Oil & Gas in the Arctic - Special Report


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Oil & Gas in the Arctic - Special Report

  1. 1. January 2012 ARCTIC Special Report  News  Analysis  Intelligence SPECIAL REPORT Published by  NewsBaseINTRODUCTION 2 NEWS THIS WEEK…o Arctic: frozen potential 2 Resources and risksEUROPE 4 The Arctic is tipped to hold a substantial amount of reserves, but challenges remain over extractingo Norway looks to high tech for high these. north 4  Norway has plans in motion to move forward witho Greenland’s hopes for offshore oil prudent licensing of its Arctic acreage. (Page 4) bonanza begin to fade 6  Cairn has had a busy year drilling offshoreFSU 8 Greenland but, thus far, has had little success. (Page 6)o Rosneft and Gazprom look north 8  Russia holds extensive resources in the Arctic, but will look to bring in foreign expertise and cash to exploit these. (Page 8)o Rosneft teams up with ExxonMobil to tackle the Kara Sea 10  Rosneft signed up ExxonMobil to work in the Kara Sea, following an initial deal with BP. (Page 10)NORTH AMERICA 12  Alaska holds interesting prospects but work in theo Alaska looks forward to offshore offshore has faced repeated legal challenges. (Page 12) drilling 12  Conventional gas projects in Canada’s north haveo Canada considers Arctic resources 14 suffered from the shale boom. (Page 14)For analysis and commentary see inside… Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  2. 2. Arctic Special Report January 2012 page 2 INTRODUCTIONArctic: frozen potentialMuch of the world’s undiscovered energy is said to lie in the Arctic but accessing thisresource will prove difficult for political, financial and environmental reasonsBy Ed Reed The Arctic holds 22% of the world’s undiscovered hydrocarbons, although it skews towards gas Technical difficulties will drive up the cost of operations Environmental challenges have ratcheted up the pressure in Alaska and GreenlandThe world’s need for additional sources Play with fireof oil and gas will drive exploration north It is the shortage of resources available You got the silverof the Arctic Circle, but much is still for investment by traditional energy For exploration to proceed in the Arctic,unknown about the area, in particular the companies that has driven interest in the energy prices must remain high butresources in place. Working there is Arctic. companies appear willing to move intodemanding technologically but the area is At the beginning of 2011, BP and the area at current prices. Long-termone of the few places available for Rosneft struck a deal on an area in the prices depend on a number of factors butinternational investment. South Kara Sea, giving the UK-based with traditional resource producers in Companies are already gaining super-major a stake in the Arctic. OPEC relying on oil at more than US$90experience of working in cold conditions However, the deal fell apart on per barrel it seems likely that anywith work in Norway’s north, Alaska and opposition from BP’s Russian joint declines would be momentary – orSakhalin Island. The most progress has venture partner and ExxonMobil stepped indicate far larger structural issues.been made in Norway, where the country in as a replacement in August. (See: However, should the USGS report behas taken an extremely pragmatic Rosneft and Gazprom look north, page accurate, it seems the Arctic’s resourceapproach to exploiting its domestic 8.) potential may lie predominantly in theresources. The US Geological Survey (USGS) area of additional gas production. Russia has often been seen as hostile to estimated in July 2008 that the area’s Russia’s Shtokmanovskoye field revealsforeign companies – a particular concern technically recoverable resources were the type of challenge associated withwhen working in such forbidding areas 90 billion barrels of oil, 47.29 trillion such developments, with projectas the Arctic. Alaska’s prospects, cubic metres of gas and 44 billion barrels members calling for support from themeanwhile, took a hit following US of natural gas liquids (NGLs). government to press ahead with the task.concerns on safety following the The study went on to say this The Russian gas field had once beenMacondo disaster and companies accounted for 22% of the world’s intended primarily to focus on exportingworking in the state have faced undiscovered but recoverable resources, gas to North America and Gazpromchallenges on numerous grounds. made up of 13% of the undiscovered oil, sources reiterated this perspective. With Norway, though, appears determined 30% of the undiscovered gas and 20% of the rise of unconventional gas in the USto press ahead with development and undiscovered NGLs. Most of the and Canada, though, such a market is anintends to hold a licence round in the resources – 84% – lie offshore. unlikely match for high-priced LNGArctic in 2015. (See: Norway looks to Some exploration progress has been from Shtokmanovskoye or other Arctichigh tech for high north, page 4.) made north of the Arctic Circle, with gas projects. around 40 billion barrels of oil A better destination for Russian LNG discovered. However, the US agency’s from the Barents Sea would be Asia, but statement said: “the Arctic, especially the traditional route – via the Suez Canal offshore, is essentially unexplored with – involves a substantial distance. respect to petroleum.” However, with ice cover receding, the While the USGS’ work is much viability of the Northeast Passage is needed – and provides useful insights increasing and provides a summertime into the Arctic’s resources – until alternative to transit via Egypt. exploration is carried out it would be The oil-gas pricing disconnect has also premature to read too much into its had a notable impact within North projected totals. America. Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  3. 