* Untapped oil and gas reserve potential attractive
* Commercial viability of exploration is uncertain
* Risks and costs could be huge
By Nina Chestney
LONDON, July 17 The extent of interest in
widespread drilling in the Arctic for natural resources such as
oil and gas is still uncertain as the commercial viability of
exploration in such a remote environment is unknown and huge
risks remain, a panel of experts said.
High commodity prices and concerns about future energy
security are driving several oil and gas majors to seek new
sources of hydrocarbons.
Majors like Statoil, Exxon Mobil Corp,
Gazprom, Rosneft, Eni, BP,
Shell and Total have started or plan to start
drilling for oil and gas in Arctic regions, sparking fears among
environmentalists of a rush for hydrocarbons in an environment
they argue should remain untouched and protected.
"The Arctic is globalising, development is happening now but
its future pace is uncertain as there is no such thing as a
risk-free environment," said Charles Emmerson, senior research
fellow in energy, environment and resources at Chatham House, at
an event at the London think tank on Arctic opportunities.
"A race (to drill) is inevitable in the Russian Arctic, very
probable in the Norwegian Arctic and probable in the Alaskan
Arctic. The question is whether it is economically viable to
bring oil out," he told Reuters.
The Arctic is attractive for exploration because it is
estimated to hold up at least 32 percent of the world's
undiscovered oil and gas reserves and as global warming melts
sea ice, making the region more accessible.
Investment in the Arctic could reach $100 billion or more in
the next decade, driven by the oil, gas, mining and shipping
industries, a report by Chatham House and the Lloyd's of London
insurance market estimated in April.
BETTING ON RETURNS
However, drillers in the most remote parts of the Earth run
huge reputational risks if something goes wrong and the fragile
environment is damaged. Firms face huge costs from complying
with safety standards, developing technology, transport and
"(It has been said that) an oil field has to contain one
billion barrels to be commercially viable. You can't find that
(amount) anywhere except in the Arctic," Emmerson said.
"It is worth so much money it is potentially worth putting
in the money to get (oil). But it would be 'curtains' if
something went wrong, especially in the U.S. Arctic."
Shell is among the firms betting on the commercial viability
of the Arctic. It plans to start exploratory drilling in the
Arctic's Beaufort Sea in the first week of August, drilling 3 to
5 wells up to 50 metres deep, said Robert Blaauw, senior adviser
to Shell's global arctic division.
The company has spent $4.5 billion on acquiring drilling
rights in Arctic seas and meeting safety standards set by the
U.S. government after an explosion at BP's Macondo well in the
Gulf of Mexico in 2010.
"We wouldn't go on if we didn't believe we could do it
safely but also if there was not a good return for our
shareholders," Blaauw said.
Commercial viability is not certain for every part of the
Greenland's Arctic seas are thought to hold huge potential
but only 13 wells have been drilled there and no hydrocarbons
have been found so far, Blaauw said.
Shell plans a seismic programme in Greenland this summer to
gather information on the prospects for future drilling but
progress is likely to be very slow, he added.
"There are very different Arctics. The Bering Sea is like
(drilling in) the North Sea but the north-east coast of
Greenland is very different. We are seriously considering how we
should respond to that (region) based on the technology we have
today and whether it is worth taking that risk," Blaauw said.
"Development in some of the harsher and more remote parts of
the Arctic will go very very slowly," he added.