1. Challenges and
Opportunities of Oil & Gas
Investment in the Arctic
Capstone Project | Barclays
April 30, 2015
Project Advisor: Natasha Udensiva
Project Director: Zachary Sadow
2. Key Findings: Marc Tuozzolo
Geopolitics: Hildegunn Hansen
National Interests: Quan Zhou
Environmental Issues: Kiran Horwich
Shipping: María Alegre
Technology: Ayman Farhat
Investments & Infrastructure: Giulia Donzelli
Tax & Finance Regimes: ‘Sophie’ Yunxi Li
Presentation Outline:
5. Finding #1: A Eurasian Arctic
Russian European
geopolitics preventing its
original arctic intent.
Sanctions limiting access
to IOCs.
Poitical risk making future
investments dim.
Access to manpower,
technologies & knowhow
will be limited.
Interest by third parties is
now crucial.
Russian arctic
development to see
major setback.
Future exploration
projects likely to not
reach pre-sanction
levels in the near
future.
Investment interest will
reflect Russia’s pivot
‘east’.
A rethink of strategic
developmet in Russia.
Void may be filled by state run
or supported enterprises.
Large infrastructure projects to
compensate for technology is
less likely due to financial
constraints.
Industry more resilient to
environmnetal issues.
Long term development of
Chinese and Indian oil
companies a possibility.
6. Best Case
Large field found by
Shell next three
years.
Development leads
to infrastructure.
Smaller fields are
developed.
Offshore industry
spills into Canadian
territory 10 years
later.
Worst Case
No large fields
found by Shell for
the next 3 years.
Gas mostly found.
Other companies
continue minimal
exploration.
No interest for
another decade.
Medium Case
Shell finds a number
of sizable fields in
next 3 years.
Shell waits to
develop cost
effective
approach.
Other companies
increase
exploration.
Large scale
production in the
end of the decade.
Finding #2: Shell is key for Arctic in the New World
Largest oil
potentional in
Beafort & Chukchi
Sea.
A number of smaller
finds in the region.
Players leaving
Russian Arctic eager
for opportunity
Canadian focus on
onshore production.
Greenland a
dissapointment
7. Eurasia
Withdrawl of
investments by OICs.
Possible emergence
of a separated
industry.
Opportunities for
other actors to enter
in the long term.
Development
setback.
GeopoliticsIndustry
Subarctic & arctic
offshore platforms.
Onshore production
& infrastructure.
Technological &
operational knowhow is
weak.
Supply chain is
compromised.
Alternative fields to revive.
Desire to become
arctic superpower.
Public funding for
infrastructure &
support.
Interest from third
parties.
Access to finance,
technologies and
knowhow limited by Euro-
Geopolitics.
Country has become a
high political risk
environment.
Russian Arctic Developments
8. Norwegian Arctic Developments
Geography
MatureIndustry
Geopolitics
Essential for
country’s future
as exporting
country.
Positioned to be
supplier in
region.
Risk of incients
with Russia.
Sanctions
curtailing
exchanges.
Need for new
commercially
viable fields.
Warm water
currents.
‘Mild’ weather.
Experienced
operators.
Developed
technologies.
Capital
Access.
Successful
subarctic
offshore.
Norweigan
exploration will move
east & north.
Geopolitically
constrained.
Industry is ready.
Question, are the
resources there?
9. Canadian Arctic Developments
MatureIndustry
GeopoliticsEnvironment
Focus centered
on onshore
development.
Scaled back
infrasctructure
projects.
Projects
expensive due
to regulations.
Strong social
movements.
Geography
Remote
locations.
Very little
infrastructure.
Harsh
weather
conditions.
Experienced
operators.
Developed
technologies.
Capital
Access.
Successful
subarctic
offshore.
Will benefit from
OICs exiting
Russia.
May increase
military presence
to assert itself.
Future most likely
dependent on US
development.
10. U.S. Arctic Developments
Geopolitics
Industry
Geography
Significant liquids expected in Beaufort
Sea.
Proven oil reserves onshore.
