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Cold Comfort: Arctic Is Oil Hot Spot

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Cold Comfort: Arctic Is Oil Hot Spot

Energy Reserves 
Limit Potential
July 24, 2008; Page A8

The Arctic contains just over a fifth of the world’s undiscovered, recoverable oil and natural-gas resources, according to a review released Wednesday, confirming its potential as the final frontier for energy exploration.

[arctic map]

A report by the U.S. Geological Survey found that the area north of the Arctic Circle has an estimated 1,670 trillion cubic feet of natural gas — nearly two-thirds the proved gas reserves of the entire Middle East — and 90 billion barrels of oil.

The report, the culmination of four years of study, is one of the most ambitious attempts to assess the Arctic’s petroleum potential. One of its main findings is that natural gas is three times as abundant as oil in the Arctic, and most of that gas is concentrated in Russia.

The survey reflects interest in an area once off-limits to oil exploration. It has become more accessible as global warming reduces the polar icecap, opening valuable new shipping routes, oil fields and mineral deposits.

But any attempt to create an Arctic drilling frenzy will likely meet strong resistance from environmentalists worried about the impact on what is still a near-pristine wilderness. And it could trigger a flurry of territorial disputes over who controls the oil and gas under the Arctic seabed.

The USGS report, which brings together disparate data held by individual countries as well as new information from geologists working in the field, is the first time anyone has produced a comprehensive, publicly available estimate of the Arctic’s hydrocarbon treasures.

Its conclusions will be read closely at a time when concerns about supply have driven up crude prices. But scientists cautioned that it will take decades to develop the Arctic’s hard-to-get-at oil and natural gas.

“It will not ratchet up global production like a new Saudi Arabia,” said Donald Lee Gautier, a USGS geologist who played a key role in the survey, known as the Circum-Arctic Resource Appraisal. “These are additions that will come over time.”

Exploration in the area north of the Arctic Circle has already unearthed more than 400 oil and gas fields. They account for about 40 billion barrels of oil and more than 1,100 trillion cubic feet of gas, the USGS said.

But large parts of the Arctic, especially offshore, remain unexplored. Near-permanent sea ice makes it almost impossible to acquire seismic data and drill exploratory wells.

Climate change is opening the region. The Northwest Passage, home to deadly ice floes that can crush ships, was ice-free last summer. Some predict it will turn into a new trade route between Europe and Asia, and a channel that oil companies can use to ferry workers, equipment and supplies around more freely.

Enticed by the promise of vast deposits, energy companies are flocking northward — often because they have few other places left to go. The Arctic, especially offshore Alaska and northern Canada, is one of the few parts of the world where the majors can easily acquire exploration acreage. Elsewhere, soaring crude prices have prompted oil-rich states to renegotiate contracts and sometimes kick out Western oil companies.

Associated Press
A Canadian ranger looks along the length of one of the gaping new cracks in the large Ward Hunt Ice Shelf, in an April photo. Climate change is opening up the region’s potential for energy exploration.

Earlier this year, Royal Dutch Shell PLC spent more than $2 billion acquiring drilling leases in Alaska’s Chukchi Sea. Last year,Exxon MobilCorp. and Imperial Oil Ltd. of Canada bid nearly $600 million to win a big exploration block in Canada’s Beaufort Sea. BP PLC will spend $1.5 billion to develop Liberty, an oil field off the northern coast of Alaska.

Yet drilling in the Arctic is controversial. Shell has been forced to delay a drilling plan off northern Alaska because of a legal challenge from environmental groups that say it could harm whale and walrus populations.

Oil exploration might also be hampered by rising nationalism. The five circumpolar states — Canada, Russia, the U.S., Norway and Denmark — are scrambling to claim new territory in the central Arctic Ocean. Last August, a Russian submarine planted the country’s flag on the seabed some 14,000 feet under the North Pole. Shortly afterward, Canadian Prime Minister Stephen Harper announced that his country’s military presence in the Arctic would be beefed up.

The rhetoric stems from disagreements over who has sovereignty over the North Pole. Russia rests its claim on the theory that two underwater mountain chains that cross the Arctic Ocean, the Lomonosov and Mendeleev Ridges, are in fact extensions of its continental shelf. Denmark disputes that. A United Nations body that rules on such claims has recommended additional research.

Mr. Gautier, the U.S. geologist, said that one of the survey’s main conclusions was that a lot of the gas in the Arctic is in Russian waters, in places like the South Kara Sea and South Barents Basin. These are both geological extensions of onshore areas that are rich in gas.

The presence of so many hydrocarbons there “will reinforce Russia’s global dominance in natural-gas resources,” he said. Russia is already the largest producer of natural gas and sits on the biggest gas reserves.

Yet there is little likelihood that much of Russia’s Arctic wealth will be exploited any time soon. The country still has vast untapped fields onshore that are first in line to be developed.

Development would also be hampered by Russia’s likely reluctance to let in foreign companies with experience developing oil and gas riches in hostile environments like the Arctic. Some firms have been allowed in, but only as junior partners of state-controlled Russian entities such as OAO Gazprom.

The situation could change. Neil McMahon, an oil analyst at Sanford Bernstein, said Russia will come under mounting pressure to sell offshore leases to Western companies and use the cash to boost investment in flagging domestic oil production.

Write to Guy Chazan at [email protected]

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