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The Race For Arctic Oil Is Heating Up

The Race For Arctic Oil Is Heating Up

Arctic LNG

Despite climate concerns and environmentalist backlash against exploration for oil and gas in pristine sensitive regions of the Arctic, companies continue to explore for hydrocarbon resources in the Arctic Circle, in Russia and Norway in particular.

The largest Russian energy companies are looking to explore more Arctic oil and gas resources on and offshore Russia, while Norwegian and other Western oil firms are digging exploration wells in Norway’s Barents Sea.

Those companies lead the development efforts to tap more Arctic oil and gas resources as legacy oil and gas fields both offshore Norway and onshore Russia mature.  

Russia’s biggest energy firms Gazprom, Rosneft, Novatek, and Lukoil, and Norway’s oil and gas giant Equinor, as well as Aker BP and ConocoPhillips, are the top oil and gas producers in the Artic region, data and analytics company GlobalData said in a new report. Gazprom is the undisputed leader in Arctic oil and gas production, followed, at a long distance, by two other Russian firms, Rosneft and Novatek, GlobalData’s estimates show.

Russian firms are ramping up exploration in Russia’s Arctic, while Equinor and other Western companies drill exploration wells in Norway’s Barents Sea, hoping for a significant discovery that could add to the Johan Castberg oilfield—a massive discovery which was made in 2011, but which hasn’t been replicated in the Barents Sea so far.  

Yet, both Russia and Norway face specific challenges in getting the most out of their respective Arctic oil and gas resources. 

In Russia, the government has made Arctic oil and gas development a key priority and offers tax breaks for firms exploring in the area.

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US Oil Exploration Drops by 95 Percent

US Oil Exploration Drops by 95 Percent

It is well known that oil discoveries are in continuous decline worldwide in spite of ever-increasing investments. What is less known, however, is that spending on oil exploration is fast dropping in the United States. Exploratory drilling has been decreasing year after year and now stands at only five percent of its 1981 peak. In other words, once the currently producing shale oil wells are gone, there won’t be much to take their place.

According to figures derived from US Energy Information Agency (EIA) data by French oil geologist Jean Laherrère, oil exploration has already peaked twice in the United States. The first time was in the mid-1950s, with just over 16,000 wells drilled in a single year. The second major peak dates back to 1981, with 17,573 exploration wells. This number fell to only 847 in 2017.

Another even more revealing phenomenon is the decrease in NFWs. New field wildcats are exploration wells drilled in areas that have never produced oil, as opposed to wells drilled simply to help better delineate already known oil sectors (shown as red and greenlines in the graph). NFWs also declined by 95 percent, from 9,151 in 1981 to just 450 in 2017. According to Laherrère, this means that the United States have been almost entirely explored for oil and gas since 1859 and that few sites are worth drilling anymore. “There are only a few unexplored areas left offshore”, he notes.

In comparison, the number of operating wells (used to pump oil from previously known fields) was 646,626 in 1985, 597,281 in 2014, and 560,996 in 2017. However, nearly 400,000 of these wells are very old and produce at a marginal rate – fewer than 15 barrels a day and sometimes as little as one. They are described as marginal wells in the graph above.

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Art Berman: Like It Or Not, The Future Remains All About Oil

Vladimir Yudin | Dreamstime.com

Art Berman: Like It Or Not, The Future Remains All About Oil

And competition for it is heating up 

Art Berman, 40-year veteran in the petroleum production industry and respected geological consultant, returns to the podcast this week to talk about oil.

After the price of oil fell from its previous $100+/bbl highs to under $30/bbl in 2015, many declared dead the concerns raised by peak oil theorists. Headlines selling the “shale miracle” have sought to convince us that the US will one day eclipse Saudi Arabia in oil production. In short: cheap, plentiful oil is here to stay.

How likely is this?

Not at all, warns Berman. World demand for oil shows no signs of abating while the outlook for future production looks increasingly scant. And the competition among nations for this “master resource” will be much more intense in future decades than we’ve been used to:

Since the 1980s, we simply have not been replacing reserves with new discoveries. So how does that work? Well, obviously, we’ve got a lot of oil on production and in reserves, so we’re essentially drawing down our savings account if you want to think about it that way. You can do that for a long time if you’ve got a whole lot of money in your savings account, and we as a planet do. But you can’t do it forever.

