Does Arctic Drilling Have A Future With Sub $50 Oil?
Italian oil group ENI is expected to begin production from the Goliat Field off Norway in a few short weeks. The project, which has cost $5.6 billion, is expected to produce 34 million barrels of oil per year by the second year of production.
Yet ENI seems to be bucking the global trend, as would-be Arctic drillers in other parts of the region hand back leases or allow them to expire, citing high risks and high costs as major contributing factors. Successful environmental campaigns as well as an increased global awareness – and political will – to address climate change have also been influential.
All this against a backdrop of global oil prices below $50 a barrel and an outlook of continued oil market volatility.
With Arctic exploration and production being so expensive, the risks so great, and the current market conditions relatively unfavorable, one might ask why Shell, ENI, and others would continue.
Related: Low Oil Prices: Assessing The Damage So Far In 2015
The main reason is resource potential. The Arctic holds the last, great, untapped oil and gas reserves. The U.S. Geological Survey in 2008 estimated that the Arctic contains 22 percent of the world’s undiscovered hydrocarbon resources, totaling 90 billion barrels of oil, 1,670 trillion cubic feet of natural gas, and 44 billion barrels of natural gas liquids.
But those resrources come at a significant cost. One estimate put project costs in the Alaskan Arctic at 50 – 100 percent greater than an equivalent project in Texas.
Shell has discovered this first hand. The company has sunk $6 billion into its arctic ambitions, and experienced several high-profile setbacks, including the abandonment of its drilling campaign in the Beaufort Sea after its oil rig ran aground in 2012.
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