3. Arctic Special Report January 2012 page 3 INTRODUCTION Canada’s hopes for its It should be noted, US administration will press ahead withMackenzie Gas Project though, that such a exploitation of the country’s Arctichave suffered, given the journey is only possible resources through a lease sale plannedhigh cost incurred on in summer. This would for the Chukchi Sea and approval oftransporting gas from the be likely, therefore, to Royal Dutch Shell’s plans for drilling.remote site to Alberta. drive LNG shipments to Alaska needs to bring on more oil(See: Canada considers Asia during the summer production to fill its export pipeline,Arctic resources, page months but during the which has fallen well below its design14.) winter more sales would capacity. Any additional production from Similar woes have had flow into the Atlantic Shell, though, will take at least 10 yearsan impact on plans for Basin. to be exported. (See: Alaska looksanother gas pipeline, from Alaska to The Northwest Passage, along the top forward to offshore drilling, page 12.)Alberta and on into the US. The project, of Alaska and Canada, may also offer A survey carried out by IRIS pickedbacked by TransCanada and transport opportunities, although the question of responding to oil spills asExxonMobil, would require billions of shallower water is likely to reduce its the most frequently noted challenge.dollars of investment and take years to usefulness somewhat. Greenland published the oil spillcomplete, which seems unfeasible given As ice recedes, and shipping increases, response plan of Cairn Energy in Augustthe unconventional gas glut. it is likely that countries will become this year following sustained pressure more interested in the area and how to from environmental groups such asShe’s so cold access resources. Increased activity, Greenpeace. The company secured twoSea ice is the “single most important meanwhile, makes accidents more likely rigs for work offshore Greenland,environmental factor” for operations in to occur – which poses a whole new set keeping one in reserve at all times to drillthe Arctic, according to a report from the of problems when compared with a relief well, should such be needed.International Research Institute of working in more benign conditions. Should oil be spilled, it would proveStavanger (IRIS) in October. Facilities to difficult to contain, Cairn said. While thebe installed offshore need to be able to Highwire lower water temperatures would stopwithstand ice and operators must bear in Ice may pose the primary problem for crude spreading as far as in more clementmind such conditions for transportation working in the Arctic but a number of environments, this also complicatesand rescue work, the report said. factors complicate operations. During the clean-up work. Work in winter would be Significantly, as global temperatures winter season, when ice is more particularly difficult, owing to the shortincrease, ice cover recedes, opening up prevalent, the hours of daylight are days.new areas for exploitation and access. reduced. In addition, pushing further into The presence of ice would makeAccording to some calculations, within the Arctic necessarily means shifting booms – used to contain spills – more30 years summer in the Arctic may be operations further away from established difficult or impossible to employ.virtually ice-free. bases and equipment supplies. A worst-case scenario set out by Cairn The impact of reduced ice cover can The combination of these factors estimates a spill of 5,000 barrels per day,already be seen in the opening up of the would make any work tackling an oil resulting from a kick during drilling anNortheast Passage, linking the Atlantic spill difficult – if not impossible. over-pressured reservoir, running for 37and Pacific Oceans round the north of The Macondo disaster in the US Gulf days.Russia. of Mexico was an environmental stain on The country’s leading gas independent, the energy industry and those involved –Novatek, has sent a number of tankers both companies and inhabitants of thethrough this passage from Murmansk to region – are still coming to terms withAsia this year, aided by ice-breakers. the outcome.This route may prove of interest to LNG In some ways, though, the locationtankers, which could transport gas from made tackling the problem easier. Thesites such as Shtokmanovskoye to high- sheer number of vessels available to BPpriced Asian markets. to address the oil spill would not have Travel via this route is said to take been available had such an accidentaround half the time of transiting the occurred in the Arctic.Suez Canal, providing cost savings on The Macondo disaster led to areduced fuel use. In addition, it allows moratorium on drilling in the Gulf ofships to avoid passing Somalia, which Mexico and greater scrutiny of offshorehas seen an uptick in piracy in recent work around the US, including in Alaska.years. Some recent signs have indicated the Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  4. 4. Arctic Special Report January 2012 page 4 INTRODUCTION This assumes a total blowout preventer environmental group criticised Cairn’s injunction banning the distribution of any(BOP) failure but for the drilling unit and worst-case scenario, noting the Macondo pictures taken during the protest.riser to remain in place. well flowed at 55,000 bpd, and quoted an Despite the NGO’s best efforts, Using a variety of techniques, expert as saying the company could only though, drilling went ahead – but wasincluding dispersant, containment and in- clean up 650 bpd. largely disappointing. This combinationsitu burning, Cairn said it could clean up The relationship between the of a lack of results, high costs and8,793 bpd, more than would be spilled environmental group and the oil negative publicity raises uncertainties onunder the worst-case scenario. company has been strained for some how eagerly companies will embrace Greenpeace reached a different time. Earlier this year, Greenpeace further work in Greenland. (See:evaluation of the data, describing the activists occupied Cairn’s Scottish office, Greenland’s hopes for offshore oilstudy as “wholly inadequate.” The leading the company to take out an bonanza begin to