A recent analysis in “Today in Energy” looked at oil production in Alaska and concluded that oil exploration in the US Arctic continues despite the current low price environment. No surprise there given that the energy industry requires long lead times for new projects and new production in order to replace ‘extracted reserves’ and meet future supply needs. It is all about long-term strategic planning. The future main demand centers for oil will be in the Far East as a result of favorable demographics, continuous urbanization, and ‘catch-up’ economic growth – i.e. vis-à-vis the developed world – by Asian developing countries. At the same time, ‘easy and (relatively) cheap’ oil outside the Middle East is gone and exploration as well as additional production will most likely come from offshore and subsea ‘new’ reservoirs. In this respect, the Arctic will be no exception especially for the five Arctic coastal states. According to the EIA, Alaska’s crude oil production has declined from 1.8 million barrels per day in 1991 to 0.5 million barrels per day in 2014 with further decline expected through 2040.
Source: EIA
The EIA notes “crude oil production in Alaska is sensitive to the challenging environment – including variable ice conditions and limited time without ice coverage – as well as pipeline economics.” What that basically means is that new projects tend to be very difficult – i.e. more technically challenging than in other environments – and extremely costly, and that there is only a very limited window of time for Arctic as well as sub-Arctic construction each year.
Therefore, taking on Arctic oil exploration and production projects will very much depend on the size of the potential reservoirs with hydrocarbons in place. In this respect, the EIA estimates unproved technically recoverable crude oil resources in the North Slope Offshore to be 23.8 billion barrels. The EIA puts this number into perspective: “This is comparable to the unproved technically recoverable crude oil resources in the Bakken formation (22.8 billion barrels) and more than twice the unproved technically recoverable crude oil resources in the Eagle Ford formation (10.3 billion barrels).”
No doubt, commercially viable Alaskan offshore production may be still decades away but it is naïve to think that those reserves will end up as “stranded assets”. In this context, consider the new Arctic offshore drilling regulations by the Obama administration, which led to widespread disillusionment on all sides. Nevertheless, there is enormous potential offshore and subsea Alaska and the oil majors have not turned a blind eye to the potential replacement barrels in the Arctic, despite the current low oil price environment.
The key here is prudent strategic long-term planning while ignoring the short term oil market vagaries and price fluctuations. Given steadily rising populations around the globe, the global economy will have to grow on aggregate thereby creating more demand for oil. If this growth continues to disappoint or if it even reverses, the world will have bigger problems than fluctuations with regard to the price of oil.
Source: EIA
So research to unlock such resource potential is poised to continue. The German tabloid BILD, the largest newspaper in Europe, reported on a feasibility study for the development of a ‘multi-purpose submarine’ by German industry powerhouse ThyssenKrupp (Marine Systems), which could be utilized for a variety of offshore operations in harsh weather conditions and especially under the thick Arctic ice cover.
Interestingly, Norway’s Statoil was also involved in the study to design a versatile submarine – in length comparable to the Airbus A380 – that could significantly contribute to the successful and safe future development of Arctic oil and gas. The versatile vessel would be, among other things, able to perform tasks with purportedly high accuracy in freezing water depths of up to 1,500 meters by using an on-board gantry crane along with remotely operated underwater vehicles. BILD published a graphic of the concept submarine (see here). According to a paper – published by the Offshore Technology Conference – reporting on the results of the feasibility study the vessel is capable of “performing seabed seismic surveys” at water depth of up to 1,500 meters and also possesses “unique abilities to respond to sub-ice oil and gas spills.” The latter point will be crucial for all energy companies pursuing Arctic resources as any national regulations are sure to include stringent requirements given the fragile environment in the High North. For more details, read the paper, which gives an overview of the vessel’s layout, capabilities, safety features and its operational prospects.
