Oil
companies have eyed the Arctic for years. With an estimated 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.
However,
the 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.
In
December, Chevron 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 statement.
"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.
That
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.
Curiously,
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.