fade, page 6.) EUROPENorway looks to hightech for high northAs Norway prepares to make major strides into Arctic exploration, policy and technologyappear to be the main keys to successBy Ian Simm Norway has estimated the Barents Sea to hold 5.9 billion barrels of undiscovered oil and gas Goliat will be the first Arctic oilfield to be developed, with a purpose-built winterised FPSO unit The preliminary signs have been excellent, with several major finds already having being madeNorwegian Minister of Petroleum and (PL) 532, around 200 km northwest of which was awarded to the NorwegianEnergy Ole Borten Moe recently Hammerfest – a find thought to hold 250- arm of Italy’s Eni, the field’s operatordescribed the idea of an Arctic licensing 500 million barrels, while in PL 535, with a 65% stake, and Norway’s partround in 2015 as “realistic.” Total struck large quantities of gas at the state-owned Statoil (35%) in the Barents This announcement is likely to set Norvarg prospect. Norway has estimated Sea licensing round in 1997.pulses racing around the oil and gas the Barents Sea to hold 5.9 billion barrels According to Eni Norge, the initialindustry, with another ‘frontier’ opening of undiscovered oil and gas. discovery on the field was made by theup for exploration. However, the Arctic first exploration well in 2000, and a totalis unlike any other prospective area for First steps of five wells have now been drilled.hydrocarbon exploration. According to a Norway’s first gas production in Arctic At around 174 million barrels ofreport by the US Geological Survey Circle came in 2007, when Snoehvit – recoverable oil, the field’s size is modest.(USGS), the region “accounts for about the world’s most northerly gas field – However, it is expected that production13% of the undiscovered oil, 30% of the came online. The field feeds the will last for around 10-15 years.undiscovered natural gas and 20% of the Melkoeya liquefied natural gas (LNG) In 2009, it was decided that the fieldundiscovered natural gas liquids [NGLs] terminal, which has a capacity of around would be developed using a floatingin the world.” Around 84% of the 4.3 million tonnes (5.6 billion cubic production, storage and offloadingestimated resources are expected to lie metres) per year of LNG. (FPSO) vessel, the engineering,offshore. In 2013, production is expected to procurement, construction, onshore The attraction of exploring the Arctic begin at Norway’s Goliat oilfield, the commissioning and transportationis obvious, and 2011 has so far been a country’s first to be developed in Arctic contract for which was controversiallysuccessful year for Norway. waters. awarded to South Korea-based Hyundai In April, Statoil struck oil at the This field is located around 85 km Heavy Industries (HHI).Skrugard prospect in Production Licence northwest of Hammerfest in PL 229, Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  5. 5. Arctic Special Report January 2012 page 5 EUROPE The award of the US$1.16 billion It is clear that exploring and 2012.contract was unpopular in Norway, as the developing Arctic reserves will require Unlike Goliat, however, the RussianHHI bid was favoured over a bid by technological advancements; however, drilling location is in a mere 20 metres ofOslo-based Aker Solutions and fellow Norway’s bid to do so will also require water, whereas the Norwegian drillingKorean firm Samsung Heavy Industries. political backing. will take place in water 400 metres deep.The contract was hoped to have created As has been seen in Edinburgh-basedaround 7,000 man-years of labour in Follow the lead Cairn’s Greenland drilling campaign,Norway. On June 7, Norway and Russia’s foreign Arctic exploration is not only challenging According to Eni, however, as of ministers ratified a treaty at a ceremony in the field, but also when it comes toMarch 2011, “60% of all contracts have in Oslo, dividing a disputed 175,000- politics. The frontier explorer’s exploitsbeen awarded to Norwegian industry. We square km area into equal shares. The off the west of Greenland have beenexpect the Norwegian content to increase agreement came into force on July 7, hounded by protests by Greenpeaceto 65% when all supplies to Goliat are effectively opening the southeast Barents activists, and the Danish navy was[delivered].” for business. recently called in to remove protestors Eni and Statoil chose Norway-based Like Norway, Russia is intending to from the Leiv Eiriksson drillship and aSevan Marine’s Sevan 1000 FPSO delve into its offshore hydrocarbon Greenpeace vessel from the explorationdesign – a fully winterised cylindrical treasure trove, and efforts are being made area.floater, built to cope with the harsh to gain experience in dealing with the Opening up the Norwegian Arctic isweather conditions of the Barents Sea. difficult weather conditions post-haste. likely to attract similar attention,The unit will have a production capacity State-run gas monopoly Gazprom has especially in fragile habitats.of 110,000 barrels per day of oil and 4 said that work at its Prirazlomnoye These areas were included in April’smillion cubic metres per day of gas, as oilfield, located 60 km offshore in the 21st Awards in Predefined Areas (APA)well as being able to store around 1 Pechora Sea, could pave the way for the Licensing Round.million barrels of oil. future development of the Russian The inclusion of the deepwater blocks On October 14, Dockwise Ltd. Arctic. in the round was inevitably going toannounced that following a job in the Like Goliat, Prirazlomnoye will be cause some political friction, given thatGulf of Mexico in 2013, its new-build developed by a purpose-built rig – some of the planned blocks on offer arevessel, Dockwise Vanguard, would Prirazlomnaya, Russia’s first ice-resistant in the pristine waters of the Barents Seareturn to South Korea to “load and stationary offshore drilling platform. and near the oil-rich buttransport the Goliat FPSO to northern Gazprom is aiming to drill as many as 40 environmentally-sensitive watersNorway.” directional wells, beginning in early surrounding Lofoten and Vesteraalen in Nordland. In a statement following the announcements, Borten Moe said the round would “lay a foundation” for further exploration of Norway’s least developed areas. “There is unprecedented interest in our northernmost seas,” he said. “The present level of activity in the Barents Sea is high, and increasing.” The Petroleum and Energy Ministry then moved to allay concerns over safety – introducing additional requirements for deepwater, high-temperature and high- pressure reservoirs. Looking forward, it appears Norway has a firm focus on safety in the region. Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  6. 6. Arctic Special Report January 2012 page 6 EUROPE Haakon Smith-Isaksen, question of seasonal drilling programmes been built, providing drilling of wells atCommunication Adviser at the was likely to be discussed in the depths ranging from 6 to 20-30 metres.”Norwegian Ministry of Petroleum and aforementioned white paper. It added: “For the depth of 60 metres,Energy, told NewsBase: “The Norwegian there is an option to use stationary ice-government will initiate an impact Technology at the fore resistant platforms, while for depthsassessment under the Petroleum Act, Drilling in the Arctic brings with it under 60 metres their use will depend onwith a view to granting production obvious challenges above and beneath the investment’s justification.”licences for the previously disputed area the water. Work is ongoing on solutions that willwest of the delimitation line in the A lack of working experience in the provide for guaranteed year-roundsouthern part of the Barents Sea (south of harsh climate of severe ice in the far drilling in such conditions.74°30’ N). If this is justified by the north presents a challenge to those Such solutions could prove to be aconclusions of the impact assessment, the wishing to explore the region for boon for local services companies, withgovernment will present a white paper hydrocarbons. With no proven major contracts likely to be awarded inrecommending that these areas should be technology for production or the near future.opened for petroleum activity. Such a construction in around 90% of the areas Last week, local authorities in thewhite paper may be presented in 2013.” in question, the test will be to create a northern Norwegian city of Tromsoe said He added that the areas in question new services industry to meet the that they wanted to build a permanentwere in many ways similar to areas requirements of such an environment. base for oil and gas operations in thefurther to the west, which are already The learning curve will be steep, but Arctic. Assistant Port Director Randiopen for petroleum activity. experience garnered in exploring and Thoerring told Nordlys newspaper that When asked about a start date for producing from harsh climates like that with the increasing level of activities inexploration in the Nordland VI, VII and of the North Sea can provide a the far north, there was a need for such aTroms II blocks – the most eagerly springboard from which to leap. base.anticipated of the blocks surrounding With punishing surface conditions, As Norway embarks on the challengeLofoten and Vesteraalen, Smith-Isaksen subsea field development will be the of developing the far north, there remainssaid that the Norwegian government favoured ploy for extracting resources in a lack of clarity, akin to that found whenwould not initiate an impact assessment the frozen north. embarking on any such venture. Indeed,under the Petroleum Act for the areas As has been seen in Greenland, when asked about whether he thoughtwhile the current Parliament was seated. however, the weather can make it FPSOs like Goliat would be the preferred “The question will therefore be impossible to work year-round, an issue method for developing Norway’s newanswered by the next Storting that will add to cost as well as being reserves, Smith-Isaksen said: “There is[Norwegian Parliament] after the likely to result in problems with pressure uncertainty concerning the resourceParliamentary election in 2013,” he as well as slow production. potential in Nordland VI, VII and Tromsadded. On October 10, Oil & Gas Eurasia II. The uncertainty will remain until In Greenland, drilling is only permitted released a report which said: “In the exploration drilling has been executed …in summer months, as conditions are shallow waters of the Arctic in the Hence it is premature to speculate ondeemed too inclement throughout the rest Beaufort Sea, already a series of artificial possible future developmentof the year. Smith-Isaksen said that the islands and bases of various types have solutions.”Greenland’s hopes for offshoreoil bonanza begin to fadeDisappointing results have shrouded the excitement that until recently had surrounded thehunt for oil in Greenland. However, those involved remain resolute in their focusBy Nnamdi AnyadikeHopes for an offshore oil bonanza in the Edinburgh-based group Cairn Energy since the start of its unsuccessfulicy Arctic waters of Greenland are revealed that it has spent nearly GBP500 Greenland campaign.starting to fade somewhat, as the million (US$804 million) in drilling costs Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  7. 