Eventually, you either have to stop spending as much so you don’t draw down your savings, or you need to put some money back in the account. And it doesn’t seem like we’re doing much of either, and haven’t been doing much of either for a long time. So the concern is tremendous, at least, in my estimation(…)

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A 4.5-Million-Barrel Per Day Oil Shortage Looms: Wood Mackenzie

A 4.5-Million-Barrel Per Day Oil Shortage Looms: Wood Mackenzie

report by Wood Mackenzie has warned the world may face a daily oil shortage of 4.5 million barrels by 2035. The amount represents around half of the global consumption estimate of the International Energy Agency (IEA) for 2016. In other words, a true crisis is looming—and for the moment, there is no apparent way around it.

The most obvious reason is that energy companies don’t want to spend money on exploration when prices are so disappointingly low. Many of them simply can’t afford to spend on exploration if they want to survive in today’s price environment. Ironically, their long-term survival can only be guaranteed by further exploration spending.

A lot of costly projects have been shelved since the summer of 2014 when oil prices started falling, with the initial investments basically written off. Reviving these projects will cost more money. Where this money will come from is unclear—there is no certainty where oil prices are going in the near term, let alone any longer period, and the European Commission today forecasted $41/barrel oil for the rest of this year and just over $45 for 2017.

Another part of the answer to the question, “How did we get ourselves into this mess?” has to do with the knee-jerk reaction of E&Ps in times of crisis. That knee-jerk reaction is generally “fire at will”. Layoffs in oil and oilfield services are piling up at speed, well into six-figure territory to date. Cost-cutting has become the daily mantra of oil companies, and it’s easy to see why.

Oil dived more than 75 percent over a year and a half – that’s a hard blow to withstand. However, those laid off as part of the E&Ps’ coping mechanism will not sit around and wait to be rehired at the first opportunity.

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With Shell’s Failure, U.S. Arctic Drilling Is Dead

With Shell’s Failure, U.S. Arctic Drilling Is Dead

Arctic Drilling in the U.S. is dead.

After more than eight years of planning and drilling, costing more than $7 billion, Royal Dutch Shell announced that it is shutting down its plans to drill for oil in the Arctic. The bombshell announcement dooms any chance of offshore oil development in the U.S. Arctic for years.

Shell said that it had completed its exploration well that it was drilling this summer, a well drilled at 6,800 feet of depth called the Burger J. Shell was focusing on the Burger prospect, located off the northwest coast of Alaska in the Chukchi Sea, which it thought could hold a massive volume of oil.

On September 28, the company announced that it had “found indications of oil and gas in the Burger J well, but these are not sufficient to warrant further exploration in the Burger prospect. The well will be sealed and abandoned in accordance with U.S. regulations.”

After the disappointing results, Shell will not try again. “Shell will now cease further exploration activity in offshore Alaska for the foreseeable future.” The company cited both the poor results from its highly touted Burger J well, but also the extraordinarily high costs of Arctic drilling, as well as the “unpredictable federal regulatory environment in offshore Alaska.”

Shell will have to take a big write-down, with charges of at least $3 billion, plus another $1.1 billion in contracts it had with rigs and supplies.

Shell’s Arctic campaign was an utter failure. It spent $7 billion over the better part of a decade, including an initial $2.1 billion just to purchase the leases from the U.S. government back in 2008. The campaign was riddled with mishaps, equipment failures, permit violations, and stiff opposition from environmental groups, including the blockading of their icebreaker in a port in Portland, OR this past summer. The FT reports that Shell executives privately admit that the environmental protests damaged the company’s reputation and had a larger impact than they had anticipated.

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Arctic Explorers Retreat From Hostile Waters With Oil Prices Low

Arctic Explorers Retreat From Hostile Waters With Oil Prices Low

When Statoil ASA (STL) acquired the last of three licenses off Greenland’s west coast in January 2012, oil at more than $110 a barrel made exploring the iceberg-ridden waters an attractive proposition.

Less than two years later, the price of oil had been cut by almost half and Norway’s Statoil, the world’s most active offshore Arctic explorer in 2014, relinquished its interest in all three licenses in December without drilling a single well, Knut Rostad, a spokesman for the state-controlled company, said by e-mail.

Statoil’s decision shows how the plunge in oil, with Brent crude trading at about $45 a barrel, has dealt another blow to companies and governments hoping to tap the largely unexplored Arctic. That threatens to demote the importance of a region already challenged by high costs, environmental concerns, technological obstacles and, in the case of Russia, international sanctions.

“At $50, it just doesn’t make sense,” James Henderson, a senior research fellow at the Oxford Institute for Energy Studies, said in a Jan. 12 phone interview. “Arctic exploration has almost certainly been significantly undermined for the rest of this decade.”

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