Companies giving up on arctic for oil because of low prices for now
Ten Years ago both Russia and the U.S. had plans for developing oil in the arctic, especially because the arctic is melting. However, because of a $100 minimum price drop since then per barrel of oil, the difficulty actually developing oil in the arctic and other problems, many are starting to give up the idea (at least for now).
Because prices might stay at $25 to $50 dollars a barrel the next 1,2,5,10 or 20 years because Saudi Arabia isn't going to reduce prices until the proxy wars with Iran are over and ISIS is no longer needed by them to defeat all Shiites(even though ISIS is sworn to end ALL Middle Eastern Governments both Shiite and Sunni).
So, until these paradoxes are resolved in some way, shape or form don't expect oil prices above $50 a barrel for possibly years yet. So, arctic oil won't likely happen until we have oil prices above $100 a barrel at a minimum for over a year or so once again. And it could be literally years before that happens once again.
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An Orthodox cross in
Teriberka, Russia, a poor village on the Barents Sea that the Kremlin
had hoped would be a hub for the expanded operations of its energy
giant, Gazprom. But despite the melting ice, getting oil and gas out of
the Arctic remains a daunting challenge.Credit
James Hill for The New York Times
TERIBERKA, Russia — The warming Arctic should already have transformed this impoverished fishing village on the coast of the Barents Sea.
The
Kremlin spent billions in the last decade in hopes of turning it into a
northern hub of its global energy powerhouse, Gazprom. It was once the
most ambitious project planned in the Arctic Ocean, but now there is
little to show for it aside from a shuttered headquarters and an
enormous gravel road carved out of the windblown coastline like a scar.
“There
are plans,” said Viktor A. Turchaninov, the village’s mayor, “but the
facts — the realities of life — suggest the opposite.”
The dream of an Arctic Klondike, made possible by the rapid warming of once-icebound waters, has been at the core of Russia’s national ambitions and those of the world’s biggest energy companies for more than a decade. But even as Royal Dutch Shell began drilling an exploratory well this summer off the north coast of Alaska, Russia’s
experiences here have become a cautionary tale, one that illustrates
the challenges facing those imagining that a changing Arctic will
produce oil and gas riches.
Photo
Igor V. Abanosimov, left, and
a neighbor, Viktor Popov, at his home in Teriberka, a thriving fishing
village in Soviet times. Residents welcomed Gazprom's plans to tap an
enormous gas field offshore. But a shuttered headquarters and a gravel
road are all the village has to show for those plans.Credit
James Hill for The New York Times
Tectonic
shifts in the global energy economy, fierce opposition from
environmentalists who oppose tampering with the ecologically fragile
waters, and formidable logistical obstacles have tempered enthusiasm
that only a few years ago seemed boundless. After years of planning and
delays, Shell’s drilling project in the stormy waters of the Chukchi Sea
is now being watched by the industry, officials, residents and critics
as a make-or-break test of the viability of production in the Arctic.
“From
an economic point of view, I’m not sure going offshore Arctic is very
rational,” said Patrick Pouyanné, chief executive and president of
Total, the French oil company, which once also planned to drill off
Alaska’s northern coast.
Shell
has already spent $7 billion and this summer has faced tribulations
like those that marred an ill-fated exploration three years ago,
including dogged protests, harsh weather and an accident in July that
gouged a hole in one of its ships after it struck an uncharted shoal in
the Aleutian Islands.
Photo
Protesters in Portland, Ore.,
tried to block a private Finnish icebreaker contracted by Shell, the
Fennica, from returning to Alaska in July.Credit
Don Ryan/Associated Press
Only
seven years ago, Shell and other companies — ConocoPhillips, Statoil of
Norway, Repsol of Spain and Eni of Italy — together paid $2.7 billion
for leases for the fields off Alaska.
The price of oil at the time climbed to nearly $150 a barrel, and the
accelerated reduction of ice that once choked the Arctic Ocean seemed to
make exploration easier.
Then the market changed. The world today is awash in oil and natural gas, largely because of the shale revolution in the United States and the advent of hydraulic fracturing,
which has so increased production that the United States has slashed
imports. Saudi Arabia and other states around the Persian Gulf are
producing at maximum levels, and if the nuclear agreement with Iran gets
final approval and economic sanctions are lifted, Iran’s reserves could
soon flood the market. In the last year alone, the price of oil has
plummeted to less than $50 a barrel.
Across
the Arctic, from Russia to Norway to Canada, offshore projects have
already proved disappointing. After drilling eight exploratory wells off
Greenland in 2011 and 2012, Cairn Energy, a Scottish company, abandoned
them. Chevron shelved exploration in the Canadian waters of the Beaufort Sea last December, followed in June by a consortium including ExxonMobil and BP.