7. Arctic Special Report January 2012 page 7 EUROPE The company currently has aninterest in 11 large offshoreblocks, covering an area of around102,000 square km. The firm hassunk 6 of the 12 exploration wellsthat have been drilled offGreenland since such work startedthere 40 years ago. While Cairn released astatement saying it “remainsencouraged by the prospects andopportunities presented byexploration offshore Greenland,”the country’s summer drillingseason is now drawing to a closeas winter sets in.Great promiseIf Greenland’s promise as anoffshore oil province turns out to be drilling in the Arctic, has ridiculed the have interests in the country.”overstated it will be a blow to those USGS’ high estimates. The lobby group She added: “With rising global energyenergy companies who are turning to the claims that in 2000, the US government demand and decreasing production fromArctic as one of the last frontiers left for said there could be as much as 47 billion current oil- and gas fields, the potentialexploration. However, it will gladden the barrels of oil in northeast Greenland. By of frontier reserves such as offshorehearts of the environmental lobby, which 2008, it said the government had slashed Greenland to contribute to the world’sis dead set against oil and gas exploration its estimate to less than 9 billion barrels. future energy requirements isin the region’s pristine waters. significant.” But for energy companies, the prospect Drumming up interestof operating in a region that, according to The current USGS estimate for offshore Cold shoulderUS Geological Survey (USGS), contains west Greenland is 7 billion barrels. However, Cairn’s failure to make aas much as 90 billion barrels of oil and Despite this level of uncertainty, an commercially viable oil find off the coast1.7 trillion cubic feet (48 billion cubic increasing number of oil companies have of Greenland to date is a warning tometres) of natural gas – around 25% of decided to take the plunge. As a result, those who underestimate the difficultiesthe world’s undiscovered hydrocarbons – oil and gas exploration across a wide of operating in the wilderness areas ofis tempting. swathe of territory sweeping north of the the north. The USGS said: “The extensive Arctic Arctic Circle has now been stepped up. It also provides an object lesson in howcontinental shelves may constitute the In August, super-major Exxon Mobil quickly hopes for a region can deflate. Ingeographically largest unexplored Corp. and Russia’s Rosneft announced a September that year, Cairn announced anprospective area for petroleum remaining deal to explore offshore oil fields in the oil find in Baffin Bay with the firston Earth.” Russian Arctic of the Kara Sea. This exploration well there in more than 10 Greenland is seen as potentially a key followed the major Skrugard discovery in years. The company’s success at itsplayer in the Arctic’s oil and gas the Barents Sea by Norway’s Statoil Alpha-1S1 well followed six faileddevelopment, with the USGS estimating earlier in the year. efforts in 30 years of exploration byits continental shelf to hold up to 50 In mid-2012, these companies could be various companies.billion barrels of oil and gas. The Baffin joined by Shell, which hopes to begin a Then, in December 2010, GreenlandBay area alone may contain up to 18 controversial drilling programme off the awarded seven oil and gas licences to abillion barrels of oil equivalent. northern coast of Alaska. number of competing companies for the If these resources come on stream as Louise Burgess, Cairn’s corporate exploration of 70,768 square km inplanned then Greenland could communications officer, told NewsBase: Baffin Bay. The licensees includeconceivably supply Europe’s energy “It is not only Cairn that believes in the Greenland’s national oil company (NOC)needs for nearly two years. hydrocarbon potential offshore Nunaoil, Cairn, Dong Energy, Royal Greenpeace, which is leading the Greenland: Chevron, Conoco Phillips, Dutch Shell and ConocoPhillips. Hopesenvironmental campaign against offshore Exxon, Shell and Statoil also currently were riding high. Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  8. 8. Arctic Special Report January 2012 page 8 EUROPEStumbling blocks drilling campaign over a three-year shares in Cairn plunged by 7%.Initial investment on the exploration period. The company will be keenly aware thatblocks is expected to be high – anywhere Burgess said the company was still it will soon need to satisfy the marketbetween 130 and 200 million euros upbeat, despite its lack of success. “Cairn that it has made the right decision in(US$181-279 million) per block, remains encouraged by the prospects and plumping for Greenland.reflecting the challenging environment of opportunities presented by exploration Nuuk will hold licensing rounds for thethe Arctic Circle. offshore Greenland. [The company’s] Greenland Sea off the country’s East Production in the Arctic is similarly approach to exploration has allowed it to coast in 2012 and 2013.high-cost and is estimated at US$500- build a leading early entry position in According to the Bureau of Minerals700 per tonne. This compares with Greenland, where we remain focused on and Petroleum, the first round “will bedeveloped regions where costs can be as the potential of our multi-basin position,” reserved for companies which are payinglittle as US$30-40 per tonne, or the Far she told NewsBase. members of the KANUMAS Group andEast, where it can be US$200-300 per The long lead times separating groups of companies which include attonne. exploration and development in least one company which is a paying Edinburgh-based energy consultancy Greenland means that any company member of the KANUMAS Group. TheWood Mackenzie has said that operators operating there must have deep pockets. paying members of the KANUMASwould need a commercial discovery of at Joern Skov Nielsen, head of Group are: ExxonMobil, Statoil, BP,least 250 million barrels of oil to Greenland’s Bureau of Minerals, Japan National Oil Corporation (JNOC),establish profitable operations at a estimates that building the necessary Chevron and Shell [as well as NunaOil].”minimum oil price of US$75 per barrel. production facilities will take financial The pre-round for the first will beHowever, higher prices may be required investments of US$5-6 billion, and that formally opened on January 1, 2012 withdepending on the reservoir’s quality, the these are unlikely to be operational for deadline for submission of applicationsfield’s size, and distance from shore. around another 10 years. for prequalification as operators on In order to fund its Greenland project, March 1. The latter will be formallyCommitment to the cause Cairn sold a 51% stake in its subsidiary, opened on June 15 2013.The winners of the Greenland blocks