Special
interest to
see shift in
Arctic.
No conflict
risk.
Environment
Catastrophic
failure could
push back
development
Extremely
remote with
very little
infrastructure.
Experienced
operators.
Developed
technologies.
Capital Access.
Successful subarctic
offshore.
High interest area
that will determine
Canada &
Greenland.
Dependent on
IOC interest.
Technologies
employed to
overcome
infrastructure
challenges.
12. Reopening old Soviet bases
Largest military exercises since the Cold War
Increase in military manpower and equipment
Arctic Joint Strategic Command
Source: CIA Factbook; Columbia University
100,000
38,000
Arctic
Joint
Strategic
Command
Geopolitics | Military Activity Increasing
13. Geopolitics | Why Now?
State Armament Program 2008:
70% of the military modernized by
2020
Russia is the Arctic country that
invests most in its military as a % of
GDP
Q1: Military expenditures 43.3% of
the Russian federal budget
14. What does the Arctic Russian activity mean?
Geopolitics | Motivations and Scenarios
•Increased military preparedness from
Western countries
•Russian exercises and high military
expenditure continues
Towards
2020
•Medium-risk scenario: Russia is not
interested in conflict
•Main risks: Escalation over
misunderstandings or tit-for-tat; accidents
2020 -
•High-risk scenario: Expansionist or
threatened Russia
•Conflicts over the North Pole and in the
Barents Sea
2020 -
Develops infrastructure
Russia feels threatened
Prepares to defend national
resources
Expansionist intentions
Photo: @DRogozin“The Arctic is Russian Mecca”
16. Countries' Interests in the Arctic
Market Relevance: How eager are countries to put Arctic oil into production?
National Agenda: Is Arctic one of top national level topics on their political agendas?
Market Relevance
of Arctic Oil
Importance on
National Agenda
Russia - +
United States + -
Canada - +
17. National Interests| Russia
Oil Production
2014: 10.578 million b/d
2015: 10.513 million b/d (expected)
January 2015:10.657 million b/d
National Plan
The Foundations of the Russian Federation’s
State Policy in the Arctic until 2020 and
Beyond (Russian Federation, 2008)
Government Budgeting
50% of the 2013 federal budget revenue from
taxes and duties on oil and gas (EIA, 2014)
18. National Interests| United States
Oil Production
2014: 8.7 million b/d
2016: 9.3 million b/d (expected)
2020: peak and fall ever since
(expected)
Oil Imports
2014: 44% , 27% (net imports)
National Plan
N/A
Alaska Arctic Policy Commission (2012)
19. National Interests| Canada
Oil Production
The least share of Arctic recourse(9%)
85% production from oil sands by
2035
National Plan
Canada's Northern Strategy (2007)
21. Climate change
Remote location
Ice conditions
Public attention
Why is the Arctic environmentally unique?
22. Offices in 7 Arctic countries; observer in Arctic Council
Involved Canada offshore oil drilling regulation
Press governments to implements commitments
Shell/Lego video: 7 million views
Petition to prevent Statoil from drilling oil in Bear Island
Greenpeace Arctic Survey
Boarded Arctic-bound vessel in early April
Not prevent, but rather delay and increase costs time, regulation, social license, sustainability
* Build communication bridges
* Convey group of environmental experts to inform, guide and advice managerial decisions
Environmental Lobby
23. U.S. Canada Greenland Norway Russia
Relevant
bodies
DoI, BOEM, BSEE,
EPA
NEB, C-NLOPB, AANDC BMP, GNIR, NERI
MD, Klif, SHD, SFT,
NPD
MNRE, Rosnedra,
Rosprirodnadzor
EIA YES YES YES plus SSA, IBA YES YES
Permits
Permits awarded
through CWA, CAA
Given after submission of
EIA and OSRP
Drilling and
environmental
permits required
Discharge
permits required
Emissions permits
required
Relief
wells
Same season relief
well capabilities
proposed*
Same season relief well
capabilities required
n/a n/a n/a
Oil spills
OSRP, containment
equipment
onboard*
OSRP, response
equipment on board
Emergency response
plan part of EIA,
response equipment
onboard
Emergency
preparedness
plan required.
No clear
requirements.
Liability
Civil and criminal
damages capped
at $134m
Criminal damages
capped at CAN$1bn.
Civil damages unlimited
Unlimited
Unlimited unless
force majeure
Unlimited
Key Regulatory Issues
24. Environmental Conditions
Beaufort & Chukchi SeasBaffin Bay & Denmark StraitBarents SeaRussian Arctic
Cold condition
Summer season - open waters and very
rare occurrences of floating ice
Clear regulatory process for use of
dispersants and in-situ burning
Arctic containment system required
Some risk of reaching shorelines
Cold and harsher icy conditions
Summer season - open water but presence
of icebergs
Canada: no dispersant use policy, no
formal guidelines for in-situ burning
Greenland: case by case second line
dispersant use, in-situ burning last resort
Relatively lower risk of reaching shorelines
Warmer conditions (0'C average water
temperature in January)
Ice free waters year-round
Clear, expedited process for dispersant
use, in-situ burning not currently accepted
Relatively higher risk of reaching shorelines
(no ice)
Some of harshest conditions, snow fall
even in summer and iceberg risks
Process for dispersant use expedited, not
clear policy for in-situ burning
Mechanical recovery requires high
specification, high cost technology
Relatively lower risk of reaching shorelines
26. Shipping| Overview
Receding, thinner ice and longer ice-free summer
periods Faster routes for commercial cargo
between Western Europe and Asia.
The Transpolar Sea Route HYPHOTETICAL
Central part of the Arctic to link most directly the
Strait of Bering and the Port of Murmansk.
The Northwest Passage: CANADA.
Usable on a regular basis by 2020. Thick multiyear ice,
complex straits make navigation arduous. Could cut
distance almost by half.
The Northern Sea Route: RUSSIA.
Likely to be free of ice first. Predicted to have up to
125 days per year with less than 75% sea-ice cover by
2050. Already a reality for a small but increasing
number of merchant ships during the summer.
Source: The Arctic Institute
27. 4 71 53
2010 2011 2012 2013 2014
41 46
NUMBER OF VESSELS
Shipping| Northern Sea Route
Delays in oil drilling on Alaska’s north coast
Western sanctions against Russia
28. FROM ROTTERDAM, VIA (in nautical miles)
Suez Canal NSR Difference (%)
Yokohama 11,133 7,010 37
Busan 10,744 7,677 29
Shanghai 10,557 8,046 24
Hong Kong 9,701 8,594 11
Ho Chi Minh City 8,887 9,428 -6
TRANSIT
ROUTE VESSELS MILLION TONS
2012 2013 2014 2012 2013 2014
NSR 46 71 53 1.26 1.4 0.7
SUEZ CANAL 17,225 16,596 17,148 928.5 915.5 963.7
Shipping| Northern Sea Route
Sources: Northern Sea Route Information Office; Government of Egypt - Suez Canal Authority.
Pattern:
Much of the new
traffic is one-way
shipments of fossil
fuels from Northern
Europe to Asia, or
b/ Russian ports.
29. Harsher weather and free-floating sea ice EXPENSIVE
Remoteness RISKY
Seasonality UNAPPEALING
No dense coastal population NOT VALUABLE
Jurisdictional disagreements CONFLICTIVE
Rise of Asian economies ENERGY
Sanctions against Russia MOTIVATION
Climate Change NAVIGABLE INVESTMENT
Point-to-point shipping OIL & GAS
Shipping| Challenges & Opportunities
30. Canadian Government
5 Arctic Patrol Ships, $3.5 billion
Russian Maritime Registry of Shipping (+60 vessels of higher Arctic categories being built)
Dual-draft nuclear icebreakers
Arctic LNG carriers
Arctic offshore vessels
Arctic tankers
Salvage Vessels
Ice-class yards involved: DSME, Samsung Heavy Industries, Arctech, Baltic Shipyard, Vyborg Shipyard
Rosneft
2 shipyards facilities to construct vessels and platforms
Alaska
Deep-water port proposed for vessels in Arctic waters.
China & Japan
$1B on 3 three LNG careers equipped with ice breakers to transport LNG from Yamal
Shipping| Developments
31. NSR seasonal complement (not competitor) to the Suez Canal.
Shipping suitable for point to point services: the value proposition is good
for transportation of oil and gas.
Asian markets will drive Arctic resource development along the NSR.
There is much more investment going to shipping than to oil and gas.
Upstart rather than big firms will truly pioneer regular trans-Arctic shipping.
Shipping| Takeaways
34. Technology | Exploration & Development
Technology so far
Upgraded 30 year old rigs
Insufficient experience
Comparable to conventional offshore
Evolution through experience
Technical innovation through investment
Semi-submersible vessels
winterization, automation, ice resistance
Most activity in exploration stage
USGS CARA
First step: estimate resources
Seismic surveys
Modified conventional technology
Ice presence
Limitation: 2D & 3D
35. Technology | Production
Current commercial production limited to onshore
Pipeline production
Limited by distance from shore
Year round production
Ice related issues
Floating production
Limited by operating schedule
Ice management system
Icebreakers
Unmanned Aircraft Systems
Regulatory limitations
Arctic surveys
Long-term impact on all stages
37. CHINA
CNCP owns a 20% stake in Yamal LNG (January 2014)
Rosneft & CNPC have an umbrella agreement to explore
part of Barents Sea and Pechora Sea (March 2013)
Sinopec owns 25.1% of Veninsky block of Sakhalin-3,
74.9% owned by Rosneft
INDIA
Putin and Modi agreed to work together on projects on
the Russian Arctic Shelf (December 2014)
ONGC Videsh owns 20% stake in Sakhalin
VIETNAM
Petrovietnam has signed an agreement to develop the
Dolginskoye offshore field with Gazprom (November
2014)
Foreign Investment | Russia
38. Takeaways
Asian investment is partly filling in for
Western capital, and will continue to do so
Russia now open to giving majority
stakes to Chinese companies
More expensive financing
Lack of technical and operational
expertise
Lower environmental standards
Foreign Investment | Russia
40. Lack of infrastructure is often quoted as one of the biggest obstacles
for future development
Ports (especially deep-water ports), airports, roads, and railways
Oil spill response infrastructure
Facilities and accommodation for oil and gas labor force
High-tech surveying and charting of seaways
Pipeline systems
Since technological/economical feasibility is still 15+ years away, there is
ample time to build up infrastructure if countries are willing and able to do so
Infrastructure | Deficiencies
41. Infrastructure deficiencies are country-
specific
Build-up decisions will mostly be made by
governments
Private-public partnerships expected
Recent examples:
Yamal LNG Project: sea port and airport
Alaska deepwater port announcement
Lack of large Arctic airports presents a challenge
Infrastructure | Deficiencies
Map of International Airports
Source: AMATII
42. Infrastructure | Outlook by Country
Ports,
airports, and roads
Oil spill response
infrastructure
Ice-breakers and ice-
capable vessels
Russia
Strategic build-up of infrastructure
underway, particularly in Yamal
region
Weak historically but showing
signs of improvements
Fleet of 34 ice-breakers, plans to
add more
U.S. No large ports, few airports
Willingness to improve existing
infrastructure
1 operational heavy-duty ice-
breaker, unclear plans to add
more
Greenland
No large ports, several airports.
80% of land covered by ice-sheets
Stated intention to improve oil
response capabilities
Denmark has limited ice-breaking
capability (4 light-duty)
Canada
Few cities & ports. Building up
considered costly, no major
development projects planned
Strong existing regulation but
remoteness poses serious
problem
Several operational ice-breakers
Norway Several large ports and airports
Strong existing regulation and
infrastructure
Ice-breaking not necessary in
areas where drilling is allowed
44. Canada
US
(Alaska)
Norway Greenland Russia (onshore) Russia (offshore)
Fiscal Basis/Agreements
Profits-based
Concession
Revenue-based
Concession/PSC
Profits-based
Concession/PSC
Key
Taxes
Features
Royalty 10-40% 18.75% 0 (51% RRT)
NA
Variable ( MET) Reduction of MET
Corp tax 18% 35% 27% 24%
Depreciation 4 yrs 7 yrs
6 yrs with 4 yrs
uplift
Variable(case by case)
others
10%
state tax
NA 50%- 70% HC tax
Up to 65%
export tax
Exemption of export
taxes
Investment Incentives RD D, I, RD O, U E G, TH
capital allowances & uplifts;
royalty reductions, no export
duty, exemptions for import
duties & property tax
Loss carryforward
/carryback period (yrs)
20/3 20/2 Indefinitely/0
Indefinitely/0
10/0 70/0
Notes: RD-research and development expenditures deductible; O-offshore investments depreciation over 6 years; G-exploration expenditures deductible over 12 months; D-accelerated
depreciation; E-immediate write-off of exploration expenditures; U-additional 30% uplift on offshore investments in computing the RRT; I-accelerated write-off for intangible drilling costs; TH-10-15
year tax holidays for certain arctic deposits Source: Global oil and gas tax guide, 2014, Ernst&Young
Taxes Regime Framework
45. Taxes Regime Overview
US (Alaska) – Favorable Incentives
- Competitive offshore bidding process
- Lowest royalty tax rate but highest corporate rate
Canada – Relatively Stable
- Lowest corporate tax rate but state taxes
Norway – Interesting Country
- No royalty, no auction fees for production licenses
- If projects succeed: high RRT, high HC Tax
- If projects fail: indefinite carryforward losses and exploration
costs can be reimbursed
Russia – Different Story
- High MET and Export Tax
- Case by case (negotiation) for offshore projects
46. $8.7 bn
$4.4 bn
Capital Expenditure
Industry attitudes towards Arctic Drilling have changed
Shell remains committed to its intensely scrutinized and High-cost, high-risk Arctic Program
Source: Companies’ Annual Reports
47. Project Financing
Two ways to finance arctic oil projects – e.g. Shell
Free Cash Flows
Corporate Bonds
Source: Shell`s Annual Reports, Morgan Stanley Matrix
Negative FCF would be a negative
signal for large corp. like Shell
Corp. bonds with low ratings would
increase finance costs in the future
48. Keep a close watch of Russia's actions towards the Arctic.
Advocate and direct investment towards firm but supportive
regulatory regimes.
Potential returns are highest in the United States due to greater
liquids reserves and a more competitive business environment.
However for smaller companies with limited capital Norway offers
the safest investment environment.
Recommendations
49. Rod Allan, Former Transocean manager
David Anderson, Barclays, North America Oilfield Services & Equipment Research
Sharon Burke, Former Assistant Secretary of Deference
Thomas Driscoll, Barclays, North America E&P Research
James Hederson Senior Research Fellow , The Oxford Institute for Energy Studies
Venu Krishna, Barclays, Equity Research Management
Andrey Konoplyanik, Adviser to Director General, Gazprom Export & Professor, Russian State
Gubkin Oil & Gas University
Maryann Løcka, Energy Counselor Norwegian Embassy
Theodore Roosevelt IV, Barclays, Chairman of Cleantech Initiative
Ann Rybak, Barclays, Head of Citizenship
Captain Pat DeQuattro , Military Fellow at Council Foreign Relations, U. S. Coast Guard
Anatoly Zolotukhin, Research Director, Institute of Arctic Petroleum Technology, Gubkin Russian
State University of Oil and Gas
Alexander Shestakov, WWF’s Global Arctic Program
Masha Vorontsova, International Foundation for Animal Welfare
Special Thanks
So based on the assumptions expressed before, our first finding is that we believe we will see two separate arctic. Russia’s geopolitics in Europe will prevent it from developing the arctic as it planned. We believe the Russian arctic will emerge as the Eurasian Arctic, where state run enterprises in Russia or possibly from China and India will be more significant actors. The next decade will most likely see the Russian government trying to build or push infrastructure to attract investment and development. Unfortunately, Russia is constrained in its access to finance, and the costs of receiving finance from other actors is much higher, the country will need to invest significant resources to see offshore development through.
We also believe that Norway would be a natural part of this ‘Eurasian Arctic’ but sanctions will prevent it from benefiting as a supplier and servicer of Russian development. With a disrupted supply chain, Russia will be hard pressed to develop capabilities on its own.
Without this infrastructure & logistical support, Russia would need remote technologies that will take time to develop and implement.
This could lead to Russian offshore programs being tabled for onshore brownfield recovery. Because of this we think Russian Offshore development is facing a major setback where in the next decade we do not expect to see offshore projects to explode without exterior interventions.
Our second finding is that arctic development in the New World is going to move at a different pace that will be set by one major actor, Shell. We believe that the Beafort Sea has the highest prospects of a ‘big find’ and Shell’s massive investments means that either they find something significant that will cause a ‘rush’ or we can expect oil and gas projects to develop at a tepid pace.
We say Shell is the key because Canadian's industry is focusing on onshore projects and Greenland has already proven to be much more difficult than originally advertised.
Now if we looked at the best and worst case for offshore development bla bla bla
In order to start what we believe is happening right now in the arctic, we should really focus on Russia. The big change we see here is the effects of Russian geopolitics in Europe affecting Russia’s geopolitical goals in the arctic. This is going to create a divide that I will explain in detail a bit later.
Right now if we look at the advantages of offshore oil development in Russia, the pivot around the strengths of the state. Russia’s industry has a relatively mature oil & gas with onshore and offshore production and development projects under their portfolio.
The Russian government is also very keen on developing arctic oil & gas and this means that public support for infrastructure projects is strong. It also means there is a low risk of environmentalism shutting down russian ambitions. Finally, there is interest by third parties like China and India that could eventually become sources of finance, technology and operators.
Russia’s key disadvantages are tied to its own strengths. Although the industry is moderately mature, arctic projects pose extreme technical and logistical barriers that Russia does not have the capabilities to surmount. In addition, its own oil companies have in the past, taken on highly difficult projects to only bungle: P project.
The other major weakness is Russian geopolitics in Europe. The sanctions are a main deterrent for Independent oil companies and frustrate Russian strategies to develop the arctic using western technology, manpower and finance.
The results is we can expect to see IOC’s withdraw from the russian sphere.
We can expect to see Russia to decouple itself from western developments and progress.
And we need to consider will other actors move into the area. At his point, it looks like its going to be a very long term process where Chinese and Indian firms will need considerable amounts of investment, time and focus to become a major player.
This is why we think Russia’s arctic is a major setback for offshore development. With the industry facing this split, it will take a significant amount of time for Russians to develop the technological, operational and logistical competencies to truly develop offshore arctic. It is very possible this may knock back Russian development for the next decade and force them into choosing to renovate their brownfield operations to keep their levels of output.
https://clarksonsresearch.wordpress.com/2014/06/10/russias-offshore-empire-resurgent/
390,000 bpd
110,000 bpd poor crude
84,951,200 bpd total
https://www.iea.org/oilmarketreport/omrpublic/charts/
Projections for Norway’s development for the future is very strong despite some rumors of geopolitics possibly hurting future development. Norway’s main driver is the need to keep itself as a major player in the oil & gas market and it has tried to position itself as a major supplier of oil & gas operations. Norway still has space to expand eastwards before they need to look for blocks in the more remote and less hospitable seas to the north and we can certainly expect this to happen. Norway benefits from a very mature industry with plenty of independent oil companies operating off their coast. Norway produced on average 1.5 million barrels a day in 2013
We believe Norway’s is well placed to play as a key supplier for offshore oil & gas operations in the arctic, but they are really hard pressed to find new fields to ensure the steady flows of oil & gas needed to maintain their market share. So we expect to see them open more blocks for exploration and exploitation closer to Russia, but we do not foresee any geopolitics upending any development because both Norway and Russia, even at these times, are not interested in seeing the arctic development become any more risky. The provisions of the treaty signed by Russia and Norway give both countries enough leeway to negotiate in the event of a big oil find along or near the border and we expect both countries to be able to work any issues out.
Yet, the geopolitics will have a significant impact on other parts of Norway’s oil & gas industries. Many Norwegian service companies will lose their clients in Russia because of sanctions and this could lead to constraints on Norway’s very specialized oil & gas services industry.
So for Norway’s future we expect them to continuously expand the amount of territory for exploration and exploitation, we believe the geopolitics will adversely effect Norway’s suppliers which could hurt these niche oil & gas companies and we believe that Norway's biggest threat is geography.
1,998,000/d total all is offshore
http://www.eia.gov/countries/cab.cfm?fips=no
Moving on to Canada, we see a very different picture from Norway where most of the production is current onshore oil & gas fields. Now Canada’s advantages stem from its very large oil & gas industry that have very large offshore projects in Eastern Canada and plenty of projects and production onshore. For offshore development the main constraints is the current trend of oil & gas companies giving up offshore licenses & planned projects to reinvest in oil sands and other onshore projects. We also see the Canadian government supporting this trend and it appears there is a political shift towards scaling back any planned infrastructure projects supported by the government to limited coast guard projects. We also see that the government has instituted very strict environmental regulations and therefore we believe offshore projects will face increased scrutiny & costs from these regulations.
We also believe that Canada has some of the most remote and difficult geography and the fact that there is little government support means we do not expect much infrastructure to make up for this disadvantage.
Therefore, we assume that Canada will certainly see some benefits from IOCs leaving Russia and trying to operate in the Candian Arctic. In fact Exxon has signed a contract to renovate an old abandoned rig to try to start an arctic offshore program in Canada. But because of the geopolitical decision to focus on onshore development and the environmental regulations and risks that exists in Canada, we believe that Canadian offshore development is really going to require a major success elsewhere.
Fracking impact Alberta:
160 barrels/day
170 barrels/day
276,000 barrels/day 2010
223,093.2 barrels/day 2014
3,757,325.3905007 barrels/day 3,856,000 2014
Which is why I will now talk about the United States arctic offshore development. Right now we believe the United States has some relatively strong advantages. The United States benefits from a mature offshore industry that has developed many technologies for remote operations. These companies are very motivated to find a risk free environment where they can maintain the stead production needed to remain relevant at a world stage. They are also enticed by geographical surveys have indicated that there is a high likelihood of oil resources offshore and we already have proven resources onshore. In terms of geopolitics, we can see that the United States is keen on ‘beating the Russians’ in any game possible, so if the Russians announce arctic oil development, the United States will try to be as supportive.
But we have seen how remote and logistically challenging running any program in the Beaufort sea is. It is highly expensive and Shell is under intense scrutiny. This means the environmental risk is extremely high where the possibility of a catastrophic event could prove fatal for the industry.
Even so, we believe that the Beaufort Sea, in particular, Shell’s operations there will determine if there will be offshore arctic development in the next decade.
1.6 Million barrels per day
http://www.eia.gov/forecasts/aeo/er/early_production.cfm
- In the medium terms routes would remain closed to commercial navigation during the winter months.
Maritime shipping companies look for regular and consistent services: seasonality has no commercial appeal.
- Shipping is suitable for point to point services. This value proposition could improve if oil and gas are extracted
in greater quantities, which would favor bulk shipping.
- The Arctic remains a frontier in terms of weather forecast, charting and building a navigation system.
- Economic activity increases the amount of soot pollution deposited on the ice locally, which is known to reinforce warming trends.
Harsher weather and free-floating sea ice require more expensive ship construction, and winterization investments
Remoteness increases risk (S&R, communications)
Seasonality has no commercial appeal.
Lack of a dense coastal population lessens the value of the NSR as a trading route. No potential for transshipment hubs and revenue generation for shipping lines. Under these circumstances, it is difficult to imagine how the eastbound/westbound imbalance could be reverted by an increase number of Asian container-shipping products to Europe.