American sanctions
imposed after Russia’s annexation of Crimea last year forced ExxonMobil
to withdraw from a joint venture in the Kara Sea with the state-owned
oil giant Rosneft, which has had to suspend its drilling plans there as
it searches for new partners.
“When
we look at Arctic opportunities, they are always the opportunities that
are 10 years away,” said Kenneth B. Medlock III, director of the Center for Energy Studies at Rice University.
The difficulties of getting oil and gas out of the Arctic are daunting. Winters are long and dark, and the Arctic seas, despite reductions in the permanent ice pack,
are still clogged with floes and icebergs, while intensifying storms
have threatened ships or oil rigs even during the summer. Marshy tundra
onshore complicates the construction of pipelines and support
facilities. So do coastal erosion and melting permafrost.
There
are few roads or airports, or people for that matter, near the areas to
be drilled, requiring workers and equipment to be shipped long
distances. Despite agreements by the Arctic Council,
an international organization that includes the United States, Russia
and six other Arctic countries, few resources are available for search
and rescue or the cleanup of oil in icy conditions. That, along with
strict requirements imposed by the Obama administration, forced Shell to
send a flotilla of more than two dozen ships to the Chukchi Sea this
summer.
Photo
Villagers celebrated “Youth
Day” at the palace of culture in Teriberka. Once with a population of
more than 6,000, the village is down to 1,000. They are still waiting
for an energy boom that has not come.Credit
James Hill for The New York Times
“The
entire cost structure up there is three to five times more expensive
than onshore lower 48,” said Scott D. Sheffield, chief executive of
Pioneer Natural Resources, a Texas-based oil company. Two years ago, his
company gave up on a field projected to contain 100 million barrels of
oil in the Beaufort Sea — drilled from a man-made island and connected
by an eight-mile pipeline to Prudhoe Bay, Alaska — in order to invest
more in Texas shale fields.
“One-hundred-million-barrel-type
discoveries will not be economical in a $100-a-barrel oil environment,
and they certainly won’t be economical today,” Mr. Sheffield said.
Even
optimistic projections suggest the Arctic might not prove to be as
transformative as once imagined. According to Rystad Energy, a global
consultancy based in Norway, production from offshore fields in or near
the Arctic could double between 2015 and 2025 to 1.4 million barrels a
day, which would still be less than 2 percent of current global
production.
“When
people say the Arctic is the next frontier and there is great resource
potential, of course there is the risk that it is hype,” said Jon Marsh
Duesund, a Rystad senior project manager.
Teriberka,
a village of 1,000 people on the Barents Sea, is where Gazprom’s
offshore ambitions collided with the harsh realities of the Arctic.
It
was a thriving fishing village in Soviet times, with fish-processing
factories and even a farm for harvesting the pelts of snow foxes, but it
fell into decline in the 1970s with the advent of industrial fishing.
The population dropped from more than 6,000; wooden piers crumbled; and
fishing boats that once brought back cod were scuttled in the bay where
the Teriberka River flows into the sea.
Like
people in Alaska and other places who look to the changing Arctic for
economic development and jobs, the village’s residents welcomed
Gazprom’s plans to tap an enormous gas field, called the Shtokman, that
was discovered in 1988 about 370 miles offshore.
Under
the control of President Vladimir V. Putin of Russia, Gazprom emerged
as an energy giant controlled by the state, and for much of the 2000s,
the Shtokman was its biggest prize, a project that Russia dangled before
eager foreign investors. After reaching deals with Total and Statoil,
Gazprom began construction of the road in Teriberka where it hoped to
build terminals for processing and shipping the gas in liquefied form —
all at a cost estimated to rise to $20 billion.
After
years of work, however, Russia’s plans for the project came under
pressure from enormous technical challenges, the changing energy market
and finally the global financial crisis in 2008 and 2009.
Russia,
as the world’s largest producer of natural gas, found itself struggling
to compete against alternative supplies to countries in Europe eager to
reduce their dependence on Mr. Putin’s government, even as prices
dropped significantly.
Photo
Gazprom's now-empty,
temporary offices in Teriberka. The company's huge, multinational energy
project has run into enormous technical challenges, a sagging oil
market and American sanctions against Russia that have removed potential
corporate partners.Credit
James Hill for The New York Times
“Monopolies do not have strategic vision,” said Vladimir Chuprov, an energy expert for Greenpeace Russia
who opposes offshore exploration in the Arctic. “The decisions are very
political, and the economic background is not a factor.”
Statoil
pulled out in 2012, writing off more than $335 million in costs. Total
wrote off $350 million last year and, according to Russian news
accounts, returned its 25 percent share of the project to Gazprom in
June.