Cairn India, to Indian mining firm Much of the interest in these rounds ishave committed to drilling two to three Vedanta for US$8.5 billion. When news likely to depend on the turnout of last ofexploration wells. In 2010, Cairn broke in 2010 that it had failed to the exploration carried out in the currentbudgeted US$1 billion for its 10-well replicate its earlier exploration success, drilling season. FSURosneft and Gazprom look northRussia’s new policy on joint ventures has opened up fresh opportunities for Arctic shelfprojects, but Rosneft has pulled ahead of Gazprom in attracting foreign partnersBy Jennifer DeLay Rosneft intends to work with ExxonMobil to explore and develop three areas in the Kara Sea Meanwhile, Gazprom is scaling back its plans for development of the Shtokmanovskoye field The gas giant will gain offshore experience at Prirazlomnoye but will face harsher conditions at other fieldsRussia’s government has indicated that it goal solely on the strength of mature The rewards of Arctic explorationviews the exploitation of crude oil and provinces such as Western Siberia, so it could be substantial. According to a USnatural gas fields off the country’s is looking to open up new regions. Department of Energy report publishednorthern coast as a priority. The Arctic shelf, which is almost in 2009, the US Geological Survey Though the Kremlin has frequently entirely undeveloped, is one such region. (USGS) has determined that the majoritycalled on Russia to reduce its dependence It is believed to be home to vast of the 1.669 quadrillion cubic feet (48on hydrocarbon revenues, it is eager to hydrocarbon reserves that could help trillion cubic metres) of undiscovered gasmaintain high production levels for as keep Russian output levels steady over reserves in the northern seas lie inlong as possible. It cannot achieve this the long term. Russian territory. Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  9. 9. Arctic Special Report January 2012 page 9 FSU Fully 39% of those generated good news forreserves lie in the Rosneft. Late last month,southern Kara Sea off ExxonMobil of the USthe coast of agreed to work with thenorthwestern Siberia, state-run oil company tothe report said. explore and develop three The Russian Arctic is offshore areas in the Karaalso home to sizeable oil Sea (Eastreserves. These are Prinovozemelsky-1, -2likely to be developed and -3, which were thefirst, since the country’s focus of the ill-fated co-state-owned gas operation deal signedmonopoly Gazprom with BP in January).wants to launch Rosneft is also in talksproduction at major with the multinationalonshore deposits such as Royal Dutch/Shell on theBovanenkovskoye possibilities for co-before moving on to operation on Arcticoffshore operations, which are more Rosneft work closely with foreign projects, according to press reports.complex and costly. partners on Arctic shelf projects. More So far, however, Gazprom has yet to Oil producers, by contrast, are less recently, though, it has loosened up secure similar expressions of interest.inclined to wait. As noted above, restrictions on outside investment in a The gas monopoly has not madeWestern Siberia, which is Russia’s main bid to attract interest from Western arrangements to work with foreignoil province, is past its prime, and this companies that have experience in partners on any major Arctic projecthas led major companies to scout for new offshore drilling and that can offer the since 2007, when it teamed up withprospects. Some of these prospects are technologies needed to work in the France’s Total and Norway’s Statoil toonshore fields in Eastern Siberia, but hostile northern seas. Specifically, it has form Shtokman Development AG, theothers lie offshore in the Black Sea, the said it will permit state-owned companies joint venture that will develop thenorthern Caspian Sea and the Sea of to form joint ventures with foreign Shtokmanovskoye gas and condensateOkhotsk, as well as the northern seas. investors to carry out Arctic offshore field in the Barents Sea. projects. This project’s future is somewhatPolicy shift shaky. Concerns about the slowdown inOne of the factors complicating offshore Good news for Rosneft European gas demand have led to delays,development projects has been There are still some issues to iron out on and in early 2010 the joint ventureMoscow’s decision to classify shelf this front, such as the question of exactly partners began talking about droppingdeposits as strategic reserves. how to book reserves discovered by joint plans to export second-phase production Under this policy, the only companies ventures working in the Arctic. in the form of liquefied natural gaseligible to exploit such fields were However, the new policy has already (LNG).government-controlledcompanies with at least five Prirazlomnoyeyears of experience in Gazprom does have high hopes foroffshore operations. In another Arctic offshore project,practice, this has posed however.insurmountable barriers to all Company representatives haveoil and gas firms, with the said that work at Prirazlomnoye,exception of state-run an oilfield located 60 km offshoreGazprom and Rosneft. in the Pechora Sea, could serve as(Zarubezhneft, though, will a springboard for futuresoon be in a position to join development work in the northernthese two companies by seas. They have also stated that thevirtue of its work off the project will allow Gazprom to gaincoast of Vietnam.) valuable experience in drilling, Initially, the Kremlin was extraction and transportation inreluctant to see Gazprom and Arctic waters. Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  10. 