A growing interest in Arctic oil and gas exploration has garnered the attention of companies across the globe looking to find what could be an estimated 90 Bbbl of oil and 1,669 Tcf of natural gas.

But the region presents many challenges that mandate companies exploring in the Arctic region to communicate and cooperate, according to speakers delivering talks during the Dec. 3 plenary session of the Arctic Technology Conference in Houston.

Robert Blaauw, senior advisor, Global Arctic Theme, Shell, called Arctic oil and gas a conventional resource in an unconventional setting.

Cold temperatures and ice require special equipment and techniques, care must be taken to protect the environment, and limited transportation access could alter operations.

“What we must do together is reduce risk, reduce costs, reduce footprints, and reduce exposure of people to the Arctic environment,” Blaauw said. “We should not be looking at developing huge Arctic class equipment, the biggest icebreaker ever, or the biggest platform ever. Let’s look at how we can limit our equipment and how can we drill faster wells.”

Blaauw described 2012 as a pivotal and challenging year for Arctic oil and gas exploration and predicted the decade was going to be pivotal as well. With hardly a single day passing without Arctic operations being in the media spotlight, Blaauw pointed out the importance of being transparent, communicating, and addressing misconceptions.

The industry needs to cooperate not only in training, sharing logistics, and utilizing management systems, but also in sharing stories together as an industry, he said.

Shell made its return to the Arctic in 2012 with plans to drill in the Chukchi and Beaufort seas offshore Alaska, but was met with a series a setbacks that included sea ice, a longer than usual whaling season, and regulatory delays caused by problems with the containment dome for the Arctic Challenger containment barge needed to secure government approval to drill. That certification finally arrived but came too late to make much drilling progress this year.

However, this year’s work – which included drilling two topholes in each of the seas – set a solid ground on which Shell can continue operations in 2013. Blaauw said the massive operation had two drilling rigs supported by 20 vessels, five helicopters, and three fixed-wing aircraft, each with specific roles that included serving as anchor handlers and ice breakers among other tasks. The ice and weather forecasting for the operations also worked well, something Blaauw said was vital for logistics.

“We have operated responsibly and there were no major safety incidents,” he said, later adding that some of the lessons learned offshore Alaska were taken to Greenland, where Shell is working with Statoil and Gazprom.

After acquiring two licenses, Shell launched a 3-D seismic survey in the Arctic waters offshore Greenland, where icebergs pose potential dangers to operations. He called the season in Greenland great, noting the company learned much about ice management, Greenland operations, and engaging stakeholders.

Seven enablers to implement an Arctic project are reserves, engineering, market, resources, government approvals, financing, and social acceptance and public support, said Mohammed Zaki, vice president, Russia, for Total E&P.

“We’re not going to the Arctic just because it’s a new area,” Zaki said. “We’re going to the Arctic because we think there is a lot of oil and gas there to be discovered.”

Total E&P has at least four projects planned or in the works in the Arctic region.

The Shtokman project, currently underway, is the largest undeveloped offshore gas field in the world, Zaki said. The field has 140 Tcf of gas in place. The company has spent much time and engineering looking for solutions to produce the field, which is some 500 km (311 miles) offshore. Challenges include high costs and icebergs. Located in the Russia’s Barents Sea, the company said challenges also include polar storms and -50°C (-58°F) temperatures.

Total also has joined Novatek, according to Total’s website, to form the Terneftgas operating company to develop the Termokarstovoye deposit in Western Siberia. There, reserves are estimated at 47.3 Bcm (1,670 Bcf) of gas and 10.3 million tons of condensates.

In addition, Total produces oil onshore at Kharyaga (Russia) and LNG offshore at Snøhvit (Norway). Kharyaga was brought on stream in 1999 and aims to maintain production at 30,000 b/d, according to the company’s website. Snøhvit, in the Barents Sea, is the first major subsea development on the Norwegian Continental Shelf, with gas produced offshore then piped ashore in a 145-km long pipeline.

The Snøhvit development was a long time in the making. It was discovered in 1981, but production started in 2007, Zaki said, noting there initially were not enough reserves to build an LNG plant.

The long time from discovery to production is one of the challenges in the Arctic region, explained James Hall, director of Infield Systems.

“One of the biggest challenges we’ve witnessed is the time it takes to bring these technically challenging fields on stream. We’re seeing an average of 30 years,” he said, noting that is for mega fields that have more than 1 Bboe.

Other challenges include engineering difficulties, considering large fluctuation in temperatures and ice coverage, logistics, high costs, finding markets, and transporting resources, he added.

“We’ve run into about 38 fields that could be on stream by 2018. Only seven of these are actually under development or planned,” Zaki said. “Unconventional and deepwater plays still have the potential to hold back some development in the Arctic region.”

But key regions are pushing ahead with plans in the Arctic. Zaki said:

• Canada has made 41 discoveries but has zero development projects, although activity is increasing and new licenses are being pushed through;

• Eight wells have been drilled so far in Greenland. There, Statoil is the industry leader pushing development;

• In Norway, Statoil also has a substantial presence with large fields in the Barents Sea and up and coming development plans in the Arctic. Investment in Norway is expected to reach US $8.3 billion within the next five years;

• Companies such as ExxonMobil, Statoil, and Gazprom have plans for projects in Russia’s Arctic region. An investment of $3.2 billion is expected over the next five years; and

• In the US, offshore Alaska, overall capex is expected to come close to $1 billion in the next five years. Work is pretty much restricted to areas closer inland, such as the Cook Inlet.

“There is a potential this century of having a meltdown of ice within the Arctic, which is a phenomenal challenge … but ultimately opens up an opportunity for us to push our ability to produce in the Arctic,” Hall said.

But Arctic exploration will require stepping up to challenges, Blaauw said.

“We are progressing and unlocking High Arctic oil and gas resources,” he said. “It takes time, but we need to do it responsibly. We cannot afford another oil spill and definitely not in the Arctic.”

Contact the author, Velda Addison, vaddison@hartenergy.com.

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