July 25, 2008

High Price of Oil Puts North Pole in Play The Race for Control of Energy in the Arctic Could Speed Up After a U.S. Survey Points to Large Reserves of Crude

By Jad Mouawad

The race for petroleum resources above the Arctic Circle is likely to speed up in coming years, as the polar ice cap melts and access to oil and gas reserves in many other places around the world becomes more challenging.

The lure of the Arctic as oil's next big frontier was vindicated this week as a major geological survey found the region might hold as much as a fifth of the world's yet to-be-discovered oil and natural gas reserves.

Many of these new resources, according to the survey, are to be found in Russia. If true, that would cement Russia's position as one of the world's dominant energy players, particularly for natural gas, and increase its already powerful clout over Europe's energy supplies.

As the melting polar caps open up prospects that were once considered too harsh to explore, a race has begun among countries including the United States, Russia and Canada for control of these Arctic resources. The findings by the United States Geological Survey, which constitute the largest-ever survey of petroleum resources north of the Arctic Circle, could accelerate this scramble.

Last year, a Russian submarine planted an underwater flag by the North Pole, prompting other circumpolar nations, like Canada and Denmark, to raise their own territorial claims. Canada, for example, wants other states to recognize its sovereignty over the Northwest Passage, the once-mythical route that offers the fastest sea trade link between Asia and Europe.

Oil companies have long suspected the Arctic contained substantial energy resources, and have spent billions recently to get their hands on tracts for exploration. The geological agency's survey largely confirms this interest. But it suggests that most of the yet-to-be found resources are not under the North Pole but in regions that are not subject to much territorial dispute.

"For a variety of reasons, the possibility of oil and gas exploration in the Arctic has become much less hypothetical than it once was," Donald Gautier, the chief geologist for the survey, said during a news conference Wednesday. "Most of the resources are on the continental shelf in areas already under territorial claims."

The assessment, which took four years to complete, found that the Arctic might hold as much as 90 billion barrels of undiscovered oil reserves, and 1,670 trillion cubic feet of natural gas. This would amount to 13 percent of the world's total undiscovered oil and about 30 percent of the undiscovered natural gas.

At today's consumption rate of 86 million barrels a day, the potential oil in the Arctic could meet global demand for almost three years. The Arctic's potential natural gas resources are three times larger.

The issue of drilling in the Arctic has already raised serious environmental concerns. In Alaska, for example, native villagers are fighting efforts by Royal Dutch Shell to drill in the Beaufort Sea because of the effect that might have on bowhead whales and other marine species.

But such concerns are unlikely to slow down the quest for petroleum, at a time when oil companies are finding it much harder to raise supplies. A large driver behind the surge in oil prices in recent years has been the sluggish rise in new oil production, which has failed to catch up with rapidly growing energy consumption, primarily from developing nations like China.

That is partly because of natural declines in well-explored basins, like the North Sea or Alaska's North Slope. But rising energy prices have also sparked a wave of resource nationalism among nations like Russia that have curbed foreign investments or made it harder for international oil companies to operate within their borders.

This makes the Arctic a promising region for new oil developments. The geological agency called the Arctic region "the largest unexplored prospective area for petroleum remaining on earth."

Companies already have some experience operating in that region. Over the past decades, oil companies have already found substantial oil and gas reserves north of the Arctic Circle, but these have mainly been in the onshore regions of Alaska, Russia and Canada.

More than 400 fields have been discovered so far, holding 40 billion barrels of oil and more than 1,100 trillion cubic feet of natural gas. That is about 10 percent of the world's conventional petroleum resources, a figure that includes already produced oil and remaining reserves in the ground.

The world currently holds 1.24 trillion barrels of proven oil reserves and 6,263 trillion cubic feet of proven natural gas reserves.

Two regions stand out from the survey, which looked at "undiscovered technically recoverable resources," defined as resources that can be produced using current technology.

A third of the yet-to-be discovered oil, or about 30 billion barrels, is to be found in Alaska, mostly offshore.

Unlike much of the continental shelf off the lower 48 states, the Alaskan coast is generally open to oil exploration. This year, oil companies spent $2.6 billion to acquire leases on government- controlled offshore tracts.

"It is the most obvious place to look for oil in the North Arctic right now," Gautier said about Alaska. "It is virtually certain that petroleum will be found there."

The survey also confirmed the pivotal role of Russia. Nearly two- thirds of the yet-to-be found natural gas resources are in two Russian provinces, the West Siberian Basin and the East Barents Basin, which straddles the territorial waters of Russia and Norway.

Russia is already the world's top holder of natural gas, with proven reserves of 1,600 trillion cubic feet, well ahead of Iran and Qatar, the other two big reserve holders with 900 trillion cubic feet each.

Russia is developing one of the world's largest untapped gas fields, Shtokman in the Barents Sea, which holds nearly four trillion cubic feet of gas and could cost up to $20 billion to develop.

But Gazprom, the Russian natural gas monopoly, has offered unusually restrictive terms to Total of France and Statoil-Hydro of Norway to develop the field. The foreign partners would not be entitled to own an equity stake in the reserves and would have to sell all the gas they produce to Gazprom.

The geological survey, which compiled estimates from a variety of sources, contains some uncertainties because it is based on a probabilistic geological analysis and not on actual seismic surveys. It included government and privately held data from Denmark, Greenland, Norway, Russia, the United States and Canada.

Originally published by The New York Times Media Group.

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