Issuu on Google+

World Petroleum Council Guide Arctic Oil and Gas

www.world-petroleum.org


DOWNLOAD THE

WPC MOBILE APP Keep up-to-date on the move with all the WPC news and use it as your mobile companion for the 21st WPC Congress, enabling you to plan your visit, manage your agenda and network with other delegates. The app contains news and updates from the World Petroleum Council and 21st WPC with all the Congress sessions, events, exhibitor information as well as an exhibition route planner helping you to plan your visit so you make the most of your time at the event*. The WPC App will be constantly updated so that following the Congress you will also be able to review summaries of the event. Available for Android, iOS, BlackBerry 10, and Windows Mobile platforms. Download the mobile app free by searching for the App in your app store for “WPC” or by pointing your browser to http://www.world-petroleum.org/app or by scanning the QR Code below:

*Some features may be limited due to device browser limitations.

The official mobile application for the World Petroleum Council, incorporating the 21st WPC mobile app in partnership with Chevron, is produced in collaboration with FIRST/World Petroleum, Official Partner of the 21st WPC.


World Petroleum Council Guide Arctic Oil and Gas Published by International Systems and Communications Limited (ISC) in conjunction with the World Petroleum Council (WPC). Copyright © 2014. The entire content of this publication is protected by copyright, full details of which are available from the publisher. All rights reserved. No part of this publication may be reproduced, stored in retrieval systems or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the prior permission of the copyright owner.

World Petroleum Council Fourth Floor, Suite 1 1 Duchess Street London W1W 6AN England Telephone: + 44 20 7637 4958 Facsimile: + 44 20 7637 4973 E-mail: info@world-petroleum.org Website: www.world-petroleum.org

International Systems and Communications Limited Park Place 12 Lawn Lane London SW8 1UD England Telephone: Facsimile: E-mail: Website:

+ 44 20 7091 1188 + 44 20 7091 1198 general@isyscom.com www.isyscom.com


Contents Message from the Director-General

5

WPC Vision, Mission, Values and Principles 6 WPC Overview

8

Introduction to Arctic oil and gas By Dr Joe Brannan

14

Other challenges for Arctic oil and gas exploration

16

Technical challenges and developments in the Arctic 20 By Vikram Sai and Jiasheng Zhao Oil and gas transportation challenges in the the Arctic By Greg Hearting

32

Legal issues in the Arctic By Iain MacWhannell

42

Environmental challenges in the Arctic 48 By Tamar Gomez, WPC Writing Fellow Community engagement

60

Global summary

64

Glossary of terms

76

List of relevant institutions

80

Acknowledgements

81

The opinions and views expressed by the authors in this book are not necessarily those of WPC, its members or the publisher. While every care has been taken in the preparation of this book, they are not responsible for the opinions or any inaccuracies in the articles. Unless otherwise stated, the dollar ($) values given in the book refer to the US dollar.

Arctic Oil and Gas

3


A GROWING SOURCE OF REFERENCE The World Petroleum Council Guide to Arctic Oil and Gas is the latest in a special series of twice yearly publications being produced by the WPC to act as a definitive source of reference on the most pressing matters affecting global energy markets. Building on the three previous titles looking at unconventional gas, petrochemicals and refining and unconventional oil, the WPC is fulfilling its mission to raise awareness and enhance the understanding of the issues and challenges facing the industry in the years ahead. Published by award-winning International Systems and Communications in both print and digital formats, all titles in the series can be viewed online via the following link: is.gd/wpcguides


Message from the Director General

Message from the Director General This WPC guide examines the challenges that come with developing the oil and gas industries in the Arctic. Dr Pierce Riemer.

The substantial reserves of oil and gas in the Arctic present the energy industry with incredible oppor­ tunities as well as enormous challenges. With this guidebook, the fourth in our ongoing series, the World Petroleum Council aims to explain the bene­fits and risks of Arctic hydrocarbon dev­elopment as well as the technologies that have the potential to be game-changers for many stake­holders. We cannot ignore the enormous potential of Arctic oil and gas resources that can be developed across a number of countries. There could be huge economic benefits for many countries if the reserves are developed responsibly. In this guidebook, we explore the many great obstacles operators with Arctic ambitions are fac­ ing, the technology that is making it possible to maximise the potential of these resources in diffi­ cult conditions, and we examine the environ­men­ tal, social, political, legal and economic issues that many operators and governments are facing. This book also features case studies from ind­ ustry leaders on the many barriers they face as they seek to work productively in this unique reg­ ion. The sharing of knowledge and experiences can only benefit everyone in the energy industry,

especially when it comes to fostering greater under­standing about the exploration, extraction, production and distribution of Arctic oil and gas. As well as the incredible technical advances that have been made in the Arctic, issues such as caring for the environment and community en­gagement are equally important. We feature case studies from major players such as ConocoPhillips and Statoil as both companies have made great steps forward in terms of being responsible dev­elopers in a highly sensitive region, both envi­ronmentally and socially. As the issue of peak oil is behind us, we need strong leadership and ongoing innovation across the whole industry. Most experts agree that the four biggest challenges we face in the petroleum industry, as well as the global energy industry as a whole, are: technology, geopolitics, the environ­ ment and the world’s growing population. Oper­ ators in the Arctic hope to be part of the solution. As the countries with hydrocarbon interests in the Arctic seek to forge a productive path – even if there are obstacles along the way – we hope this series of expert guides will play a role in sharing knowledge and in applauding important inno­ vations and technical achievements. Arctic Oil and Gas

5


WPC Vision, Mission, Values and Principles

l Information dissemination via

congresses, reports, regional meetings and workshops l Initiatives for recruiting and retaining

