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Arctic Oil Potential

April 24, 2015

A recent report prepared for the Department of Energy, established that large reserves of oil were in the Arctic, and that the United States should begin to develop those reserves as it could easily require 20 years before oil could be produced from the region.

Map of Arctic

It’s estimated that 75% of the potential oil and natural gas reserves are offshore and 25% are onshore.

It should be noted that these reserves include known reserves, discovered potential reserves and undiscovered potential reserves. While undiscovered reserves sound rather iffy, the industry has an excellent track record of making reliable estimates.

Most of the offshore reserves in U.S. waters are in waters less than 100 meters deep, or roughly 330 feet. The same is true for Russia. Reserves in Canada and Greenland, however, fall of rapidly from shallow, to deeper waters.

The fact that U.S. reserves are mostly in shallow waters is important, because rigs can be grounded on the ocean floor. They are easier and safer to use, and can utilize well established drilling and production technologies.

Using floating rigs year-round will require additional research and development.

Therefore, most of the U.S and Russian reserves can be easily and safely accessed, while recognizing the difficulties of operating in Arctic waters with a much shorter year in which to conduct operations. Open waters can last for only 3 or 4 months.

Development however, will require at least a few decades, based on the following timetable.

  • Evaluating and establishing leases, 2 to 10 years
  • Exploration and appraisal, 5 to 20 years
  • Development 3 to 10 years

In total, more than 20 years will probably be required to develop these reserves.

Arctic Reserves by Country

Arctic reserves are spread unevenly, with the U.S. and Russia having the greatest share of oil reserves, while Russia has the overwhelming share of natural gas reserves.

Another important item in the report is information on U.S. shale oil development, and whether it will last beyond the current decade.

The news media reported that shale oil production will begin to decline within ten years.

However, the media may have jumped to a conclusion about the durability of shale oil development.

The report used the EIA’s Reference Case projections showing shale oil and total U.S. oil production beginning to decline around 2020, five years from now.

The problem with using the EIA 2014 Reference Case is that the EIA has been behind the curve in estimating shale oil’s potential.

While it made sense for the report to use an accepted reference to maintain credibility, the EIA Reference Case is probably wrong with respect to how many years shale oil can be produced in quantity.

At least two factors mitigate against the demise of shale oil in the near future.

  • As the price of oil increases above current $50 levels, more areas become economically viable for shale oil development.
  • New techniques are being introduced that will increase the amount of oil that can be recovered from wells.

The report also recognized the complexity of the regulatory structure covering activities in the Arctic, and why some existing regulations need adjustment, such as those for leasing due to the long periods required before production can actually begin.

There are 39 federal agencies participating in the Arctic Policy Group, 27 agencies and working groups identified in the IPNSAR (Implementation Plan for the National Strategy for the Arctic Region), and seven interagency policy coordination bodies.

In addition, the Arctic Council consists of eight Arctic states (the United States, Canada, the Russian Federation, Norway, Kingdom of Denmark, Sweden, Finland, and Iceland), six permanent participant groups, twelve observer states, and a multitude of other governmental and nongovernmental organizations.

The report also reviewed the importance of preparing for an oil spill. It provided information on the ecological reports that have been prepared over the past decades.

A section of the report reviewed the extensive procedures taken to prevent an oil spill, and those to be taken in the event of an oil spill.

Drilling has been done in the Arctic so companies are familiar with the obstacles and how to drill safely. Norway and Russia have taken the lead in Arctic oil development, with Norway having recently offered leases in the Arctic.

The executive summary of the full report is available at http://bit.ly/1BYSVA9 and all other sections are also available by following the link.

Extremists will likely object to the report being prepared by the National Petroleum Council which is largely comprised of oil industry experts in combination with DOE.

While many people, especially extreme environmentalists who believe in global warming, will object to drilling in the Arctic, it’s clear that drilling in the arctic will become necessary as the demand for oil increases.

It’s clear that, due to the long winters and short drilling seasons, it will take twenty years or more to develop the oil and natural gas resources in the arctic.

It’s also clear that it’s important to develop these resources to ensure the continued future economic growth of the United States.

* * * * * *

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3 Comments leave one →
  1. Catcracking permalink
    April 24, 2015 11:57 pm

    Donn,
    Thought you might be interested in this report which indicates that fracking costs are already dropping significantly.
    Interesting, there is an element of our society that have continuously claimed that oil/gas from fracking will never have a significant impact. History has proven them very wrong. Now the tune has changed and they claim that current prices will significantly curtail production from fracking, not realizing that costs will fall due to various efficiency and change in market conditions.

    Also I suggest that production from fracking will not drop off in 2020 as often predicted, in part because of increase in efficiency, reduced production cost, and other technology improvements which has been the trademark of the oil industry for decades..

    “CERAWEEK-U.S. fracking costs falling fast, may keep fields in play

    http://af.reuters.com/article/energyOilNews/idAFL1N0XJ1BU20150422

    HOUSTON, April 22 (Reuters) – U.S. oil and natural gas companies have pushed down costs of fracking a shale well faster than expected, and if the trend holds up it could allow producers to keep working in oilfields that just months ago looked uncompetitive after the oil price crash.

    A more than 50 percent fall in the price of crude oil since June has left oil and gas producers insisting on steep price cuts from oilfield service companies that provide everything from drilling rigs to hydraulic fracturing.

    Oil is trading around $55 a barrel, and most U.S. shale fields are seen as having break-even costs of $40-$70 a barrel.

    In fourth-quarter earnings calls, operators initially were looking for prices cuts for services like fracking of around 20 percent. Now those savings appear to be steeper.

    “We’re seeing costs fall more for fracking than drilling,” Mike Bahorich, chief technology officer at Apache Corp told a CERAWeek breakfast meeting.

    He estimates Apache’s fracking costs have fallen about 30 percent, while drilling costs have tumbled 20 percent.””

    More at the website

    • April 25, 2015 5:03 pm

      Great. Many thanks for the additional information.

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