Monday, July 09, 2007

Arctic oil and gas looms!

If ever there was a need for demonstration of the reality of peak oil, Shell have provided it, in the form of their largest exploration plans for over a decade which could create a modern frontier of the oil and gas industry in the Arctic, of all inhospitable places. Shell is an Anglo-Dutch company and it intends to establish a three year programme of ships drilling a dozen new wells in the Beaufort Sea, 30 miles offshore from Alaska. According to industry experts, this may well ignite a stampede into one of the world's biggest virgin energy resources, amounting so it is reckoned to 8 billion barrels of oil and almost 30 trillion cubic feet of natural gas. Unsurprisingly, environmentalists are filled with angst over the proposal, but nonetheless the US Minerals Management Service gave the company the go-ahead last February.

It is understood that Spanish Reposol, Norwegian Norsk Hydro and US-based ConocoPhillips are poised to follow on from Shell if its drilling project is successful. Despite the fact that BP is already operating on the North Star field on the coastline of the Alaskan North Slope, Shell's proposal means an effort 20 or 30 miles closer to the Arctic fringe. Malcolm Brinded, who is the Chief Executive of Shell, said: "There has been drilling there, there has been exploration there, but this is a return to make a new charge at it. Some people say that 25% of the world's undiscovered hydrocarbons (that's oil and gas) sit in the Arctic. I think that may be optimistic but if it's half right then it's worth exploring. It has the right ingredients to be a good energy play and the world needs new energy plays."

Few would argue with his remarks. The point at which oil production will peak globally is a matter of some contention, but it appears most likely that it will occur in about 4 years time, following which there will be an inexorable decline in its supply of perhaps 3 - 6% per year, meaning that within about a decade, that underpinning commodity of the global village will not be in evidence, since just half the presently estimated one trillion barrels remaining will be left, and it is debatable how much of that will in fact prove recoverable. There is evidence that some of the Saudi oil-fields have been damaged by the use of enhanced extraction methods, and will not yield as much as has been bargained for. So really, we don't know how much oil will be finally available to us and now is probably a pretty good time to began planning for a future that depends far less on oil, particularly in terms of greatly reduced levels of transportation by relocalising society into a sustainable network of small communities that are provided for by local farms and businesses.

Shell was involves in a scandal over its estimated reserves three years ago, and the company confessed to overstating its proven holdings by 20%. It has now upped its budget for exploration projects to £1 billion ($2 billion) per year while simultaneously halving the number of countries where drilling will be done. Shell is spending almost £500 million annually on seismic measurements (to find new reserves) and enhanced production methods such as gas- injection (this may be CO2 or steam, as is used in Saudi). The company has stressed the enormous potential of the Alaskan Arctic waters even though it, among other Super-majors, had left the region after exploration of the Beaufort and Chukchi fields in the 1990's. However, the huge hike in oil and gas prices mean that it is now economical to revisit there.

Among the list of Shell's priorities is to assess the possibilities of the "Sivulliq" which is the appellation for the Hammerhead discovery made by the Shell group and Unocal in 1986. This focus demonstrates an increasing aim by Shell to beat its rivals by the implementation of technological advances to find new hydrocarbon reserves, in the face of greater competition to grab "easy barrels" from mature sources such as the North Sea. Shell believes that its experience in working the Sakhalin offshore field in the east of Russia will be of vital use in coping with ice-flows and the Arctic climate.

Shell has turned its attention to the problem of soundproofing at Sakhalin which is a principal feeding-ground for endangered whales, as is also the case in the Beaufort Sea. Nonetheless, the company must still confront serious objections in Alaska, where local authorities are threatening legal action and there is a need to meet a Conflict Avoidance Agreement with the local Inuit people. Whalers have asked that Shell suspend its operations for 30 days during September, which is the time when bowhead whales make their migrations along the North Alaskan coast. Mr Brinded was sanguine that Shell was doing its utmost to address all concerns, saying: "We have spent a huge amount of effort on environmental management and engaging with local communities. We have really prepared for the summer."

Related Reading.
"Huge Shell drilling programme heralds scramble for the Arctic," by Steve Hawkes:

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