10. Arctic Special Report January 2012 page 10 FSU The company recently installed move could impose limits on Gazprom’s are even more severe. It will also have toPrirazlomnaya, Russia’s first ice-resistant ability to gain experience in offshore drill in considerably deeper waters. (Thestationary offshore drilling platform, at operations. Prirazlomnaya platform has beenthe field. The platform will be used to installed at a site where the sea is aboutdrill up to 40 directional wells, the first Offshore experience 20 metres deep.)of which may begin production as soon This will not be catastrophic for the gas This is less of a concern for Rosneft.as the first quarter of 2012. It will also be monopoly, which is currently working to The oil company hopes to benefit fromcapable of handling crude from other build a fleet of new Arctic rigs. its access to the experience andnearby fields such as Dolginskoye, which The company has already gained technology of ExxonMobil, which hasGazprom has said it wants to develop in experience elsewhere – namely, the worked off the northern coast of Alaska.tandem with Prirazlomnoye. Sakhalin-II offshore block in the Russia Gazprom, however, may have to cover This project may also face Far East, where it has served as operator more ground on its own if it does notcomplications. On one hand, Gazprom since late 2006. take advantage of the new policy onhas said it intends to transfer the However, it is worth noting that Arctic joint ventures. Conversely,development licence for Prirazlomnoye conditions at Prirazlomnoye are more though, it has more time to do so, since itto Gazprom Neft, its oil arm. difficult; temperatures are lower, and the is not likely to begin developing the It is not yet clear when such a transfer seas will be iced over for a longer period northern seas in earnest before the end ofmight take place, but since Gazprom during the winter. this decade.Neft’s operations do not fully overlap Moreover, if Gazprom chooses to gowith those of its parent company, this further north, it will face conditions thatRosneft teams up with ExxonMobilto tackle the Kara SeaThe state-owned Russian giant sees Statoil as its most likely partner for work at fields onthe northern sea shelfBy Vladimir Kovalev Rosneft hopes to gain access to fields in the “grey zone” of the Barents Sea The company may also work with US and European firms in the Black Sea Foreign partners are expected to provide the technology needed for offshore developmentState-controlled Rosneft has officially bring in the modern technologies that Joint useannounced that it has begun seeking Russian firms do not have at their Last year, Russia and Norway officiallyforeign investors for a number of major disposal. agreed to joint use of sections of theoffshore projects. The Russian company At the same time, when negotiating Barents Sea and other northern watershopes to find partners for work on the with potential partners for Black Sea that are expected to contain significantshelf of the Black Sea, as well as in the projects, Rosneft will have to address the amounts of crude oil and natural gas.so-called “grey zones” of the Barents financial issues that were reportedly the Since then, the Russian governmentSea, which are being shared with reason for Chevron’s decision to abandon has not identified any potential partnersNorway, according to an agreement the Val Shatskogo project. for operations on the northern sea shelf.signed earlier this year after more than 40 The US-based major signed a However, Statoil seems likely to showyears of negotiations. preliminary joint venture agreement on interest, taking into account its rich While Norway’s Statoil is seen as the the block in mid-2010, but the deal fell experience in oil and gas productionmost likely partner for Rosneft in the apart earlier this year. The Russian from platforms off the western andBarents Sea, US-based and European company is now in talks with northern coasts of Norway, as well as incompanies are expected to take part in ExxonMobil, another US giant, on the North Sea locations.operations on the Black Sea shelf. In project.both cases, these outside investors will Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  11. 11. Arctic Special Report January 2012 page 11 FSU Rosneft sees the working with the RussianNorwegian company as one firm at a neighbouring site,of the best possible partners. the Tuapse Trough.)“It would be effective to Rosneft needs a foreignwork with these [firms] that partner for this project, the[already] have information Russian company’s chief[about working in the said.northern seas]. Norway has “This site containsalready begun geological geological structures thatresearch on its own part of are not simple,” hethe grey zone,” Rosneft explained. Val ShatskogoPresident Eduard holds light and heavy crude,Khudainatov was quoted as “and the second type willsaying by RBC Daily. demand partners with upgrade capacities – inSeeking licences other words, companies thatRosneft is also seeking to can produce synthetic oil,”secure rights to other sections he said.of the northern sea shelf,particularly in the Barents Russky, but also the East Clearing obstaclesSea. Prinovozemelsky sites by April,” To strike a deal on Val Shatskogo, “The company has submitted an Khudainatov said last week. Rosneft will have to address the issuesapplication to Rosnedra [Russia’s state The Yuzhno-Russky site may only that led Chevron to back out of its dealsubsoil management agency] to obtain a contain up to 21.5 billion tonnes of oil for the field.development licence for three such equivalent, less than the East According to Russian media reports,sites,” said Rosneft President Eduard Prinovozemelsky block’s estimated the US and Russian companies fell out inKhudainatov, according to Oilru.com. reserves of 35.8 billion barrels (4.9 March of this year, owing to Khudainatov added that the company billion tonnes) of crude and 10.3 trillion disagreements over estimatedshould get these licences within a week cubic metres of gas. However, the figure development costs and reserve figures.or two. may be corrected later, after geological These matters are still apparently a However, the process may not be so research is carried out at the site. source of concern, according to Vitalyquick, as Rosneft will have to lobby the Mikhalchuk, an analyst at Investcafe.Russian Ministry of Defence for the Black Sea projects “The main reason for the slow