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05 July 2011

Exhausted global oil supplies make Arctic the new hydrocarbon frontier
Oil companies and governments are looking north as prices rise and energy security fears grow.


The rich, cream-and-chocolate room furnishings, delicate finger foods and "speed networking" sessions at the five-star Jumeirah Carlton Tower hotel in Knightsbridge, London, are just what you would expect from an oil industry get-together.

But the faux leopard-skin chairs and radiators belting out heat feel at odds with the discussion about the ice and snow-bound Arctic, the latest hydrocarbon "frontier".

There is certainly a warm glow of excitement among investors in the room when oil explorer, Mike Watts, takes the podium at the event, billed as an 'oil and gas outlook Arctic day'. The man in a trademark City white shirt and sober tie is the deputy chief executive of Cairn Energy, the Scottish company at the epicentre of the new oil rush.

Greenland has been placed on the global oil map largely through Cairn's announcement about the "discovery" of hydrocarbons last summer. And Watts is quick to rattle off the positives: the region's "zero" political risk and "very little" commercial risk.

The Cairn executive favourably compares the opportunities available off Greenland with other areas which it has looked at including Iraq ("no technical risk but plenty of political risk").

The scope for Arctic success is immense, he told the meeting last November, given upbeat assessments on potential reserves from organisations such as the US Geological Survey (USGS).

A report completed in 2008 by USGS argued that almost one-quarter of the undiscovered, technically recoverable, hydrocarbons in the world may be contained in an area north of the Arctic Circle. This in numerical terms amounts to 90bn barrels of undiscovered, technically recoverable oil, 1,670 trillion cubic feet of technically recoverable natural gas, and 44bn barrels of technically recoverable natural gas liquids in 25 geologically defined areas thought to have potential for petroleum.

That would mean the Arctic accounts for around 13% of the undiscovered oil, 30% of the undiscovered natural gas, and 20% of the undiscovered natural gas liquids in the world. About 84% of the estimated resources are expected to occur offshore, says the USGS in figures which the Russians argue hugely underestimate the contribution from their continental shelf.

Extracting these hydrocarbons would be hugely expensive using conventional means, but oil companies such as Shell are now building floating liquefied natural gas production systems which would reduce costs. But even high extraction costs can be economically viable because of the soaring value of fuel.

For the full news article and to be taken to the website, click here

 
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