Oil Firms 'Will Overcome Arctic Challenges'

HAZEL TYLDESLEY | AUGUST 2010 | SOURCE: Sky News

Despite hostile conditions and intense environmental opposition, the Arctic is set to become a key global oil supplier as demand for fossil fuels continues to rise, analysts have said.

The region's role in meeting future energy needs has been highlighted once again with news that Edinbugh-based Cairn Energy had found "early indications of a working hydrocarbon system" with its first well in Greenland.

Oil Firms 'Will Overcome Arctic Challenges'

But while the indications look positive for locating oil and gas, retrieving it will present huge difficulties for oil and gas producers.

"In terms of reserves, the Arctic has plenty. It is about being able to find it at level which don't involve too much cost and too much risk," said Amrita Sen, commodities researcher at Barclays Capital.

"You're looking at 10 or 20 years at least [before it becomes a big supplier] because it's not just about the finds, it's about building the pipelines an the infrastructure to be able to get that oil out into the world.

"Potentially by that time the easily accessible fields of Norway, the UK and Mexico are dwindling quite fast, so the Arctic may make up a significant proportion - even up to 10% - of global supplies."

Manouchehr Takin, an expert from Centre for Global Energy Studies, added that the sheer size of potential reserves hidden below the icy waters meant the region would not be overlooked.

He said estimates for the amount of oil remaining to be discovered in the Arctic ranged from 100 to 200 billion barrels, while between 1,000 and 2,000 trillion cubic feet of gas could be found there.

"Even if you take the lower part of the estimated range, the resources look very significant indeed," he told Sky News.

However, Mr Takin said the dangers and difficulties of accessing the supplies were numerous.

Icebergs pose a threat, exploration and production limited to the summer and there is no opportunity to have a base nearby - so all the basic necessities for the drilling and the workers would have to be prepared in advance.

Then, when oil begins to be produced, firms have to make a decision over where and how to station the infrastructure and transport etc.

Even so, technological advances, experience gained through other deepwater operations and the anticipation that the Arctic will become more navigable for strategic and commercial purposes mean energy firms are likely to pursue their interests there.

"Gradually over the last 10 years or so, companies have gone deepwater in West Africa, off the coast of Brazil and in the Gulf of Mexico.

"They're having great success finding oil and gas, so going to the Arctic is a natural extension of this," he said.

The latest discovery in the Arctic comes merely weeks after the world's attention was focused on BP's blown-out Macondo well in the Gulf of Mexico.

This will undoubtedly influence future policy regarding oil exploration and production in the artic, according to Ms Sen.

"Macondo wasn't just a US incident, it was a global incident," she said.

"Post Macondo I think the regulatory framework of the entire industry has changed significantly, so any glitch in the system will get magnified as lot more now than it would in the past."

Nevertheless, Cairn Energy remains undeterred.

"Cairn has always recognised that drilling offshore Greenland would present significant logistical challenges and has approached the design of its drilling programme with the aim of reducing all of the associated risks in accordance with the 'as low as reasonably practicable' principle," it told investors.

Yet even if its prospecting is successful, it faces another obstacle in the form of strong opposition from environmental groups including Greenpeace, who warn the Arctic could be flooded with oil companies.

"By drilling for oil in ever more dangerous, difficult to reach places the oil companies are taking us in the wrong direction," the group said.

"We have to go beyond oil by investing in clean technologies and deploying them as soon as possible."

Related article: The Arctic: a new frontier for oil, gas firms

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