By John Kemp
LONDON Nov 8 Some of the world's largest
undiscovered oil and gas deposits lie under shallow seas on the
broad continental shelves off the northern coasts of Alaska,
Canada and especially Russia -- a tantalising prize for the
major international oil companies, but once which has so far
"The extensive Arctic continental shelves may constitute the
geographically largest unexplored prospective area for petroleum
remaining on Earth," according to the United States Geological
"The Arctic Circle encompasses about 6 percent of the
Earth's surface, an area of more than 21 million square
kilometres, of which almost 8 million square kilometres is
onshore and more than 7 million square kilometres is (offshore)
on continental shelves under less than 500 metres of water,"
USGS explained in 2008.
USGS estimated the region's undiscovered but technically
recoverable oil resources at 90 billion barrels of oil, with
another 1,669 trillion cubic feet of gas (278 billion barrels of
oil equivalent) and 44 billion barrels of natural gas liquids.
The Arctic accounts for 15 percent of the world's
undiscovered oil, according to USGS assessments, but a massive
30 percent of the world's undiscovered gas (excluding shale and
other unconventional gas plays).
Some of the deposits lie onshore in Alaska and Canada, or on
the continental shelf claimed by the United States and Canada.
Others lie onshore in Russia's West Siberian and Timan-Pechora
sedimentary basins, where deposits like the super-giant Urengoy
gas field (Gazprom) and Russkoye heavy crude field (TNK-BP) have
been developed over the last 30 years.
But there are thought to be vast deposits of condensate-rich
natural gas in the string of huge sedimentary basins along the
wide continental shelf on Russia's northern coast. From west to
east: the Barents Sea on the border with Norway, the Kara,
Laptev and East Siberian seas off Russia's remote north, and the
Chukchi Sea bordering Alaska.
Russia's shelf remains comparatively unexplored. By 2010,
just 1.345 million kilometres of seismic surveying lines had
been done on the 6.5 million square kilometres of shelf, an
average density of just 200 metres of surveying line in every
square kilometre, according to Russian geologists Alexey
Piskarev and Mikhail Shkatov in a recent survey ("Energy
potential of the Russian Arctic seas" 2012).
"For comparison, in the North Sea, the density of seismic
surveying exceeds 4 kilometres per square kilometre," Piskarev
and Shkatov wrote.
"Seismic and drilling exploration maturity of the Russian
shelf is tens and hundreds of times lower than the exploration
maturity of waters off the United States, Norway and the United
Just 252 wells have been drilled on the whole Russian shelf
and most of them are concentrated in the Barents and Kara seas
in the west, and north of Sakhalin island on Russia's east
coast. The Laptev, East Siberian and Chukchi seas remain almost
entirely un-surveyed and undrilled.
Despite the lack of surveying, geologists are confident the
region holds big oil and gas deposits, in concentrations large
enough to make them profitable to extract despite problems posed
by the harsh climate.
The geology is similar to hydrocarbon rich areas such as the
Gulf of Mexico and the North Sea, as well as the oil-rich
Mississippi and Niger deltas. And the shelf under the Kara Sea
is an offshore extension of the onshore West Siberian Basin,
which is already the largest petroleum basin in the world. The
basement rock is covered by as much as 6-16,000 metres of
sediment, giving the region strong oil and gas-generating
Five large hydrocarbon fields have already been discovered:
the supergiant Shtokman gas and condensates field and the giant
Ledovoye and Ludlov fields in the Barents Sea, and the Rusanov
and Leningrad gas fields in the Kara Sea. Based on experience
with similar basins in the North Sea and the Gulf of Mexico,
many more giant and even some supergiant fields are likely to be
USGS estimates there could be as much as 11 billion barrels
of oil, 380 trillion cubic feet of natural gas (63 barrels of
oil equivalent), and 2 billion barrels of natural gas liquids
under the Barents Sea, mostly concentrated in the eastern part
of the basin, where Shtokman and the other fields already found
Underneath the Kara Sea, USGS assesses there could be 2.5
billion barrels of oil, 622 trillion cubic feet of natural gas
(103 billion barrels of oil equivalent) and 19 billion barrels
of natural gas liquids.
The conventional reserves represent an enormous prize; the
problem is the cost.
Oil and gas deposits off Russia's northern coast are found
in relatively shallow water. Fields discovered so far in the
Kara Sea are under less than 50 metres of water, while those in
the Barents are under 150-350 metres. The average depth of the
deposits themselves is less than 2 kilometres below sea-level.
By contrast, deepwater deposits in the Gulf of Mexico are
under 500-2,000 metres of water, at average total depths of 7.6
kilometres below sea-level. Fields in the offshore Niger delta
are found under 700-3,000 metres of water and at average total
depths of 2.5 kilometres.
In other ways, however, Arctic exploration and production
presents harder technical and economic problems.
Freezing temperatures and ice cover present formidable
operating challenges. Undersea pipelines in shallow water areas
would need to be buried to avoid ice scouring, while pipelines
in depths of more than 200 metres would need to be specially
Many of the fields are far offshore. Long pipelines would be
needed to bring oil, gas and liquids back to the shore, and oil
and liquids pipelines would need to fitted with subsea booster
pumps every 200 kilometres to keep them flowing.
One USGS study put the total development and operating cost
for a hypothetical Arctic oil field producing 200,000 barrels
per day from 20 wells as high as $22 billion to build and run
over 21 years ("Engineering and Economics of the USGS
Circum-Arctic Oil and Gas Resource Appraisal (CARA) Project"
The other problem is that most of the hydrocarbons are gas
rather than oil. Gas is more difficult to transport, requiring
expensive pipelines or LNG facilities to take it to customers in
With natural gas prices under pressure in the United States
and elsewhere as a result of the shale revolution, Russia's
northern seas may have the wrong sort of molecules to justify
massive capital spending on offshore projects. Russia's vast
offshore gas deposits are just too high on the cost curve.
Shtokman's troubled history is a classic example of the
problems besetting the sector.
Following seismic surveys in 1981-85, an exploratory well
was drilled into the supergiant gas and condensate field in
1988. Shtoktman lies in just 300 metres of water. With its
enormous reserves and simple geological structure, Shtokman
should be the jewel in Russia's Arctic crown. But development
has been repeatedly delayed.
The Shtokman development company was set up in 2008 between
Gazprom (51 percent), Total (25 percent) and Statoil (24
percent) to design, construct and finance a field producing up
to 410,000 barrels of oil equivalent per day.
However, the final investment decision has been repeatedly
postponed, and Statoil transferred its shares to Gazprom in July
2012, perferring to concentrate on simpler parts of the Arctic
Last month, Murmansk Governor Marina Kovtun complained about
the project being put on hold indefinitely. According to the
Russian presidency's website, President Vladimir Putin
responded: "Why indefinitely? The investment decision is planned
to be taken in the near future, so we are talking about a
project launch before 2017" -- which is hardly an accelerated
The shale revolution may have killed off the prospects for
Russia's Arctic oil and gas fields -- at least those more than a
few miles offshore.
But the sheer scale of these deposits explains why peak oil
theories are wrong, and their presence will continue to loom
over the oil and gas markets, helping cap long-run prices.