The Arctic bilateral border agreement signed by Norway and Russia earlier this month rekindled media hype over the so-called race for the region’s energy treasures, which could amount to as much as 30 percent of the world’s undiscovered gas and 13 percent of its undiscovered oil. But the frenzy is so unwarranted, at least in terms of energy, that even Prime Minister Vladimir Putin intervened last week to ask all parties to cool down.
To begin with, current estimates are based on incomplete data. Nobody really knows how large the hydrocarbon deposits in the Arctic are because there has been almost no exploration, even by Arctic countries Russia, Denmark (through Greenland), Canada, Norway, and the U.S. But even if significant oil and gas deposits are discovered, and there have been some discoveries, most of the promising exploration areas are on shallow undisputed waters on the continental shelf that will remain economically unfeasible to develop for a long time.
That doesn’t mean there will be no exploration. Russia and Norway will cooperate to explore their new shared boundary. For Norway, it’s about finding additional oil to offset falling North Sea production, and for Russia it could mean sharing in the Western expertise it needs to develop its Arctic deposits. The U.S. and Canada are also expected to explore their sides, and Greenland is already being explored more aggressively. But that does not mean any oil or gas will gush out any time soon.
Indeed, the world’s leading experts agree that significant production in the Arctic is at least 15 years away, if at all, and depends on myriad of factors from climate change and new regulatory standards following the BP spill, to the future ability to exploit unconventional resources. Some say it could be a quarter century before any of these resources are really needed.
The most comprehensive public assessment of undiscovered Arctic hydrocarbon resources is being conducted by the United States Geological Survey, but its assessment is based on “probabilistic” geologic methodology. In fact, some of the world’s leading Arctic researchers, including those in the USGS warned last year that “oil resources, although important to the interests of Arctic countries, are probably not sufficient to substantially shift the current geographic pattern of world oil production.”
There may be three times more gas than oil in the Arctic and most of it is under undisputed Russian waters. But the growing supplies of unconventional gas, especially shale gas in the U.S., could make Arctic supplies unattractive without even considering the additional difficulties attached to weather or the non-energy infrastructure that would be required. For oil, the case is even more clear. Deepwater deposits, like Brazil’s presalt, are already in the process of being developed and risks will no doubt be smaller than in the Arctic. In other words, deepwater remains more attractive and unexplored.
In fact, development of one of the world’s biggest gas fields, Shtokman on the Barents Sea, was delayed yet again this year because of uncertainty in its target market, the U.S., along with technical difficulties. Production is now slated for 2016, but final commitments are not due until next year. The field, discovered in 1988, is an example of what to expect (or not expect) of Arctic energy resources for some time.
Take it from Putin who in the largest multilateral gathering of Arctic experts made it clear there was no rush. “I am familiar with various futuristic predictions on the upcoming strife for the Arctic,” he said last week. “But we are carefully monitoring the situation in the region, and it is obvious that most of those scenarios have no real grounds whatsoever.”
“There is a lot of hype about the Arctic,” said Donald Gautier, who leads the USGS Arctic research. “Even if discoveries were made there next summer, you’d still be a decade off, at the minimum, before any production. There is a big lag time because it’s remote, covered by ice, with such harsh conditions and so distant from markets that there is nothing there that is economic in the short term.”
“Resources have been pushed back by unconventional gas on shore and that makes Arctic even more distant. The risks, politics, regulations, all that… It’s going to be a long involved process. I know there’s a lot of hype in the press and popular literature, but a cooler approach is required,” Gautier said.
In fact, the biggest potential in the Arctic, according to the USGS, lies behind western Siberia, meaning all the fields that have already been discovered onshore would have to be developed first, and there are no signs of that. For Shamil Midkhatovich Yenikeyeff, a research fellow in the Oxford Institute for Energy Research and expert in Russian and Arctic energy, significant production won’t come, if at all, for at least 20 years.