WPC Vision, Mission, Values and Principles

expertise and skills to the industry l Awareness of environmental issues,

conservation of energy and sustainable solutions Values WPC values strongly: l Respect for individuals and cultures

worldwide l Unbiased and objective views l Integrity

Vision

l Transparency

An enhanced understanding and image of

l Good governance

the oil and gas sector’s contribution to

l A positive perception of energy from

sustainable development.

petroleum l Science and technology

Mission

l The views of all stakeholders

The World Petroleum Council (WPC) is the

l The management of the world’s

only organisation representing the global

petroleum resources for the benefit

oil and gas community. WPC’s core value

of all

and purpose cen­tres on sustaining and improving the lives of peo­ple around the

Principles

world, through:

WPC seeks to be identified with its mission

l Enhanced understanding of issues and

and flexible enough so that it can embrace

challenges l Networking opportunities in a global forum l Cooperation (partnerships) with other

organisations l An opportunity to showcase the industry

l Pro-active and responsive to changes and

not merely led by them l Creative and visionary, so that we add

value for all

and demonstrate best practice

l Challenging, so that our goals require

l A forum for developing business

effort to attain but are realistic and

opportunities 6

change and adapt to it. WPC has to be:

WPC Guide

achievable


WPC Vision, Mission, Values and Principles

l Focused, so that our goals are clear and

transparent

l Communication to increase awareness,

of WPC’s activities, through enhanced

l Understandable to all

communication, both internally and externally.

Key strategic areas

l Global representation to attract and

l World Class Congress to deliver a

quality, premier world class oil and

retain worldwide involvement in WPC. l Youth and gender engagement to

increase the participation of young

gas congress. l Inter-Congress activities to organise

people and women in oil and gas issues,

forums for cooperation and other

including the establishment of a

activities on specific topics; and to

dedicated Youth Committee for the

organise regional events of relevance to

development of active networking

WPC members and all stakeholders.

opportunities with young people.

l Cooperation with other stakeholders

l Legacy to create a central WPC legacy

to add value by cooperating with other

fund to benefit communities and

organisations to seek synergies and

individuals around the world based on

promote best practice.

WPC’s mission.

World Petroleum Congresses

2014  21st WPC  Moscow  2017  22nd WPC  Istanbul 2011

20th WPC

Doha

1979

10th WPC

Bucharest

2008

19th WPC

Madrid

1975

9th WPC

Tokyo

2005

18th WPC

Johannesburg

1971

8th WPC

Moscow

2002

17th WPC

Rio

1967

7th WPC

Mexico City

2000

16th WPC

Calgary

1963

6th WPC

Frankfurt

1997

15th WPC,

Beijing

1959

5th WPC

New York

1994

14th WPC

Stavanger

1955

4th WPC

Rome

1991

13th WPC

Buenos Aires

1951

3rd WPC

The Hague

1987

12th WPC

Houston

1937

2nd WPC

Paris

1983

11th WPC

London

1933

1st WPC

London

Arctic Oil and Gas

7


WPC over view

WPC overview Since 1933, the World Petroleum Council (WPC) has been the world’s premier oil and gas forum and is the only international organisation repre­senting all aspects of the petroleum sector.

WPC will mark its 80th anniversary in 2013 having been established in 1933 to promote the man­ agement of the world’s petroleum resources for the benefit of all. It is a non-advocacy, non-poli­ tical organisation and has received accredit­ation as a non-governmental organisation (NGO) from the UN. WPC’s prime function is to catalyse and facilitate dialogue among stake­holders, both internal and external to the petroleum industry, on key technical, social, environmental and man­ agement issues in order to contribute towards finding solutions to those issues. Headquartered in London, the World Petroleum Council includes 70 member countries from around the world representing more than 95% of global oil and gas production and consumption. WPC membership is unique, as it includes both OPEC and non-OPEC countries with high-level re­ pre­sentation from National Oil Companies (NOCs) as well as Independent Oil Companies (IOCs). Each country has a national committee made up of representatives of the oil and gas industry, the service sector, academia, research institutions and government departments. The governing body of WPC is the Council consisting of representation 8

WPC Guide

from each of the national committees. Its global membership elects the President and an Executive Committee every three years to develop and exe­ cute its strategy. The Council also selects the host country for the next World Petroleum Congress from the candidate countries. Every three years, the Council organises the World Petroleum Congress hosted by one of its member countries. The triennial Congress is also known as the “Olympics of the petroleum indus­ try”. It covers all aspects of oil and gas from technological advances in conventional and un­ con­ventional upstream and downstream oper­ ations to the role of natural gas and renewables, management of the industry and its social, eco­ nomic and environmental impact. In addition to industry leaders and experts, outside stakeholders such as governments, other industry sectors, NGOs and international institutions also join the dia­ logue. To ensure the scientific and topical quality of the event, the WPC Council elects a Congress Programme Committee whose members are res­ ponsible for delivering the high-level content for its Congresses. Moscow will be the host of the 21st World Petro­leum Congress in 2014 (www.21wpc.com). Beyond the triennial Congress, the World Petro­ leum Council is regularly involved with a number of other meetings such as the WPC Youth Forum, the WPC-UN Global Compact Best Practice Forum, joint WPC/OPEC workshops and other regional and topical events on important industry issues. Legacy As a not-for-profit organisation, WPC ensures that any surpluses from the triennial Congresses and other meetings are directed into educational or charitable activities, thereby leaving a legacy. The World Petroleum Council has set up a dedicated WPC Legacy Fund to spread the benefits beyond the host countries and its members and alleviate energy poverty through carefully selected projects.


