Webcast: Shell looks to Arctic for long-term bounty

By Katie Mazerov, contributing editor

The Arctic contains an estimated 400 billion bbl of hydrocarbon equivalents, according to a 2008 US Geological Survey report. The number accounts for 13% of the world’s yet-to-find oil, 30% of gas and 20% of natural gas liquids resources.

That potential bounty, say Shell executives, is what major operators in the region are hoping to recover in the years ahead. Questions about hydrocarbon production in the Arctic, covering topics such as drilling challenges and technology and environmental concerns, were addressed this week in a Shell webcast, “Developing Arctic Resources Safely and Responsibly.” The hour-long session fielded more than 60 questions from industry representatives, interest groups and individuals.

“The Arctic is a long-term growth area for the industry,” said Ron Cochrane, vice president, Gas Russia, Caspian and CIS for Shell. “To date, Arctic operations have produced 40 billion barrels of oil and 1,100 trillion cubic feet of gas.” Currently, the Arctic produces about 10% of the world’s oil and 25% of its gas, the majority in the onshore Russian Arctic area.

Among the challenges facing the industry in the Arctic is developing capabilities to drill in the harsh environment, such as equipment that can drill in icy conditions. The region requires technologies that are cost-effective but that can also reduce the operating footprint and allow operators to operate safely and reliably in severe ice conditions.

In terms of drilling technology, Shell relies on the satellite-borne synthetic aperture radar (SAR), which allows visibility through clouds and darkness and develops high-quality ice charts. The company conducts most drilling operations in the summer months, when the seas are generally ice-free and weather conditions mild, and when there is 24 hours of daylight.

Shell’s drilling plans include all of the major Arctic and sub-Arctic, said Robert Blaauw, lead for Shell’s Global Arctic Theme. “We are preparing to drill in Alaska in 2012 and have started exploration activities in Greenland,” he said. Shell has taken seismic surveys in Greenland’s Baffin Bay, but exploratory drilling is not scheduled to commence there for several years.

Plans call for drilling exploratory wells during the open water season in Alaska in 2012-13. After the wells are drilled and evaluated, they will be permanently capped as required.

A key region in the Arctic is resource-rich Russia. Shell is involved in two joint-venture operations with Russian energy company Gazprom in Siberia and on Sakhalin Island. Russia’s offshore energy-producing region is  several times larger than that in the North Sea. Shell is also monitoring licensing activities in the Barents Sea, in light of an agreement between Russia and Norway on their marine border in the area.

In the United States, drilling and exploration in the Arctic is governed by several regulatory agencies, with numerous authorizations required prior to beginning drilling. These include air permits from the Environmental Protection Agency and approved exploration plans and applications for drilling permits from the Bureau of Ocean Energy Management, Regulation and Enforcement.

Shell is keenly aware of the environmental risks that exist in the Arctic. Before beginning work on major projects or existing facilities, the company conducts full environmental, social and health impact assessments.

“Fossil fuels will continue to meet the energy needs of the world for decades,  Mr Blaauw said. “Meeting that demand responsibly means developing resources from technically difficult reservoirs and challenging locations such as the Arctic.”