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Vol. 20, No. 14 Week of April 05, 2015
Providing coverage of Alaska and northern Canada's oil and gas industry

Development needed now

New NPC report recommends immediate Alaska Arctic offshore exploration drilling

Alan Bailey

Petroleum News

In a report published on March 27 the National Petroleum Council has recommended to the Department of Energy that oil exploration in the Arctic Alaska offshore should proceed without delay, to stave off a future decline in U.S. oil production, when Lower 48 shale oil production passes its peak. Although there is scope for further research into technologies for Arctic offshore exploration and development, proven technologies exist today that can enable exploration and development to proceed without delay, the report says. And, after decades of research, much is known about the Arctic’s physical, ecological and human environments, the report says.

Request for guidance

The National Petroleum Council is a federally chartered and privately funded committee that provides advice to the Secretary of Energy on matters relating to oil and gas. Ahead of the United States in April taking the chair of the Arctic Council, the intergovernmental forum of Arctic nations, Energy Secretary Ernest Moniz had asked the Petroleum Council for guidance on potential research and technology to support prudent development of Arctic oil and gas resources. The report is the outcome of that request.

The report comments that the U.S. Arctic offshore is estimated to hold some 48 billion barrels of undiscovered oil equivalent hydrocarbon resources, with 90 percent of this resource trapped in rocks under a marine environment with water depths of less than 100 meters. More than 80 percent of this total resource is thought to lie under the outer continental shelf of the Chukchi and Beaufort seas. Yet, to date, the only U.S. Arctic outer continental shelf development has been the Northstar oil field, straddling state and federal waters of the Beaufort Sea, the report says.

Long lead time

Although unconventional drilling and oil production techniques in the Lower 48 have resulted in a resurgence in U.S. oil production, the Energy Information Agency has forecast that this onshore bonanza will peak in 2019 and decline thereafter, the report says. And, so, given the long lead times that would be involved in discovering, appraising and developing new oil resources in the Arctic offshore, Arctic exploration should start now, in the interests of bringing Arctic oil on line as Lower 48 production drops, the report says.

“Alaskan opportunities can play an important role in extending U.S. energy security in the decades of the 2030s and 2040s,” the report says. “However, these new sources of crude oil production in the 2030s and 2040s will only be available if new offshore exploration drilling can ramp up in Alaska during this decade.”

Thanks to long supply chains, short exploration seasons, regulatory complexity and the potential for litigation, the timeframe for developing a significant new Arctic offshore opportunity would likely range from at least 10 years to more than 30 years, the report says.

But the economic benefits of Arctic offshore development would be substantial to the U.S., to the state of Alaska and to local Alaska economies, the report says, citing factors such as the jobs and tax income that the development would create.

Much is known

Although the Arctic constitutes a vast region with a challenging climate and a seasonally varying ice cover, industry, government and academia have studied the region for many years - much is known about the physical, biological and human environments. Alaska Native traditional knowledge also provides a practical knowledge base, founded on personal experience and observation, the report says.

And Arctic offshore oil and gas development is technically feasible, the report suggests.

“Many aspects of the Arctic pose challenges similar to other oil and gas production areas, and experience and technologies from these other areas can be applied to the Arctic development,” the report says. “For example, the design practices, technology and safety systems for deepwater and subarctic regions are adaptable to the Arctic. Logistical challenges associated with long distances and lack of infrastructure are similar to recent projects in Africa and Papua New Guinea.”

Short drilling season

However, the length of the open water season, the period of the year when sea-ice cover is absent from specific regions of the Arctic, has a significant impact on what technologies can be used for Arctic exploration and development. The length of this season can vary considerably from one year to the next, and is different for different regions. And the incursion of ice floes into open water during an open water season can also impede industrial activities, the report says.

At the same time, the Native communities of the Arctic have individual and community identities closely linked to subsistence hunting, including the hunting of bowhead whales. Alaska North Slope residents, while acknowledging the economic benefits of oil and gas activities, express concerns about the potential impacts of these activities on their lifestyle and culture.