WPC overview

The concept of leaving a legacy in the host country started in 1994 with the 14th World Petroleum Congress in Stavanger, Norway. After this Congress, the surplus funds were put towards the creation and building of a state-of-the-art Petroleum Museum in Stavanger. The 15th World Petroleum Congress in Beijing adopted the issue of young people as a key aspect of its theme: “Technology and Globalisation – Leading the Petroleum Industry into the 21st Century”. To support the education and future inv­ olvement of young people in the petroleum ind­ ustry, the Chinese National Committee don­ated all computer and video equipment used for the Congress to its Petroleum University. Profits from the 16th Congress in Calgary were used to endow a fund that gives scholarships to post-secondary students in several petroleumrelated fields. The Canadian Government Millen­ nium Scholarship Foundation matched the amount dollar-for-dollar, creating an endowment which

supported more than 2,000 students until its con­ clusion in 2010. The 17th World Petroleum Congress was the first to integrate the concept of sustainability throughout its event. The Congress took responsi­ bility for all the waste it generated. The congress and the accompanying Rio Oil & Gas Expo 2002 generated a total of 16 tonnes of recyclable waste – plastic, aluminium, paper and glass. All proceeds of the recycling activities were passed on to a residents’ cooperative with 6,000 inhabitants loc­ ated in the port area of Rio de Janeiro. But the sustainability efforts did not stop there – an army of 250 volunteers collected 36 tonnes of rubbish in 10 days in a special community effort to clean up the Corcovado area before the Congress, donating all proceeds to the rubbish collectors, some of the poorest inhabitants of Rio. The Finlândia Public School also received a new lick of paint from our volunteers. The surplus funds for the Congress were used to set up the

The most recent World Petroleum Congress was held in Doha in December 2011.

Arctic Oil and Gas

9


WPC over view

The WPC legacy initiative started in 1994 when surplus funds from the 14th World Petroleum Congress were put towards the building of Stavanger’s Petroleum Museum.

WPC Educational Fund in Brazil, which was further increased in 2005 with tax initiatives added by the Brazilian government. The 18th World Petroleum Congress also chose a sustainability focus for the first-ever WPC to be held in Africa: “Shaping the Energy Future: Par­ tners in Sustainable Solutions”. Education was the 10

WPC Guide

focus of the 18th World Petroleum Congress Legacy Trust, set up by the South African National Committee to provide financial assistance to needy young South Africans who wish to pursue a quali­ fication in petroleum studies. In 2008, with the 19th Congress in Madrid, the trend continued and the organisers selected a


WPC overview

WPC’s first Youth Forum was held in Beijing in 2004.

number of projects and foundations to receive the surplus from the event for charitable and edu­ cational programmes in Spain and around the globe. The 19th Congress was the first one to off­ set all its carbon emissions and receive a certi­ fication as a sustainable event. The most recent Congress in Qatar also offset all of its carbon emissions and has chosen a pro­ ject to educate and support young people as recipient for the 21st WPC Legacy Programme. Youth outreach Youth is a critical factor in the sustainability of the oil and gas industry. Addressing and involving young people in the design of future energy solutions is therefore one of the major issues for WPC’s 70 member countries. WPC recognises their significance to the future of the petroleum ind­ ustry and the importance of giving the young

generation scope to develop their own ideas, talents and competencies to create viable solu­ tions for the future of our world. As part of its outreach to recruit and retain the next generation, WPC created its Youth Committee in 2006 to provide a channel through which young people have a direct involvement and say in the strategy and activities of the organisation. It aims to create and nurture a collaborative, global forum for young people to be heard, to champion new ideas within the petroleum industry, to pro­ mote a realistic image of the petroleum ind­ustry, its challenges and opportunities and to bridge the generation gap through mentorship networks. In 2011, WPC launched a pilot Mentorship Programme to provide a bridge between inter­ national experts and the next generation of our industry. This programme is now in its second suc­ cessful cycle and has already created 150 matches. Arctic Oil and Gas

11


WPC over view

WPC Member Countries Algeria Angola Argentina Australia Austria Azerbaijan Bahrain Belgium Brazil Bulgaria Canada China Colombia Croatia Cuba Czech Republic Denmark Egypt

12

WPC Guide

Finland France Gabon Germany Hungary India Indonesia Iran Israel Japan Kazakhstan Kenya Korea Kuwait Libya Macedonia Malaysia Mexico

Morocco Mozambique The Netherlands Nigeria Norway Oman Pakistan Panama Peru Poland Portugal Qatar Romania Russia Saudi Arabia Serbia Sierra Leone Slovak Republic

Slovenia South Africa Spain Suriname Sweden Switzerland Tajikistan Thailand Trinidad and Tobago Turkey Ukraine United Kingdom Uruguay USA Venezuela Vietnam


WPC overview

Arctic Oil and Gas

13


Introduction to Arctic oil and gas

Introduction to Arctic oil and gas By Dr Joe Brannan The prospect of exploiting hydrocarbons in the Arctic is very tempting for multiple countries but there are many challenges ahead.

Dr Joe Brannan, New Play Development Manager, Shell Global Solutions explains some of the obstacles facing countries keen to explore and develop the hydrocarbon potential of the Arctic. If geologists and geophysicists do their jobs well, hydrocarbon exploration should progress from the easy to the more difficult resources. Clearly, they haven’t done too badly. Current exploration portfolios include mixtures of difficult reservoirs, such as tight sandstones and shales, difficult fluids, such as heavy oils, difficult imaging, such as complex geology and sub salt, and areas

such as the Arctic where access is difficult because of the landscape, climate and issues with borders and sovereignty. Arctic basins remain truly frontier but technical advances outside the petroleum industry are helping with exploration. Technological break­ throughs such as waveform seismic processing, remote or robotic operations and sophisticated computer-based geological modelling have all contributed to making the exploration of the Arctic easier. But despite this, the Arctic remains an area that the industry has not yet been able to fully exploit. It is a region that presents extreme environmental challenges. Nevertheless, many Arctic basins exhi­ bit direct or indirect evidence of hydrocarbons. The Arctic also accounts for half of the global continental shelves, a prolific setting for the occur­rence of petroleum. Of course the Arctic is not a single province and the technological needs varies from basin to basin – a league table of access and exploration diffi­ culty can be drawn up which predicts the order in which these basins should be unlocked. Relative difficulty can be determined by a combination of water depth, ice intensity and remoteness from infrastructure. Beyond the current crop of uncon­ ventional resources, exotic accumulations such as hydrates offer a different type of challenge – those

Major challenges for Arctic resource development l

There is only a short season available for extraction and transportation operations to be viable and practical. l Ice in the water and extreme weather affect operational efficiency during potential productive times. The ice also has an impact on data quality which affects research as well as data-gathering during operation. l Logistics in remote areas are very complicated.