pace oflicences. Until now, the ministry has Despite its extensive experience with the negotiations is the high cost of the firstupheld regulations banning any harsh weather and climate conditions that stage of geological research works –commercial activity in areas such as prevail in the northern seas, Statoil is not more than US$1 billion, plus productionthese, which are considered to be of likely to be Rosneft’s only foreign costs of US$30-35 billion. Additionally,military interest, according to Barents partner. The Russian company will there is no solid finding on the size of theObserver. probably work with other companies deposit, which has been estimated at the from Europe and the US to develop sites level of 860 million tonnes [of oil],”Kara Sea prospects in the Black Sea – particularly the Val Mikhalchuk was quoted as saying onMeanwhile, Rosneft already holds Shatskogo deposit, which has been Investcafe’s website.licences for other offshore areas. In licensed out to Rosneft. He went on to say that it would takeAugust this year, the state-run company “We are working. There are several time to determine exactly how muchsigned an agreement with ExxonMobil companies on the list of potential crude Val Shatskogo might yield, since iton research work at three licence areas in partners,” Khudainatov said. He added had yet to be fully explored. “It is ratherthe Kara Sea. The partners intend to that France’s Total, which has been clear now that the geological researchbegin seismic exploration at these areas, among the most active in negotiations campaign planned earlier, which waswhich are known as East with Rosneft, “has quite serious originally scheduled to start at the end ofPrinovozemelsky-1, -2 and -3, in 2013. competitors.” (Rosneft is reportedly in 2011, will not begin at the set time,” he At the same time, the company is talks with Italy’s Eni as well as said. If Rosneft fails to strike a deal withplanning to send research vessels to a ExxonMobil on Val Shatskogo, a foreign investor this time, he added, itnumber of new sites in the northern seas, according to Russian media reports. The could face delays of “more than half aparticularly the Kara Sea, in 2012. “Our US giant has a good chance of being year.”ships will reach not only Yuzhno- selected as a partner, as it is already Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  12. 12. Arctic Special Report January 2012 page 12 NORTH AMERICAAlaska looks forwardto offshore drillingPlans to open up Arctic waters offshore Alaska are moving ahead, but the firms involvedstill have a significant number of hurdles to overcome and face considerable oppositionBy Anna Kachkova Permits awarded to Shell for offshore Arctic exploration are being challenged by environmental groups The US is upholding a Chukchi Sea lease sale, despite safety and environmental objections Production is at least 10 years off and will not address the immediate problem of dwindling TAPS flowsPlans for drilling in Arctic waters Enforcement (BOEMRE) – the player interested in Alaska’s reserves –offshore Alaska are moving ahead predecessor of current regulator Bureau reflecting part of a wider trend of energydespite considerable opposition on of Ocean Energy Management (BOEM). companies and politicians, most notablyenvironmental grounds. The wells would target the Sivulliq and in the US, Canada and Russia, looking to Royal Dutch Shell is closer to Torpedo prospects on the west side of the resource-rich Arctic to meet theirreceiving final permission for its Chukchi Camden Bay, to the east of Prudhoe Bay. countries’ energy demand. In Alaska’sand Beaufort Seas exploration plans, Both these approvals have since been case, its Arctic waters have beenhaving obtained air quality permits from challenged by a collection of estimated to hold 25 billion barrels of oil,the Environmental Protection Agency environmental organisations and according to US government estimates.(EPA) in September. The super-major’s indigenous native groups, but the Exploration in Alaska has been hamperedplan to drill four shallow-water wells in company is confident of its permits by safety concerns.the Beaufort received approval in August withstanding legal challenges and has The Deepwater Horizon disaster in thefrom the Bureau of Ocean Energy said it is increasingly optimistic of Gulf of Mexico led to a moratorium onManagement, Regulation and obtaining the final go-ahead. “We feel deepwater drilling and added fuel to the we have some very strong environmental opposition to offshore permits, and we feel that work – particularly in sensitive areas. there is reason to be Industry did not stand still, though, and optimistic that our permits brought pressure to bear on the US will survive a court administration to allow offshore challenge,” Shell’s vice exploration to resume. Not only would president in Alaska, Pete this move help reduce US dependence on Slaiby, was reported as foreign oil, it was argued, but it would saying in Petroleum News. also create jobs and provide a huge “Litigation will always be source of revenue at a time of global a risk we have.” economic uncertainty. Even after the Shell has said it expects moratorium was lifted and drilling was to take a decision by the allowed to resume, industry called for the end of October on whether regulatory process to be speeded up, it will start drilling in July arguing it was too slow and prone to 2012. The company will major delays and complications. base its decision on the Commenting on BOEMRE’s approval status of the 35 permits it of Shell’s Beaufort Sea exploration plan, requires before drilling an American Institute of Petroleum (API) can begin, although the senior policy advisor, Richard Ranger, appeal will still be said: “The slow pace and frequent ongoing at that point. hurdles to permitting projects like Shell’s has cost jobs, revenue and energy Offshore resources production.” Shell is far from the only Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ed Reed All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents