In the past year, there have been both discoveries and setbacks in the Arctic. Operating in this highly diverse and complex region requires a combination of advanced technology, viable economics and political will. Bradd Libby, DNV GL, Norway, elaborates.

Standing on the main deck of the West Hercules, a white and brick red semi-sub under contract to Statoil, while it was in yard at Ølen in Norway’s western fjords early in 2013, it was obvious that preparing for Arctic conditions is no easy task. Crowded walkways were criss-crossed with cables and makeshift plastic sheeting sheltered welders and electricians as they added heated walkways, cladding to enclosed areas, an upgraded electrical system and numerous other retrofits.

Now about to spend its first winter in the Barents Sea having recently made two gas finds near Johan Castberg field, a 400 - 600 million bbl deposit Statoil hopes to have online by 2018, the West Hercules finds itself in increasingly active waters. According to Transocean, who discovered Castberg, the Barents will likely see a strong increase in oil and gas activity over the next few years, with an expected 38 wells to be drilled in 2017.

Elsewhere around the Arctic, offshore explorations have seen slow progress peppered with setbacks. Shell’s Kulluk rig ran aground in December 2012 while being towed. A year earlier, the Kolskaya sank in the Russian Pacific, also while being towed, leaving 53 missing or dead. In the Chukchi Sea, ConocoPhillips put their Devil’s Paw prospect on hold, while Statoil delayed drilling at the Amundsen prospect until at least 2015. Cairn abandoned Greenland in 2012, though has signalled that it might return in 2014. Even in the Barents Sea itself, an investment decision on Shtokman, one of the world’s largest known gas fields, was delayed to 2014, 26 years after it was first discovered.

It turns out that there is not one Arctic, but many. The long periods of endless light or darkness found in Greenland are not an issue at the Grand Banks. The infrastructure of Prudhoe Bay simply is not present on the Chukchi coast. And what is true on the Norwegian side of the Barents is not necessarily so on the Russian side. In general, four winds must blow in the same direction for Arctic E&P activity to happen: a critical mass of exploration interest, suitable political will, sufficient technology and favourable environmental conditions. Even where all four are found, delays and uncertainty remain the dominant themes.

Exploration interest

The immensity of estimated resources makes the Arctic compelling. Almost as many hydrocarbons as in the entire proven reserves of Saudi Arabia have already been found north of the Arctic Circle, mostly offshore and in the form of gas. Of the world’s ten largest-known gas fields, five are in Arctic environments – Urnegoy, Yamburg, Shtokman, Zapolyarnoye and Bovanenkovo. The American side of the Chukchi Sea alone could hold 12 billion bbls of oil, equal to half the USA’s current proven reserves, with an additional 8 billion bbls offshore elsewhere in Alaska, mostly in the Beaufort. And unlike the Gulf of Mexico, the bulk of America’s Arctic reserves are found in shallow water and at low pressure.

The Norwegian Petroleum Directorate (NPD) estimates nearly 19 billion boe sit undiscovered and recoverable offshore on their continental shelf, with 8 billion of those in the western Barents Sea. And yet the majority of the Barents’ reserves are believed to be in Russian waters, where Shtokman is located and where the Prirazlomnoye, Russia’s first Arctic offshore oil platform, was boarded by Greenpeace activists in September.

As Shtokman shows, even an enormous find can be insufficient by itself. It typically takes multiple finds in proximity to support the infrastructure and logistics necessary to bring hydrocarbons to market. Statoil estimates that an onshore hub at Veidnes to land product from Johan Castberg might cost approximately US$ 16 billion. The infrastructure to bring Chukchi oil to the Trans-Alaska Pipeline System (TAPS) could be three times that. Rosneft CEO Igor Sechin has estimated that developing fields with ExxonMobil in the Kara Sea, which holds an estimated 36 billion bbls of oil, could cost US$ 200 - 300 billion.

Of the offshore areas in the Arctic, the Southern Norwegian Barents appears to be the new oil province with the most sustainable interest for exploration, given the presence of Snøhvit (which came online in 2007) and Goliat (targeting 2014) in the Hammerfest Basin, Johan Castberg (targeting 2018) further north and recent finds at Gohta and Wisting Central in the Hoop area.

However, the Norwegian government has recently proposed a change in the petroleum tax system. According to Statoil, this “reduces the attractiveness of future projects, particularly marginal fields and fields which require new infrastructure. This has made it necessary to review the Johan Castberg project,”¹ the second-largest oil discovery on the Norwegian Continental Shelf (NCS) since the year 2000, acting as a reminder that political support via a stable taxation regime is another factor critical for offshore Arctic development.

Part 3 of this article can be reached here.

Adapted by David Bizley

Read the article online at: https://www.oilfieldtechnology.com/exploration/04112013/preparing_for_the_arctic_rush_part_1/