14

WPC Guide

l

Low temperatures can adversely affect expensive equipment. l Crew safety and comfort can be difficult to maintain in severe conditions. l Poor visibility, created by fog and snow showers, makes transportation and extraction operations difficult. l Exploration is not yet complete. l Environmental considerations.


Introduction to Arctic oil and gas

Ice roads are a practical way of dealing with the need for access in harsh Arctic winters.

of stable, safe and environmentally responsible production rather than exploration risk. Innovations that will help unlock resources in the Arctic include seismic direct hydrocarbon indi­ cators (seismic DHIs) and various types of sniffer/ sensor technologies that are claimed to detect hydrocarbons. These have helped us de-risk many basins in the past but they are not a universal panacea. Seismic DHIs are not new and they are playing a role in the Arctic but we need to move to other technologies that can predict hydro­carbon presence in advance of expensive wells. Shell’s “Light Touch” system identifies and meas­ures hydrocarbon molecule occurrence and this has been tested onshore in Tunisia. However, this technology is only effective for onshore projects. Controlled Source Electromagnetics (CSEM) basin technology has been used successfully in Arctic exploration in Baffin Bay and the Barents Sea. CSEM can differentiate between seismic anomalies which represent true hydrocarbon accumulations from those which simply indicate low saturation gas. While such new tools help in the search,

improvements in seismic acquisition will remain the principal route to identification of future hydro­­carbon potential. Onshore, we need advances in 3D acquisition to reach the quality that offshore data reached 20 years ago. Obvious areas where 3D seismic could radically improve exploration success include unstructured parts of proven petroleum provinces where stratigraphic traps can be expected. There has been growing interest in using 3D acquisition in Arctic areas. However the large physical foot­ print of 3D surveys increases the risk of equipment damage due to ice and these risks need to be mitigated. The volume of generated hydrocarbons which still lie entrapped in regions such as the Arctic represent a resource that can provide us with energy for the foreseeable future. Technologies at all scales are ensuring that we will recover an everincreasing percentage of those hydrocarbons. Dr Joe Brannan is New Play Development Manager, Shell Global. Arctic Oil and Gas

15


Other challenges for Arctic oil and gas exploration l On Arctic lands, poor soil conditions

Other challenges for Arctic oil and gas exploration The US Energy Information Administration has outlined in more detail the issues faced by energy companies looking to explore and extract oil and gas from the Arctic.

Even if Arctic oil and natural gas resources eventually prove to be considerably greater than the US Geological Survey (USGS) estimates, they will be expensive to develop. Finding large Arctic oil and natural gas deposits is also difficult and developing them as commercially profitable ventures is even more challenging. Arctic oil and gas exploration is expensive because: l Harsh winter weather requires that equipment be specially designed to withstand the frigid temperatures.

The often brutal conditions in the Arctic demand a premium in labour costs.

16

WPC Guide

can require additional site preparation to prevent equipment and structures from sinking. l The marshy Arctic tundra can also preclude

exploration activities during the warm months of the year. l In Arctic seas, the icepack can damage off­ shore facilities, while also hindering the shipment of personnel, materials, equipment and oil for long time periods. l Limited transportation access and long supply lines reduce the transportation options and increase transportation costs. l Higher wages and salaries are required to induce personnel to work in the isolated and inhospitable Arctic. l Court challenges stemming from environ­ mental concerns can also increase Arctic project costs. Supply chain difficulties To use an American example, the development of new Alaska North Slope fields near existing fields economically benefit from the ability to use what­ ever infrastructure is already in place, such as roads, rail, harbour facilities, air fields, electric power gen­ eration and living quarters. Even so, Arctic oil and gas project costs can prove to be significantly greater and schedules longer than originally plan­ ned. This is largely due to supply chain delays, ab­ normal weather conditions and court challenges emanating from environmental concerns. As an example of supply chain difficulties, Italy’s Eni originally announced that the Nikaitchuq oil field on the Alaska North Slope would start production by year-end 2009. More recently, Eni announced that the field would not begin production until year-end 2011 partly be­ cause the company had missed the summer season opportunity to ocean-barge the field’s pro­cessing and operations modules to the North


Other challenges for Arctic oil and gas exploration

Preserving the environment and wildlife of the Arctic is of great concern to all stakeholders.

Slope from a Louisiana fabrication yard. Such supply chain delays increase project costs and reduces rates of return as expensive equipment remains idle. Abnormal weather can increase costs by hin­ dering transport activity as well as drilling. The early onset of warm weather on the Alaska North Slope during April 2009 stranded equipment and precluded some exploration well drilling. Simi­ larly, a late onset of winter weather delays con­ struction of the ice roads required to transport heavy equipment across the tundra. Physical challenges The Arctic environment presents special chal­ lenges not experienced elsewhere in the world. Several oil and gas fields have been discovered on the Yamal Peninsular. The first shipment of oil took place in 2014 after overcoming daunting physical challenges. As noted in a Cambridge Energy Research Asso­ciates report on this matter: “Intermittent permafrost becomes continuous, winds rise to a steady 40m per second, and solid ground gives way to friable sand that offers little support to drill pads or pipelines and other infra­

structure. In winter, instead of soil there is a frozen mixture of one part sand to four parts ice, shot through with salt. At greater depths one en­coun­ ters cryopegs – liquid saltwater lenses that slide under pressure, further weakening the load-bear­ ing capacity of the soil.” Arctic operating costs are also increased by the ice-pack conditions that extend over much of the Arctic Ocean. The requirement for ice-resistant tankers and ice-breaker escorts adds to the cost of transporting oil and natural gas through Arctic waters. Additional costs might be imposed on future oil and gas development if a warming of the Arctic melts the permafrost and turns curren­ tly firm soils into marshes and bogs. On the other hand, warmer Arctic temperatures would shrink the ocean icepack, thereby facilitating and reduc­ ing the cost of water transportation and offshore drilling. The high cost of doing business in the Arctic suggests that only the world’s largest oil com­ panies, most likely as partners in joint venture projects, have the financial, technical and man­ agerial strength to accomplish the costly, longlead time projects dictated by Arctic conditions. Arctic Oil and Gas

