
The 88-page file is meant to introduce proposed exploratory methods and practices to the Inuvialuit Development Corporation – the economic development and investment arm of the Inuvialuit Regional Cooperation, the land claim body of the Inuvialuit in the region, said Pius Rolheriser, spokesperson for Imperial.
The National Energy Board says there has been no active exploration programs in frontier lands – which include all offshore areas off the coasts of the Yukon, the Northwest Territories and Nunavut, as well as onshore drilling in the Central Mackenzie Valley.
The bulk of drilling in the Canadian Arctic took place in the Beaufort in the 1970s and 1980s and despite many licenses currently held by firms, Imperial’s just-testing-the-waters effort is the furthest plan in development.
Aboriginal leaders in the region remember pollution and poor practises left behind by the last rush. Modern land claims and changes to regional governance are now in place to make sure it doesn’t happen again.
Recent mapping of the North American continental shelf performed by Canada and the United States may one day open exploration even further north, but experts have their doubts.
“There is the potential for oil and gas, but we don’t know too much about it,” said Jacob Verhoef, the Canadian scientist who lead the mapping, done to prepare the countries’ submission for the International Law of the Sea Convention, which will define new territorial borders based on underwater geological formations. “Because we have not been there, we have not looked at it carefully.”
“Even if there is oil and gas, we’re not talking about the next ten years because economically, it’s certainly not viable to go and do a lot of exploration for oil and gas in the deeper Arctic.”
Total SA announced in a widely-reported statement in September that it opposes producing crude oil in the Arctic, while still retaining investments in several natural gas projects in the region.
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