A Deal with the Devil? Arctic Drilling War of Attrition Begins Part One

A Deal with the Devil? Arctic Drilling War of Attrition Begins Part One

While checking my messages on Facebook early Saturday morning in my Taipei apartment, I noticed an ad with an attention-grabbing photo of a chubby, juvenile polar bear with Chinese script beside it. Since my Chinese character reading skills are weak, I clicked in curiosity.

The link opened up to a colorful web page and an animated image of the Arctic night sky in the background, with a corresponding video clip. On the top of the page in large bold letters in both Chinese and English: SAVE THE ARCTIC.

The web page belongs to Greepace.org.taiwan, though at first glance it’s not obvious. Greenpeace is written on the top left in small letters. The video is also shown on numerous Greenpeace websites globally as well as the Greenpeace international home page.

The video is short, a mere 1:36 but compelling. The name of the video is “Save the Arctic from Shell and its Russian friends.”

As an energy journalist and oil industry investor and one that has delighted at the recent US shale boom coming after decades of OPEC oligopoly, I nonetheless felt a tinge of guilt watching the video clip. After all, I am a drill-baby-drill proponent, though I’m not oblivious to the fact that hydrocarbon usage has impacted the environment, it’s just the contradictory science explaining its affects that bothers me.

The video begins with a cartoon polar bear adrift on a sheet of ice as a British female narrator begins. “The arctic is melting,” she says, “and as the ice melts the oil companies are moving north.” I confess at this point, I had mixed emotions, the small tinge of guilt hasn’t been displaced yet but I’m already thinking oil and gas reserves, exploration and production costs, debt to equity ratios, and revenue projections — guess I’m not a Sierra Club member candidate after all.

“They are determined to drill for the same fuels that caused the melting in the first place,” the narrator continues as the video zooms in on the animated bear that by now is scowling as a harsh wind is heard swirling in the background.

As the well scripted but obvious Greenpeace spin unfolds my misgivings have all faded away. The video then lists a brief history of accidents and dangers of article drilling, mentioning Shell’s recent unsuccessful offshore drilling attempts in Alaska, a 2011 Gazprom accident and what the narrator calls the dangers of Gazprom’s outdated equipment.

Deal with a Russian Devil

The video starts to wrap up with these poignant words: “If we don’t stop them, an Arctic oil spill is inevitable.” The narrator concludes by asking the world to stand up to Shell to stop Arctic drilling.

Meanwhile, the Greenpeace international website says, “Shell is getting increasingly desperate to plunder the Arctic in any way possible. It has recently made a deal with the devil: partnering with Russian oil and gas giant Gazprom to access the Arctic through Russia.”

I’d like to hear what Vladimir Putin thinks about that statement.

While not disputing the fact that Shell did try to drill in Alaska but was unsuccessful nor the fact that Gazprom did have a major accident in 2011, nor even examining the credibility of the bold sweeping statement that “fuels caused the Arctic ice to melt in the first place,” I will however address who is interested in drilling for Arctic hydrocarbons and also the challenges, safety issues and possible environmental impact that drilling in the Arctic brings.

To do this we have to head east (depending on your current location) to China, the newest shaker and mover on the global oil stage, north to the Arctic itself and back around again.

The Middle Kingdom goes north

It should be no surprise that China would be interested in exploring for and securing hydrocarbons in the Arctic. Its insatiable oil and gas appetite leaves the world’s largest consumer of energy with little choice, while a slice of vast Arctic reserves would help to continue to diversity the country’s oil and gas supplies. The Arctic holds an estimated 13% (90 billion barrels) of the world’s undiscovered conventional oil resources and 30% of its undiscovered conventional natural gas resources, according to an assessment conducted by the U.S. Geological Survey (USGS). It should be noted that others dispute these figures claiming that they are inflated.

Yet, tapping these resources won’t come easy or cheap. The U.S. Energy Information Agency (EIA) said last year that “studies on the economics of onshore oil and natural gas projects in Arctic Alaska estimate costs to develop reserves in the region can be 50-100% more than similar projects undertaken in Texas.” In other words, Arctic drilling is expensive so profit margins from production will be lower.

In spite of these tremendous challenges, China stills wants in. On June 13, an insider with Sinopec, one of three Chinese state-owned national oil companies, told media that it started initial talks with the Icelandic government over oil exploration in northeastern coastal waters of the country.

Prior to this, CNOOC, China’s largest offshore oil producer, said publicly that it had been invited by the Icelandic government as well as Iceland-based EykonEnergy to take part in offshore oil and gas exploration and development in Iceland’s Arctic waters. Both sides are currently busy in negotiations, according to China’s nbd.com.cn.

China’s third oil major CNPC has already gained access to Russia’s Arctic gas fields by concluding a framework agreement with Novatek, Russia’s largest independent natural gas producer.

Other companies that have either begun exploratory work in the Arctic Circle or plan to do so include Anglo-Dutch major Royal Dutch Shell, the US’s Exxon Mobil and ConocoPhillips, France’s Total, Norway’s Statoil and Italy’s Eni, making the Arctic a truly international play.

Next week we examine the challenges and dangers (from both sides of the divide, pro-Arctic drilling and those against it) that drilling in the Arctic brings.

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