17


Other challenges for Arctic oil and gas exploration

Long lead times The long lead times required for Arctic projects also add considerable risk because the business environment can change dramatically between a project’s initiation and completion dates. For ex­ ample, oil and natural gas prices could be con­ siderably lower when an Arctic project begins producing than was anticipated at the planning stage. Also, at a given level of capital investment, longer lead times reduce that return on invest­ ment, all else being equal. Arctic oil and natural gas projects can exacerbate this problem by re­ quir­ing considerably larger investments than comparably productive projects pursued else­ where in the world. Political and environmental issues Arctic oil and natural gas development also faces political and environmental issues. The political issues stem from overlapping and disputed claims of economic sovereignty. The environmental issues pertain to the preservation of animal and plant species unique to the Arctic, particularly tundra vegetation, reindeer, polar bears, seals, whales and other Arctic sea life. Canada, Denmark, Norway, Russia and the United States have overlapping sovereignty claims in Arctic waters. The existence of these offshore boundary disputes could forestall Arctic oil and natural gas development. Some of the competing claims stem from the fact that the 1982 United Nations Convention on the Law of the Sea (UNCLOS) permits countries to claim economic sov­ereignty as much as 185.2km beyond the point where the sea depth reaches 2,500m. The existence of extensive continental margins and numerous subsea ridges possibly related to those continental margins, permit the littoral nations to make competing claims for most Arctic waters. Denmark, Norway and Russia have made claims of economic sovereignty in Arctic waters under 18

WPC Guide

the auspices of UNCLOS. (See also, Legal Issues, page 42). The extent to which environmental laws and regulations impact Arctic oil and natural gas dev­ elopment will depend on the specific laws and regu­lations of each nation having economic sovereignty over Arctic areas. The United States’ experience indicates that such policies can preclude the development of significant natural gas resources. For example, in the Alaskan Arctic, oil and natural gas development is banned within the Arctic National Wildlife Refuge (ANWR). Conclusions The Arctic presents a “good news, bad news” situation for oil and natural gas development. The good news is that the Arctic might hold about 22% of the world’s undiscovered conventional oil and natural gas resources, based on a USGS esti­mate. The bad news is that (1) the Arctic resource base is largely composed of natural gas and natural gas liquids, which are significantly more expensive to transport over long distances than oil; (2) Arctic oil and natural gas resources will be considerably more expensive, risky and take lon­ger to develop than comparable deposits found elsewhere in the world; (3) unresolved Arctic sov­ereignty claims could preclude or substantially delay development of those resources where eco­nomic sovereignty claims overlap; and (4) pro­tecting the Arctic environment will be costly. The high cost and long lead times of Arctic oil and natural gas development undercut the immediate importance of these sovereignty claims, while at the same time diminishing the economic incen­tive to develop these resources. Given that the Arctic resource base is pre­dom­ inantly composed of natural gas and natural gas liquids, the importance of Arctic resources is likely to be affected by the growing realisation that shale beds in existing petroleum provinces around


Other challenges for Arctic oil and gas exploration

The Polar Adventure oil tanker berthed at Valdez in Alaska. Over the long transportation distances involved in Arctic production, oil is a more economically attractive proposition than natural gas.

the world might be capable of producing 5,000 to 16,000 tcf of natural gas. This potentially large shale gas resource could significantly defer the future development of Arctic natural gas re­ sources. Of course, there could be exceptions. Growing European demand for natural gas, the depletion of the existing North Sea and Russian natural gas fields and disappointing European shale gas exploration and development results are all strong incentives for Russia to keep dev­ eloping its Arctic gas resources. Other aspects of the estimated Arctic oil and gas resource base are more neutral in character. For example, the belief that the expected undis­ covered Arctic resource base is largely confined to a few sedimentary provinces might be more reflective of the fact that little, if any, oil and natural gas exploration drilling has been con­ ducted in those provinces with low resource esti­ mates. On the other hand, if the estimates for

these unexplored and underexplored provinces prove correct, and they have little or no oil or nat­ ural gas, then the drive by nations to claim eco­ nomic sovereignty over these offshore provinces would diminish. The bottom line for Arctic oil and natural gas potential is that high costs, high risks, and lengthy lead times can all serve to deter their development in preference to the development of less challeng­ ing oil and natural gas resources elsewhere in the world. Also, the less abundant Arctic oil resources will be more readily developed than the Arctic’s natural gas resources. Thus, while the Arctic has the potential to be an important source of global oil and gas production sometime in the future, the timing of a significant expansion in Arctic production is difficult to predict. This is an edited extract from the US Energy Infor­ mation Administration analysis paper, 2009. Arctic Oil and Gas

19


Technical challenges and developments in the Arctic

Technical challenges and developments in the Arctic By Zhao Jiasheng and Vikram Sai Multiple operators are making great strides in developing oil and gas technology for the Arctic. Ice is the obvious challenge for operators in the Arctic. Technology for exploration and extraction is needed to overcome conditions that are quite unlike any other resource-rich area in the world. The conditions of the Arctic include some of the

world’s coldest waters, fields that are remote and highly environmentally sensitive, and unpredict­ able weather. Extraction of oil and gas in environ­ ments away from the Arctic is generally more costeffective so finding ways to make the process com­mercially viable in icy conditions is an addi­ tional challenge for operators. Not all ice is the same and this presents techno­ logical challenges. Sea ice is the obvious challenge but there are other ice-related issues that oper­ ators need to deal with before Arctic hydrocarbons are to be exploited in a manner that is commer­ cially viable and environmentally sustainable. Ice­ bergs, naturally occurring ice islands and struc­ tural icing on platforms, ships and helicopters can also create problems. Sea ice, combined with pressure ridges and ice movement, make exploration, extraction and trans­ portation of hydrocarbons difficult. Arctic sea ice has many variations, presenting additional issues. The roughness of the water can even impact on the formation of the ice crystals – calmer seas pro­

Ridge ice at sunset. Pressure ridge ice forms at the interface of two or more ice floes.

20

WPC Guide


Technical challenges and developments in the Arctic

duce crystals that are bigger and more plate-like while rougher seas create smaller, more gran­u­lar crystals. When crystals form and develop a thin skin on the surface of the water, further ice forms on the underside and pockets of brine develop. The strength of the ice varies depending on many factors such as brine content, crystal orient­ ation, age, type, temperature, and radiant solar energy absorbed. In general, the sea ice of the Arctic can be divided into three zones – the fast ice zone which results from ice cover being anch­ ored to grounded ice, the transitional ice zone bet­ ween the rotating ice pack and relatively motion­ less fast ice, and polar pack ice which is multi-year ice that covers the central Arctic. The last great frontier The Arctic sea region is one of the last frontiers for oil and gas exploration. However, developing its natural resources and transporting them to the consumer markets is difficult and costly. Techno­ logical innovation within the oil and gas industry

has increased the economic viability of offshore projects. The first seismic surveys in Alaska and deep-water exploration projects in the Gulf of Mexico started in the 1970s. However, the Gulf of Mexico is significantly warmer than the Arctic. As such, the technological challenges of drilling at great depths and managing extreme weather conditions in the Arctic generate significant operational risks. The main challenges faced by energy companies in the Arctic At all stages in the hydrocarbon development pro­cess – exploration, drilling, production and tran­s­port – there are unique obstacles faced by operators in the Arctic. Exploration Arctic climate conditions pose extreme challenges to all exploration activities, including the acqui­ sition of seismic data and processing. Harsh con­ di­tions offer a narrow weather window for seismic

The ROV Panther being lowered over the side of the Academik Mstislav Keldysh to provide a detailed map of the ocean bottom and a seismic survey for the Shtokman development.

Arctic Oil and Gas

21


Technical challenges and developments in the Arctic

Experience gained at Girrasol, offshore Angola, using subsea production facilities and an FPSO (pictured), has informed the development of the Arctic’s large fields.

22

operations, wreak havoc with in-water acquisition equipment, and introduce unwanted noise into acquired seismic datasets. These factors limit the quantity and the quality of seismic information in the Arctic. Without access to this data, operators cannot make appropriate assessments about subsurface hydrocarbon accumulations and this makes it difficult to identify prospective locations to drill. In the Arctic with permafrost and seasonally frozen layers, there are abrupt transitions between frozen and unfrozen zones. The strong currents, severe storms, multi-year ice, and floating ice found in the Arctic require tailored seismic and drilling technology. Seismic explorations using 2D technology are difficult and expensive because of pack ice and 3D seismic exploration is very difficult if the ice gets too thick.

and onshore drilling operations are affected by extremely low temperatures, periods of 24-hour darkness, storms and fog.

Drilling For offshore drilling, the short open-water season, strong currents, fierce storms, multi-layer ice, ice­ bergs and ice motion present problems. Both off-

Environment The extremely sensitive ecosystem of the Arctic, with many endangered species and important fish­eries, presents real challenges in order to

WPC Guide

Economics Operators make a huge economic investment when they seek to exploit Arctic hydrocarbons. On top of the high cost of the technology required to explore and extract oil and gas, other economic factors are influential. The price of crude oil or gas produced from the Arctic is projected to be a little higher than that of its counterparts in rest of the world. Moreover, Arctic petroleum development could be hindered by the increasing focus on the relatively easily extractable and cheap unconven­ tional resources like coal-bed methane, shale gas and gas hydrates.


Technical challenges and developments in the Arctic

minimise the total emissions to the environment, and to preserve Arctic deepwater wildlife. Envi­ ron­mental recovery times in the event of a dis­ aster, such as an oil spill, or through exploration and extraction activities can be long in the Arctic. It is also crucial to limit the impact of emissions and discharges and there need to be technological solutions for assessment, monitoring and pre­ven­ tion. (See also, Environmental Challenges, p48) Geography The remoteness and prolonged darkness of the Arctic create several challenges. These include com­munication problems due to lack of IT infra­ structure and satellite coverage, access to emer­ gency response services, and logistic issues such as supplying remote locations. The long hours of darkness and the presence of ice mean that equip­ ment reliability is a major concern. Sea ice Sea ice presents a range of challenges to oper­ ators. These include damage to operational equip­ ment for surface and underwater activities; ice build-up on drilling structures and other equip­ V Burning ice. Methane hydrates are both a poten­ tial source of energy and a hazard to drilling operations in the region.