Jurisdictional disagreements owing to differences of interpretations of international law
China is spending 60m annually on Arctic research, more than the US
China owns an ice-breaker and is building another one
Joined Arctic Council as a permanent observer in 2013
Russia now considering giving majority stakes in strategic fieldsn
Financing is going to be more expensive, not as likely
For 2: Likely for Barents: CNPC will get 33% stake in a join venture and bear all costs for initial exploration and drilling.
http://barentsobserver.com/en/energy/2013/03/china-drill-barents-sea-25-03
China is spending 60m annually on Arctic research, more than the US
China owns an ice-breaker and is building another one
Joined Arctic Council as a permanent observer in 2013
Russia now considering giving majority stakes in strategic fieldsn
Financing is going to be more expensive, not as likely
For 2: Likely for Barents: CNPC will get 33% stake in a join venture and bear all costs for initial exploration and drilling.
http://barentsobserver.com/en/energy/2013/03/china-drill-barents-sea-25-03
Slide 1: Infrastructure deficiencies in the Arctic are often cited as one of the biggest obstacles to future oil and gas development. In particular, transportation infrastructure such as deep-water ports, airports and railways will have to be built up to accommodate production in this region. However, the team has reached the conclusion that infrastructure build-up will NOT be a significant bottleneck to development, and will follow successful exploration activity in these areas.
Slide 2: How will this infrastructure be procured? Build-up decisions are likely to be made by individual governments deciding to invest in future development, and industry analysts agree that they will be in most cases funded by private-public partnerships.
A few examples of recent infrastructure build-ups include the construction of an LNG port and airport in the Yamal Peninsula and plans by the U.S. to build a deepwater port in Nome, Alaska, on the Western coast. So we see that for strategic reasons and to accommodate expected activity, some Arctic nations are already investing in relevant infrastructure.
Yamal: Russia contributed over 50% of the capital for Sabetta LNG port
Slide 3: To give you an idea of what we can expect to see in terms of infrastructure build-up, this chart breaks down each country’s outlook by type of infrastructure. I’d like to point out 3 specific things about this chart. Firstly, Greenland and Canada have mostly negative outlooks due toa combination of high costs, remoteness, and lack of political willingness. Secondly, we see that Russia is leading in its strategic build-up of infrastructure and has plans to build 10 search and rescue stations, 16 deepwater ports, and 13 airfields along its lengthy coastline. And, we see that Norway is well-positioned in terms of infrastructure, mostly due to the milder climate it enjoys, with fewer challenges than what other Arctic nations are facing.
Norway has the most attractive taxes regimes to investors, 100 18.75 50%*XX
US has the most favorable investment incentives,
Russia is proposing offshore taxes regimes to offshore artic projects
Participants in arctic projects include E&P, energy service, infrastructure, refineries, the whole supply chain of the a project. These no, are important, since they will be reflected in the companies` financial statements.
Licences cost?
Natasha-talking 20 th April
US?—talk to Marc --- transit to Marc, he said US is the most attractive, we also have to remember US has the higest corp taxes etc…
When we compare the no., we can see US corp tax is still 35%
Depending on this table, (not taking any political situations into consideration)
(we don’t know investment cycle ---ask Norwerign counselor ---ave year of offshore projects in Nor/Cana
What exactly they do tax on hydrocarbon tax –ask Marian
Exemption **
We don’t really know (we cant predict) -2018, it`s irrelevant for now –it seems they are talking about attractive –attractive numbers were done before sanction --
Statoil, Conoco-Philips, and Total have stecpped back from US Arctic oil projects for cost, and regulatory reasons. Om Dec. 2014 Chevron put its plans to drill in the Canadian Arctic on hold indefinitely owing to economic uncertainty in the industry
According to Shell`s annual reports, between 2010 and 2012 Shell doubled its exploration spend to US$8.7 bn.
BP***number for arctic ?? Put all numbers –Eni
Better to show all current operators in map
