Arctic Oil Still Seen Decades Off as Producers Balk at Costs

From Bloomberg Lundin Petroleum AB (LUPE), the Swedish explorer focused on Norway, said there won’t be any new oil output in the ice-filled waters of the Arctic for at least 15 years because of technical and logistical challenges. “I don’t think we’ll see any oil production in the Arctic any time soon — probably not this decade and not the next,” Chairman Ian Lundin said in a Feb. 20 interview in Stockholm. “The commercial challenges are too big.” The Arctic holds 30 percent of the world’s undiscovered natural gas reserves and 13 percent of its undiscovered oil, according to U.S. Geological Survey estimates. Still, exploration of the Arctic ocean floor, where 84 percent of these resources are thought to be trapped, has suffered setbacks in recent years. Royal Dutch Shell Plc. (RDSA), Europe’s biggest oil company, in January again halted drilling plans off Alaska after a court ruled the area had been illegally opened to exploration. That followed a previous postponement after a series of technical mishaps in 2012, including the stranding of a rig. Off the coast of Greenland, drilling has yet to resume after Cairn Energy Plc (CNE) spent $1 billion on exploration without making commercial finds in iceberg-ridden waters, while Russia’s Shtokman gas project, 600 kilometers (370 miles) from shore in the Barents Sea, has been stalled for years. Lower Priority As companies including Shell and Norway’s state-controlled Statoil ASA (STL) cut planned investments amid rising costs across the industry, expensive Arctic projects could get a lower priority. “It may take a while to develop the right technology,” Lundin’s chairman said. “Investments are very, very high so it still has to be commercially justified.” Another factor undermining the appeal of expensive exploration projects is the outlook for crude prices. Brent oil for delivery in 2016 is trading at about $97.45 a barrel, down 11 percent from the current spot price of $110.07 for the global benchmark, according to data compiled by Bloomberg from the Ice Futures Europe Exchange. An exception to Arctic challenges is the southern part of Norway’s Barents Sea, Lundin said. While inside the Arctic circle, it benefits from a less-harsh climate and shallower and ice-free waters, and may hold 8 billion barrels of oil equivalent in undiscovered resources, more than 40 percent of the country’s total. Click here to read more

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