ment; and reduced means of escape, evacuation and rescue. For offshore work, different types of drilling rigs like jack-up, semi-submersible, submersible, gravitybased drilling structures and drill ships are used. But these structures are limited to a maximum depth of 100m. Submersible drilling rigs can be used in the Arctic, but they can only be moved in open water season, and work best in water depths of less than 30m. However, most of the new pro­ spects in the Arctic are in depths up to 1000m. Also, drill ships that are used in warmer waters cannot move through continuous ice. Ships for Arctic use need to be designed in such a way that the ice gets cleared continuously as the ship moves. Ultra-long distances Offshore sites are often hard to access and, as such, systems and compo­nents need to be incredibly reliable and durable. Ultra-long distances, over land and water, demand efficient power transmission systems to drive mul­ti­ple compressors without significant losses. Gas hydrates The presence of permafrost creates a drilling haz­ ard because of the possible presence of gas hyd­ rates. Gas hydrates (also called methane hydrates, methane ice or fire ice) are a solid compound in which a large amount of methane is trapped with­ in a crystal structure of water, forming a solid simi­ lar to ice. Under appropriate conditions of high pres­sures and low temperatures in deep oceanic sediments, natural gas may combine with water to crystallise as a clathrate or a three-dimensional framework of water molecules that is stabilised by gas molecules. The conditions necessary for the stability of gas hydrates are moderately low temp­ eratures and moderately high pressures. These con­ditions can exist offshore below the ocean floor and onshore beneath the permafrost. In per­ ma­frost regions, where surface temperatures are Arctic Oil and Gas

23


Technical challenges and developments in the Arctic

below freezing point, gas hydrates are present and stable at depths ranging from 500m to 2,000m. While drilling through the permafrost, if a gas hydrate bearing zone is encountered, a dangerous gas kick may occur. (A kick is a well control pro­ blem in which the pressure found within the dril­ led formation is higher than the mud hydrostatic pressure acting on the borehole or rock face. When this occurs, the greater formation pressure has a tendency to force oil or gas into the wellbore. This forced fluid flow is called a kick.) A kick can also occur when drilling for oil and gas in deep water. Reservoir gas may flow into the wellbore and form gas hydrates as a result of low temperatures and high pressures. When the hy­d­ rates rise, the pressure decreases and the hy­drates

dissociate into gas and water. The rapid gas ex­ pansion ejects fluid from the well, reducing the pressure further, which leads to more hydrate dis­ so­ciation and further fluid ejection. The result­ing violent expulsion of fluid from the annulus is one potential cause or contributor to the kick. Many drilling problems encountered in gas hydrate-bearing zones are attributed to gas hyd­ rate dissociation, which can create large vol­umes of methane. Typically, this can occur if drilling operations or warm drilling mud comes in contact with the gas hydrate zone causing a change in the temperature or pressure. In a worst-case scenario, dissociation of gas from gas hydrates may displace the drilling mud, reducing the hydrostatic head and allowing an influx of free gas.

ExxonMobil meets Arctic oil and gas challenges ExxonMobil has been operating in Arctic and sub-Arctic environments for 90 years. The company’s iceberg-management programme minimises the risk of icebergs reaching plat­forms. As the second-largest stakeholder in the Terra Nova field, 35km southeast of Hibernia, ExxonMobil helped develop the Hibernia exp­lor­ ation phase by relying on the same icebergmanagement technology. Iceberg man­age­ment involves ice detection, monitor­ing and fore­ casting, ice threat analysis, reporting on rig performance and operational status, supply vessel support, and structured operational procedures and protocols. Sequence stratigraphy and 3D seismic tech­ nologies are being used to find oil and gas at Sakhalin-1, which is operated by Exxon Neftgas Limited (ENL). This project consists of the Chayvo, Odoptu and Arkutun-Dagi fields. ExxonMobil delineated the Chayvo field reservoir using proprietary 3D seismic and sequence stratigraphy technologies. Sequence stratigraphy technologies are computerised modelling programmes used by geologists to subdivide the sedimentary

24

WPC Guide

deposits underground and under the sea into bound units. The programmes track information such as tectonic plate movement, sediment accumulation and evolving geology. Cutting through heavy ice is another ongoing challenge for oil and gas operators in the Arctic. As such, ExxonMobil conducted successful trials above 81° latitude in the Fram Strait using two polar class ice-breakers. This trial produced useful data to assist with ice management procedures. In order to understand how icebergs interact with various structures and to better predict the pot­ ential magnitude of ice impact loading, Exxon­ Mobil performed complete 3D shape surveys of 30 icebergs. Additionally, ExxonMobil has an industryleading strain-based assessment framework for pipe­line design in demanding environments. Pipelines operating in the Arctic may be sub­ jected to large ground movement that can lead to plastic deformation. ExxonMobil has under­ taken a comprehensive experimental programme to research the tensile strain capacity of welded pipelines.


Technical challenges and developments in the Arctic

Pump Station 3 of the Trans-Alaska Pipeline System (TAPS). The photograph shows the raised pipeline and zig-zagging layout that have been designed into the system to counteract problems of Arctic temperatures and seismic activity.

Cement setting Casings and wellbores are sealed with cement. Cementing is performed by pumping cement slurry into the well. The cement slurry flows to the bot­ tom of the wellbore which forms the pipe through which the hydrocarbons flow to the surface. From there, the slurry fills in the space between the casing and the wellbore and hardens. This creates a seal so that outside materials cannot enter the wellbore, and permanently holds the casing in place. Well-cementing in Arctic environments is particularly challenging. It is essential to use suit­ able insulating cement that provides a good seal to prevent gas leakage and keeps the permafrost interval undisturbed during the production of the oil and gas. Conventional Portland cement does not set or perform well in the low Arctic temper­ atures. The freezing and expansion of water in the pores and capillaries of the cement slurry leads to cracks in the structure before the cement is set. In addition, conventional cements do not have suffi­ci­ently low thermal conductivity so they not good insulators.

