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The Arctic: opportunities and challenges Exxon expert spells out the possibilities and challenges of oil exploration and development in a region of huge potential Alan Bailey Petroleum News
In 2009 the U.S. Geological Survey published a new Arctic resource assessment, estimating that 13 percent of worldwide remaining undiscovered oil and 30 percent of remaining undiscovered natural gas likely lies within the Arctic Circle. But although this huge potential resource — 83 billion barrels of oil and 1,550 trillion cubic feet of natural gas — is thought by USGS to be technically recoverable, how much of the resource might realistically be developed?
In a talk at the In Search of Arctic Energy Forum in Washington D.C. on July 12 Jed Hamilton, senior Arctic consultant with ExxonMobil, presented his views of the potential and challenges the Arctic presents for the oil and gas industry. ExxonMobil views as “Arctic” any areas where permafrost, sea ice or icebergs significantly impact development costs, and not just areas north of the Arctic Circle, Hamilton said.
“It would include some sub-Arctic areas like offshore Sakhalin … which has significant sea ice six months of the year,” he said.
90 years’ experience With about 240 billion barrels of oil equivalent already discovered in more than 400 developed and undeveloped Arctic fields, the oil industry has already amassed 90 years of operating experience in Arctic conditions, Hamilton said.
“When it comes to onshore Arctic development, either in the U.S. or Canada, and certainly in Russia, those have been going for many decades and are successful and economic,” he said.
But all existing offshore Arctic developments are in relatively shallow-water locations. Man-made gravel islands in shallow water have proved extremely effective in resisting ice loads but are only economically feasible in water depths of less than about 75 feet, while greater depths than this require gravity-based structures — platforms that rest on the seafloor and are sufficiently robust to withstand collisions with ice floes and icebergs.
In terms of successful offshore developments in Arctic conditions, Hamilton cited the gravel-island based Endicott field production facilities off Alaska’s North Slope, the steel-jacket oil platforms of Alaska’s Cook Inlet, the Sakhalin 1 Orlan platform offshore Russia’s Sakhalin Island and the Hibernia platform in the Grand Banks area offshore Newfoundland.
Apart from Endicott, all of these developments have involved the use of gravity-based structures. The Hibernia platform was designed to withstand the impact of a six-million-ton iceberg, Hamilton said.
Limiting depth The Hibernia platform, in a water depth of about 240 feet, is close to the upper depth limit for gravity-based structures: At depths greater than about 300 feet, floating production facilities are required, Hamilton said. But, with no practical means of enabling floating production facilities to withstand the extreme loads imposed by Arctic sea ice, there is at present no technology available for field development at water depths greater than that 300-foot limit, he said.
That could place about 40 billion barrels of the oil resources that USGS has assessed for the Arctic out of reach of any currently feasible development technique, Hamilton said.
However, a map of the Arctic shows that the Beaufort Sea shelf immediately north of Alaska and the Mackenzie Delta, and the whole of the Chukchi Sea, have relatively shallow water, below the 300-foot limit.
An Arctic offshore oil field in deep water would need to hold at least 500 million to 1,000 million barrels of recoverable oil to be economically viable in an area without existing oil and gas production, Hamilton said. And, although the Arctic appears to be gas rich, the current abundance of gas in regions where gas can be produced and transported more cheaply and conveniently than in the Arctic, leads to a focus on oil rather than gas in Arctic regions, at least in the short term, Hamilton said.
But the history of Arctic oil development gives reason for some optimism in the search for suitably large fields. Of the known Arctic oil fields, 60 exceed that threshold size of 500-million-barrels of oil equivalent, with 12 of these fields being oil fields. Nine fields are “super-giants,” exceeding 5 billion barrels of oil equivalent in size, Hamilton said. However, only one of the giant fields, Prudhoe Bay, is an oil field rather than a gas field, he said.
Prospective but challenging Unfortunately the four most prospective offshore Arctic regions — East Greenland, the Beaufort Sea/Canada Basin, West Greenland/East Canada and the East Barents Basin — all have some of the most challenging ice conditions. East Greenland in particular has near year-round pack ice, thick multi-year ice and icebergs embedded in the ice; the Beaufort Sea/Canada Basin has a limited open water season and exposure to multi-year ice; West Greenland/East Canada has very large icebergs and some multi-year ice; and the East Barents Basin often has pack ice and sometimes has very large icebergs, Hamilton said.
And the short durations of the summer open-water facility installation windows in some of the more prospective Arctic offshore regions is a critical factor in Arctic operational costs. On average there are about eight weeks of open water each year in the Beaufort Sea, although that open water window can range from zero to 15 weeks, while in the Kara Sea there are typically eight to 10 weeks of open water, Hamilton said.
“What that means is that it often takes multiple seasons … to do something you would normally do in a single season, and the cost of mobilization and demobilizations then really starts to run the costs up.” Hamilton said.
ExxonMobil plans to drill new exploration wells in the Canadian Beaufort Sea and expects it to take three summer seasons to complete a single well, he said.
“It could be the most expensive well ever drilled,” Hamilton said.
Other factors that add to costs include the lack of support infrastructure, the distance from fabrication yards, supply chain complexity, the inhospitable climate and the need for icebreakers.
At Sakhalin, ExxonMobil has two platform-tending icebreakers, each of which costs $50,000 per day to operate, Hamilton said.
Industry research With the economic viability of Arctic field development requiring the drilling of perhaps four to six production wells per year and the viable drilling of development wells being the biggest single technical challenge in the Arctic offshore, current industry research is focusing on how to achieve extended season drilling in the Arctic, Hamilton said.
“(For field development) we can’t spend multiple seasons on a single well,” he said.
Another major focus is research into how to respond to an oil spill in the Arctic. ExxonMobil is a member of a joint industry program that expects to spend more than $20 million over the next three years developing Arctic oil spill response capabilities, Hamilton said.
And the development of subsea facilities, facilities on the seafloor below the bottom of the ice, is “absolutely necessary” for Arctic offshore oil operations, Hamilton said. New trenching techniques for burying pipelines in the seafloor, out of reach of ice scouring, will need to enable trenching to depths of about 15 feet in the Beaufort Sea and perhaps more than 20 feet in iceberg environments such as those offshore Greenland.
“We certainly understand that the Arctic, not only is it a harsh environment, but it’s a pristine environment, and the wildlife there needs to be protected as well as the indigenous people and their subsistence hunting,” Hamilton said. “We put significant effort into making sure that we take care of the environment.”
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