Mission & Name
US Foreign Policy (Dr. El-Najjar's Articles)
Arctic Oil On Life Support
By Nick Cunningham
Oil Price, Al-Jazeerah, CCUN,
February 9 2015
Oil companies have eyed the Arctic for years. With an
90 billion barrels of oil lying north of the Arctic Circle, the
circumpolar north is arguably the last corner of the globe that is still
almost entirely unexplored.
As drilling technology advances,
conventional oil reserves become harder to find, and climate change
contributes to melting sea ice, the Arctic has moved up on the list of
priorities in oil company board rooms.
That had companies moving
north – Royal Dutch Shell off the coast of Alaska, Statoil in the
Norwegian Arctic, and ExxonMobil in conjunction with Russia's Rosneft in
the Russian far north.
But achieving the goals of tapping the
extensive oil reserves in the Arctic has been much harder than previously
thought. Shell's mishaps have been well-documented. The Anglo-Dutch
company failed to achieve permits on time, had its drill ships
run aground, and saw its
oil spill containment dome "crushed like a beer can" during testing.
That delayed drilling for several consecutive years.
first month of 2015 has darkened Arctic dreams even further. Oil companies
are scratching their heads trying to figure out how to deal with a
collapse in oil prices, now below $50 per barrel. With virtually every
upstream company around the world slashing spending, it is the
highest-cost and riskiest projects that are getting scrapped first.
Statoil, the semi-state-owned oil company from Norway, has been an
offshore leader and Arctic pioneer. After having watched Shell fumble its
Arctic campaign, Statoil
put its drilling plans off the coast of Alaska on ice. But now with
rock-bottom oil prices, Statoil has even shelved Arctic drilling plans in
its own backyard.
Bloomberg reported on January 29 that Statoil does not plan on
drilling in the Barents Sea this year. It also let several Arctic
exploration licenses off the coast of Greenland expire.
suspended its drilling plans in Canada's Arctic indefinitely.
In Russia, Arctic dreams are also going to disappoint, although for
different reasons. Last year, Rosneft – operating in conjunction with
ExxonMobil – announced a major discovery in the Kara Sea. Rosneft's Igor
Sechin said that the field
could hold as much as 730 million barrels of oil. "This is our united
victory, it was achieved thanks to our friends and partners from
ExxonMobil, Nord Atlantic Drilling, Schlumberger, Halliburton,
Weatherford, Baker, Trendsetter, FMC," Sechin said in a
"We would like to name this field Pobeda," the Russian word for victory.
But western sanctions may delay the victory. ExxonMobil is
prohibited from working with Rosneft, and had to wind down its operations
shortly after the discovery was announced. Worse for Rosneft, ExxonMobil
was the one that had the drilling rig under contract, apparently the only
platform that would work for the well.
Reuters reported on January
30, 2015 that Rosneft would have to delay drilling until 2016 at the
earliest. "There will be no drilling in 2015. There is no platform and it
is too late to get one. The project was initially created for Exxon's
platform," a Rosneft source told
Reuters. ExxonMobil has already pulled its platform out, and has it
under contract until July 2016. Drilling may not begin for another year or
two, and production from the world's most northerly oil field will not
begin until sometime in the 2020's, barring other setbacks.
leaves Shell, the company with the spottiest Arctic record. Shell
announced $4.16 billion in fourth quarter profits, a decline from the
previous quarter, but a decent showing relative to its peers.
Nevertheless, the company also announced $15 billion in spending cuts over
the next several years. "The macro environment has moved against us,"
Shell CEO Ben van Beurden
said after releasing the quarterly figures.
however, amid all the spending reductions, Shell hopes to once again
return the Arctic, after a two-year hiatus. Perhaps that is because of the
sunk costs – Shell will
spend around $1 billion on its Arctic program whether or not it is
drilled because of all the ships and other logistics already under
contract. Shell still needs to obtain several permits and clear legal
hurdles, but if all goes according to plan, the company could begin
drilling this summer.
It is up to Shell then to keep the oil
industry's Arctic dreams alive.
By Nick Cunningham for Oilprice.com
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