The
Arctic is at the core of the nationalist ambitions of Mr. Putin, who
once said that tapping the region’s resources was as natural as hunting
and harvesting berries and mushrooms.
Russia already operates the first offshore production platform above the Arctic Circle, called Prirazlomnoye,
which began pumping the first commercial shipments from the Kara Sea in
late 2013 and reached a modest two million barrels last year. The
figures, however, are a fraction of the more accessible gas and oil
reserves onshore, including the Yamal Peninsula in northern Siberia 900
miles east. Plans for more offshore projects have stalled, and Russia
has shifted its focus onshore, especially following American sanctions
that targeted offshore Arctic projects.
The Shtokman field, Mr. Putin has boasted, remains a prospect, but one for the next generation.
“As
soon as they speak of the next generation, it means something is
wrong,” Mr. Chuprov, of Greenpeace Russia, said. “In this country — in
Soviet times, in czarist times — nobody thinks about the next
generation.”
Despite
Gazprom’s promises to resume drilling — in 2014, then in 2016 or 2019 —
residents in Teriberka have become resigned about the boom that never
was. The contractors who arrived in droves have departed, and the
enormous embankment where Gazprom built a gravel road, encroaching on
the village’s cemetery, comes to a dead end at a rocky cliff.
Teriberka is better known now as the location of the Oscar-nominated “Leviathan,” a bleak film that depicts one man’s struggle against a venal bureaucrat who wants to seize his beloved house on the bay.
“They
built the road,” Igor Abanosimov said when a neighbor lamented that the
project had changed little. Mr. Abanosimov owns a series of floating
cottages that he rents out, dreaming, perhaps improbably, of developing a
yacht club and other amenities that might attract tourists instead of
energy companies. The Arctic, he said, had its own soul.
“Those it wants to accept, it accepts,” he explained. “Those it wants to banish, it banishes.”
Shell’s Many Mishaps
Photo
The drilling rig Kulluk was grounded in 2012, southwest of Kodiak City, Alaska.Credit
Petty Officer 2Nd Class Zachary Painter/US Coast Guard, via Associated Press
In late August, a ferocious storm
whipping through the Chukchi Sea forced Shell to suspend its drilling
operations only a month after one of its two floating rigs drove a drill
bit into the seafloor. The company resumed operations after the weather
cleared. It was just the latest distraction in Shell’s long effort to
tap one of the last remaining untouched giant oil reserves.
Areas with 50% or greater chance of large undiscovered oil and gas reserves
High seas and outer continental shelf
Extent of Arctic waters under Russian control
Exploratory
drilling by Shell
ALEUTIAN
ISLANDS
Bering
Sea
U.S.
Chukchi
Sea
White area shows Minimum extent of sea ice in 2014
Hudson
Bay
Arctic
Ocean
Canada
Baffin
Bay
North
Pole
Laptev
Sea
Denmark
Countries have jurisdiction over natural resources in their Exclusive economic zones
Russia
Norway
Area of
SVALBARD TREATY
Kara
Sea
Norway
YAMAL
PENINSULA
Iceland
Barents
Sea
Atlantic
Ocean
Shtokman
field
Norwegian
Sea
Prirazlomnoye
platform
Teriberka
Murmansk
Three
years ago, the company came close to reaching oil, but its plans for
two exploratory wells in the Chukchi and Beaufort seas died after a
series of bizarre accidents. One of the two drill ships, the Noble
Discoverer, nearly ran aground on a sandy beach in the Aleutians. An
Arctic containment dome was crushed during a vital test. And a tow line
on the second drill ship, the Kulluk, snapped, setting it adrift on the high seas.
To
environmentalists, the accidents bolstered their arguments that
exploration in the Arctic is simply too risky. Shell did not give up,
though. The company replaced its senior Arctic leadership team and
devised another plan to overcome the natural and regulatory hurdles.
And
still it has struggled. A private Finnish icebreaker it contracted, the
Fennica, struck an uncharted shoal in the Aleutians in July. With no
adequate facilities in Alaska, the Fennica had to go to Portland, Ore., for repairs.
When the ship tried to head back north, protesters tried to block the vessel
with kayaks and then suspended themselves from a bridge over the
Willamette River, obstructing safe passage. A court then threatened
Greenpeace with fines of $2,500 an hour if the protesters did not clear
the way.
The
Obama administration has set strict limits on how Shell can operate. It
prohibited the company from simultaneously drilling two wells, as
planned. The United States Fish and Wildlife Service
ruled that marine wildlife protections required a 15-mile buffer zone
between simultaneous drillings, while the company had planned for a
nine-mile buffer. Workers on Shell’s ships also have to keep watch and
avoid crossing the migratory paths of whales and other marine mammals.
