Unless the remaining days of December surprise us with a world-beating hydrocarbon discovery, 2019 will go down as one of the weakest years on record in terms of new oil additions. Conventional oil and gas discoveries have fallen to a 70-year low and unconventional failed to impress, too. Under circumstances like this, oil companies continue to focus on the low-hanging fruits – focus on drilling in acreage adjacent to existing infrastructure or prioritize short-term low-reserve shale reserves which do not necessitate such long-term commitments. The Arctic, reported to contain around 1/6 of the world’s undiscovered oil reserves, might provide the solution – if only Arctic countries were not bound to turn away from it.
As Norwegian oilmen celebrate the successful commissioning of the Johan Sverdrup field, truly a milestone in the country’s turbulent 21st century path, there several signs which foretell a much more troublesome future for anyone who would like to drill in cold Arctic waters. As deliberation within the United States rage on whether the Alaska National Wildlife Refuge should be opened up for drilling, thus reenergizing the state’s waning output, other countries with their continental shelf extending into the Arctic seems to move in the opposite direction. Canada has a drilling moratorium in place until 2021 and most probably will extend it by another 5 years, Iceland has given up after some initial advances, whilst external conditions compel Norway and Russia to shift their focus elsewhere.
Horrendous weather conditions in the Arctic make it a very harsh environment for oil companies to operate and costly to produce oil once found.
With Arctic drilling hovering around $100 a barrel, oil prices have to rise beyond $100 to make it worthwhile for drillers. However, the Arctic's vast oil and gas reserves are expected to become more accessible as climate change melts the ice and technology advances.
Yet, Russian oil and gas companies are already operating in the Arctic. For Russia the Arctic is where it hopes to discover enough oil reserves to be able to replenish depleting oil reserves in Siberia. Only state-controlled Gazprom and Rosneft are currently authorized to operate on Russia's Arctic shelf.
Russia is reported to have more than $8 trillion worth of untapped oil and gas in its sector of the Arctic. It could, in a few years, add more than 1.5 million barrels of oil a day (mbd) to Russia’s current oil production of 11.2 mbd thus consolidating Russia’s position as the top oil producer in the world.
Still, the Russian energy giant Novatek has achieved spectacular success by producing LNG in its northernmost industrial facility on the globe: Yamal LNG, a $27-billion liquefied natural gas (LNG) plant in the middle of frozen nowhere.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Hopefully the cleanest oil will be the world's focus, and the dirtiest oil will wait, in some cases, forever.