Northwest Passage holds key

Opening supply and service route to Asia seen as Canada’s best hope of exploiting Arctic oil, gas resources as US market declines

Gary Park

For Petroleum News

Canada is being urged to consider how much it might benefit from Arctic oil and gas development if a service route through the Northwest Passage gathers momentum.

Bill Pike, chairman of the World Oil Editorial Advisory Board, told the Newfoundland and Labrador Oil and Gas Industry Association’s annual conference that although it is dicey to try calculating the value of Arctic petroleum resources, Canada could derive considerable economic returns by developing an estimated 90 billion barrels of oil and an enormous gas resource.

But he also noted that “it’s one thing to have significant resources, but often quite another to economically develop them.”

Pike said the challenge is to open up robust export markets, “given that we know these (Arctic) projects are going to be fairly expensive to develop. Do the markets exist at price levels you can live with?”

He said the traditional United States market for Canadian oil and gas “is not a good place to count on,” with U.S. oil production climbing to a 14-year high.

Economically, the U.S. is “no longer viable, for the most part, as an export market for the potential that you have in the Arctic today,” and the wider global market is not much more promising as Saudi Arabia hikes its oil volumes, demand growth in Europe is tight and growth in China and India is slowing.

Development costly

But the global gas market is promising, with gas selling for $17.81 per thousand cubic feet in Asia and $11.12 in Europe, compared with $1.82 in the U.S.

Seizing that opportunity makes the “opening of the Northwest Passage a really fascinating idea, combined with (creating) a very healthy gas market in Asia,” he said.

Pike also suggested that Atlantic Canada offshore, which faces predictions of a steady decline in output from its three existing oil fields, could conservatively generate $53.9 billion in economic benefits through 2030 if it can introduce four oil fields and two LNG plants.

In a best-case scenario, which he labeled “wishful thinking,” he said the region could raise those returns to $474.1 billion based on 10 oilfields and two LNG plants.

An expert international panel at the conference called for investments in key infrastructure, greater international cooperation and less political rhetoric in order to stimulate greater Arctic industrial development of oil and gas, iron ore, diamonds, gold, fisheries and cross-continent shipping through the Northwest Passage to create a supply and service route to Asia.

Arctic projects needed

But he said Canada has fallen short of promises made in the 1980s that could have seen Canada become an Arctic leader today as the passage opens and Arctic technology improves.

His list of projects included deepwater ports, roads to the North, a greater search and rescue presence and a greater graduation rate among Inuit youth to build the northern workforce.

Charles Emmerson, senior research fellow at the United Kingdom’s Chatham House, said the Arctic is “not just a unique environment in terms of its environmental factors, it is a very complex risk environment. This is not a business-as-usual environment.”

To that end, moving Canada’s Arctic development forward will require cooperation among credible companies and the sharing of best practices internationally, the panel said.

Byers, noting that the majority of known potential Arctic oil reserves are within the 200 nautical mile limit of individual countries, said “we have to tone down the belligerent rhetoric and start selling cooperation as something in the national interest.”