“Most
of the natives up here in the north are concerned with the marine
mammals,” said James Pakotak, a resident of Barrow, Alaska, where the
airport serves as a hub for many of Shell’s workers. The storms that
battered Shell’s flotilla also hammered the town. “What if there’s an oil spill? What then?” Mr. Pakotak said.
To
be sure, there are those who still believe in the Arctic’s potential.
They cite efforts to drill there in the 1970s and 1980s, as well as a study
by the United States Geological Survey in 2008 that estimated that 13
percent of the world’s untapped oil and 30 percent of its natural gas
lay in the Arctic.
The National Petroleum Council, in a report
commissioned by the Department of Energy and released this year, said
the technology and expertise already existed to extract oil and natural
gas safely in icy conditions, replacing declining supplies on Alaska’s
North Slope.
Ben
van Beurden, Shell’s chief executive, said in a conference call last
month that the company’s stake could ultimately be “multiple times” more
bountiful than in the vast Gulf of Mexico.
“Alaska
is a long-term play,” he said. “That is the way you have to look at it.
We can’t be driven by today’s, tomorrow’s, or next year’s, or last
year’s oil price.”
Steven Lee Myers reported
from Teriberka, Murmansk and Moscow, Russia, and Barrow, Alaska.
Clifford Krauss reported from Houston.
Get news and analysis from Europe
and around the world delivered to your inbox every day with the Today’s
Headlines: European Morning newsletter. Sign up here. end quote from:
Areas with 50% or greater chance of large undiscovered oil and gas reservesHigh seas and outer continental shelfExtent of Arctic waters under Russian controlExploratorydrilling by ShellALEUTIANISLANDSBeringSeaU.S.ChukchiSeaWhite area shows Minimum extent of sea ice in 2014HudsonBayArcticOceanCanadaBaffinBayNorthPoleLaptevSeaDenmarkCountries have jurisdiction over natural resources in their Exclusive economic zonesRussiaNorwayArea ofSVALBARD TREATYKaraSeaNorwayYAMALPENINSULAIcelandBarentsSeaAtlanticOceanShtokmanfieldNorwegianSeaPrirazlomnoyeplatformTeriberkaMurmanskThree years ago, the company came close to reaching oil, but its plans for two exploratory wells in the Chukchi and Beaufort seas died after a series of bizarre accidents. One of the two drill ships, the Noble Discoverer, nearly ran aground on a sandy beach in the Aleutians. An Arctic containment dome was crushed during a vital test. And a tow line on the second drill ship, the Kulluk, snapped, setting it adrift on the high seas.To environmentalists, the accidents bolstered their arguments that exploration in the Arctic is simply too risky. Shell did not give up, though. The company replaced its senior Arctic leadership team and devised another plan to overcome the natural and regulatory hurdles.And still it has struggled. A private Finnish icebreaker it contracted, the Fennica, struck an uncharted shoal in the Aleutians in July. With no adequate facilities in Alaska, the Fennica had to go to Portland, Ore., for repairs.When the ship tried to head back north, protesters tried to block the vessel with kayaks and then suspended themselves from a bridge over the Willamette River, obstructing safe passage. A court then threatened Greenpeace with fines of $2,500 an hour if the protesters did not clear the way.The Obama administration has set strict limits on how Shell can operate. It prohibited the company from simultaneously drilling two wells, as planned. The United States Fish and Wildlife Service ruled that marine wildlife protections required a 15-mile buffer zone between simultaneous drillings, while the company had planned for a nine-mile buffer. Workers on Shell’s ships also have to keep watch and avoid crossing the migratory paths of whales and other marine mammals.“Most of the natives up here in the north are concerned with the marine mammals,” said James Pakotak, a resident of Barrow, Alaska, where the airport serves as a hub for many of Shell’s workers. The storms that battered Shell’s flotilla also hammered the town. “What if there’s an oil spill? What then?” Mr. Pakotak said.To be sure, there are those who still believe in the Arctic’s potential. They cite efforts to drill there in the 1970s and 1980s, as well as a study by the United States Geological Survey in 2008 that estimated that 13 percent of the world’s untapped oil and 30 percent of its natural gas lay in the Arctic.The National Petroleum Council, in a report commissioned by the Department of Energy and released this year, said the technology and expertise already existed to extract oil and natural gas safely in icy conditions, replacing declining supplies on Alaska’s North Slope.Ben van Beurden, Shell’s chief executive, said in a conference call last month that the company’s stake could ultimately be “multiple times” more bountiful than in the vast Gulf of Mexico.“Alaska is a long-term play,” he said. “That is the way you have to look at it. We can’t be driven by today’s, tomorrow’s, or next year’s, or last year’s oil price.”
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