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Posted on on March 19th, 2008
by Pincas Jawetz (


Brace for the Arctic oil rush – Thursday, March 20, 2008, By DAVID HOWELL, LONDON, For The Japan Times.

For decades the world’s major oil companies and their engineering experts have been eyeing the Arctic region and wondering how to get at the oil and gas deposits that are said to lie, in almost legendary quantities, beneath the vast expanses of ice. With the price of crude oil now well above $100, has their moment at last arrived?

Two factors suggest that this may be the case. First, as long as world oil markets were dominated by cheap Mideast oil that could be easily extracted from the open deserts, there was almost no chance of competition from other regions.

But that era that passed. No one believes that oil will ever again be the cheap and plentiful commodity it once was. Even if the largest reserves remain in the Middle East, the whole region is now a caldron of turbulence.

Ideological Islamism, combined with Israeli-Palestinian feuding, Iranian nuclear ambitions and chronic anti-Americanism throughout the area have combined to make Middle East oil not only more expensive but also increasingly unreliable.

Second, the Arctic ice cap is shrinking. Armed with new technology for extracting oil and gas deep down on the seabed, the oil powers now see opportunities opening up across the whole polar region.

All round the Arctic the “circumpolar nations” have been raising their levels of activity and staking claims to sovereign “ownership” of the Arctic space, while delegations from countries as far afield as China, India and Japan have been streaming toward the ice cap and crowding on to survey ships and exploration vessels, all anxious not to be left out of a possible new oil bonanza.

The Russians in particular have made headlines by planting their national flag, in titanium, on the seabed below the North Pole, with a Gazprom spokesman adding that the Russian energy giant expected “major new discoveries” of oil and gas reserves under the Arctic Ocean, and had large-scale prospecting plans for the region.

Meanwhile, Canada has ordered up new naval patrol vessels to “defend its sovereignty over the Arctic.” The United States, stung by Russian activity, has announced plans for two new polar ships, and the Danes have sent a mission to find out how far Greenland opens the way to claims for Arctic sovereignty.

Staying slightly on the sidelines, Norway, having been embroiled in decades of dispute with Russia over demarcation lines in the Barents Sea, has pleaded for an end to “the gold rush.”

What are all these hopeful searchers likely to find? Of course, in one sense the Norwegians, the Russians and the Americans have already arrived and started nibbling round the edges of the Arctic. The Norwegians have their giant Snohvit project and are already bringing ashore very large quantities of gas for liquefaction at the world’s most northerly LNG plant near Hammerfest.

Meanwhile, the Russians are pushing ahead with their equally large Shtokman development in the Barents Sea, with of course the American interest having long been established via the BP development of the big Prudhoe Bay field on the northern edge of Alaska.

But what lies beyond, nearer to the polar heart of the Arctic’s icy and forbidding wastes? Estimates vary wildly. The most optimistic is that no less than 25 percent of the world’s yet-to-find oil and gas reserves (400 billion barrels of oil equivalent) lie beneath the ice. But that may be too hopeful. A more modest recent estimate is about half that (around 14 percent of world yet-to-find reserves) with about two-thirds of it in gas and the other third, or less, in liquid resources.

But we are getting here into guesswork, although of an informed kind. The much more immediate question is cost. What might be the break-even price of extracting these reserves, or what is likely to be commercially feasible, whether now, with crude at $100 plus, or in the years ahead?

The answers depend both on the limits of current technology and now on global warming. If the Arctic ice cap is going to shrink fast then, whatever the other downside consequences, the accessibility of hydrocarbon reserves is made significantly easier and cheaper. If liquids can be brought out at less than $40 a barrel, that makes them not only comfortably profitable in world markets but also just about competitive against alternatives like Canadian tar sands, Venezuelan heavy oil (also $40), or some of the oil being squeezed from the dregs of older wells via “enhanced-recovery techniques,” which can cost up to $50.

In short, while past estimates may have been inflated, and while the very highest environmental standards will need to be met at every stage to safeguard Arctic wildlife, the economics are beginning to give a wavering green light.

If crude oil prices stay near the present range, if world oil thirst grows as predicted and if the Middle East gets even more dangerous and less inviting, the attraction of Arctic energy could radically alter the pattern of global energy resources and, consequently, geopolitics.

David Howell is a former British Cabinet minister and former chairman of the Commons Foreign Affairs Committee. He is now a member of the House of Lords.

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