The oil and gas industry has coordinated its activities with the whaling associations of North Slope villages, to minimize disruption to subsistence hunting - a conflict avoidance agreement with the communities has become a primary vehicle for communication and negotiation.

And, with about 440 exploration wells having been drilled in Arctic waters, including 35 wells in the Alaska outer continental shelf, the oil industry has a long history of Arctic environmental stewardship, supported by technology advances and learnings from experience, the report says.

Moreover, most Alaska Arctic offshore conventional oil and gas can be developed using existing field-proven technology. With water depths of less than 100 meters and periods of open water, floating drilling rigs can conduct exploration drilling, while bottom-founded structures of proven design could support development and production, the report says.

Need large finds

The challenges of operating in the remote and difficult Arctic environment will drive a need for the discovery of large, high-quality resources, if oil and gas development is to prove economically viable, the report says. Alignment with local residents and the operation of an efficient regulatory framework would support the necessary investment. However, the relatively short annual season available for seismic surveying and exploratory drilling is a major factor in economic feasibility. New technologies for advanced well control and oil spill response, and the availability of rigs and support vessels able to operate in sea-ice conditions, may extend the lengths of drilling seasons. But, the prevalence of short exploration drilling seasons raises a question of whether the terms of Arctic offshore leases should be extended beyond their traditional 10-year durations, the report says.

Public confidence

Realizing the promise of Arctic oil and gas resources will entail both industry and government securing and maintaining public confidence in responsible resource development, the report says. Industry must use and continuously improve appropriate technology and operating practices, while government must maintain and continuously improve effective policies and regulation. In addition, the application of traditional Native knowledge can lead to an improved understanding of the potential environmental impacts of industrial activities and thus to more efficient regulation of the oil industry, the report says. Industry, for its part, must strive to improve its safety and environmental performance, with adequate preparation and contingency planning for possible oil spills being particularly important.

The report cites the new Arctic offshore drilling rule, recently proposed by the Department of the Interior, as an example of new regulations aligned with report recommendations.

Arctic strategies published by President Obama, the U.S. Coast Guard and the Department of Defense all recognize the strategic importance of the Arctic to the United States, including the national significance of Arctic hydrocarbons, the report says.

Oil spill risks

With oil spill risks being a primary concern when it comes to Arctic offshore oil activities, the report comments on what it characterizes as “substantial recent technology and regulatory advancements to reduce the potential for and consequences of a spill.” But, although in recent decades the industry has made significant advances in its ability to prevent, contain and mitigate the impact of Arctic oil spills, concerns remain about spill prevention capabilities and the possibility of promptly dealing with spills in Arctic waters, especially in the presence of ice, the report says.

“Addressing these concerns will be central to the acceptance of extended season drilling operations, which is key to conducting economic exploration and development in areas where open water seasons are severely limited,” the report says.

The report concludes by making 32 recommendations under the general headings of environmental stewardship; economic viability; and government leadership and policy coordination. Those recommendations include improvements to well control technologies; improvements to oil spill response capabilities in sea-ice conditions; the development of technologies that would enable the safe extension of drilling seasons; the adoption of lease terms appropriate to the Arctic offshore; the development of appropriate Arctic support infrastructure; a federal government re-affirmation of U.S. commitment to prudent Arctic oil and gas development; and coordination with the Arctic Council over Arctic search and rescue, and over oil spill contingency planning.



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Report presentation in Anchorage April 8

There will be a public presentation of the National Petroleum Council’s report, “Arctic Potential: Realizing the Promise of U.S. Arctic Oil and Gas Resources,” in Anchorage April 8 from 6-8 p.m. in the Dena’ina Civic and Convention Center’s K’enakatnu board room.

The presentation will include remarks from the study’s key participants, including members of the report’s coordinating subcommittee and steering committee, and will be followed by a question and answer session.

The report and associated materials including a video and webcast are available at www.npc.org/.

—Petroleum News