Production Deep seas and low temperatures present real challenges to flow assurance and compression requirements. Harsh, cold climates also pose difficulties for well-stimulation operations. Hyd­ raulic fracturing and matrix acidising are com­ monly used to increase production from the wells. Both these operations have common logistic and environmental safety challenges, as well as their own special difficulties related to handling and storage of supplies, especially chemicals. Pipelines In the Arctic, oil pipelines can’t be buried in the permafrost because the heat of the oil can cause ice in the soil to melt. If this happens, the pipeline can sag and leak. In winter, the soil around the pipe can freeze again. This freeze-thaw cycle can lead to pipe movement which causes serious dam­ age. Pipelines need to be designed for the Arctic with this in mind. Furthermore, leaks in pipelines must be detected quickly due to the high environ­ mental cost. Thus, the development of advanced Arctic Oil and Gas

25


Technical challenges and developments in the Arctic

The Hammerfest LNG plant at Melkøya is the only such plant in the Arctic circle.

sensor technology is necessary for detection of leaks especially for pipes in frozen conditions. Other transportation challenges: The transport of hydrocarbons over long distances generates terrain slugging as liquid accumulates in low sec­ tions of the line. Gas/liquid separation stations need to be inserted at strategic locations to limit the size of slug arriving at the receiving facility. Liquid is then pumped through a separate gather­ ing line to the shore. Such pumps place major demands on electric power. Generally, gas is tran­ s­ported in the form of liquefied natural gas (LNG) via tanker because its condensed form helps reduce the volume. Of the 21 LNG plants oper­at­ ing worldwide, only one, on the island of Melkøya, Hammerfest, Norway, is in the Arctic; others at Kenai, Alaska, and Sakhalin Island, Russia, are located in similarly harsh climates. (See also, Trans­portation Challenges, p32) Cold and wind chill exposure Due to the adv­erse impact of cold weather con­di­ tions on human health and performance, as well as productivity, quality and safety, operators need 26

WPC Guide

a compre­hensive strategy of risk assessment and manage­ment practices for offshore work in cold environ­ments such as the Arctic. Technologies for Arctic oil extraction A number of different oil extraction technologies are being used on the North Slope of Alaska. Horizontal production wells These allow producers to run long sections of horizontal pipe through reservoirs of oil. The oil is drained through several perforations along the section of pipe. Horizontal technology has dev­ eloped rapidly since the drilling of the first well in 1990. Most of the wells drilled in Prudhoe Bay are horizontal. The quantity of oil-bearing sands pen­ etrated horizontally has also increased as the tech­nique has improved. Coiled tubing units Drilling and completing of wells with coiledtubing units instead of drilling rigs is another inno­ vative technology. For certain types of wells, main­ ly sidetracks drilled off the bore of an older well,


Technical challenges and developments in the Arctic

ExxonMobil has extensive experience of Arctic conditions gained from working on Sakhalin Island offshore far east Russia. They have drilled six out of 10 of the world’s longest extended-reach wells using the shore-based Yastreb rig.

coiled tubing units offer an alter­native. Coiled tub­ ing units have been used for years on the North Slope for doing maintenance work on wells. Using them to drill certain types of wells became pos­ sible when new types of direc­tional equipment and drilling motors became available. Multilateral wells Like a sidetrack, drilling of a multilateral well involves a new well drilled off from another exist­ ing well. These involve new wells drilled off older wells as well as pairs of wells that share the vertical section that reaches the surface. Designer wells Designer wells are drilled with a high degree of pre­cision to reach small oil targets, small oil poc­ kets, or to reach through or around faults to iso­ lated traps. These are made possible by use of 3D seismic technology, which allows reservoir engi­ neers to plot the locations of faults and small oil traps to within 30m of accuracy. It also is made pos­sible by new technologies allowing tight turns in drilling (turns of up to 100°).

Through-tube rotary drilling (TTRD) TTRD involves a new well drilled through the pro­ duction tubing of an older well. Because the old tubing doesn’t have to be pulled out of the ground by a drilling rig, this technique saves time and money. Drill crews can pull and replace tubing in the ground at a rate of 18m per minute. With TTRD, drillers can also rotate pipe inside the com­ pletion tubing, reducing the friction from sliding. Offshore drilling In the offshore regions of the Arctic, exploratory drilling takes place during the short open water season from mobile drilling rigs. Mobile drilling rigs, which are limited to use in open water con­ ditions, allow the operations to be moved easily to a new location once drilling is complete. Where conditions allow, year-round drilling can take place from artificial gravel islands and specialised rigs that rest on the seabed. Seabed-based drilling rig Robotic Drilling Systems, a Norwegian technology company, has developed a seabed-based rig for Arctic Oil and Gas

27


Technical challenges and developments in the Arctic

drilling. It is controlled via an umbilical to a vessel on the surface. Operating on the seabed helps mitigate tough ice conditions. This equipment is also designed for activities in very deep water.

The tunnel-to-oilfield concept North Energy has developed the Eureka tunnelto-oilfield con­cept, which could be applied in areas such as the Lofoten Islands, where the use of rigs

Case study: BP and ExxonMobil Endicott Satellite Drilling Island is an 18-hectare artificial gravel island 4km off the Alaskan coastline and 24km from Prudhoe Bay in the Beaufort Sea. The island was built in 1987 by Alaska International Construction and is used by BP and ExxonMobil for oil production. Endicott Island was the first continuously producing offshore oil field in the Arctic, with an output of around 20,000 barrels of oil per day. Processed oil is sent from Endicott Island through a 39km pipeline to the Trans-Alaska Pipeline, and then to Valdez, Alaska. BP’s Liberty offshore oilfield is located 6.5km off the northern coast of Alaska in Foggy Island Bay in the Beaufort Sea. The estimated recoverable reserves of the oilfield are

approximately 100 million barrels of oil and 78 billion cubic feet of natural gas. BP plans to carry out drilling activities for the Liberty oilfield from BP’s Endicott Satellite Drilling Island. The island will be expanded to accommodate drilling and production facilities for the Liberty field. Production from the oilfield will be carried out using the world’s first ultra-extended reach drilling (u-ERD) technology. BP contracted Parker Drilling to construct the new rig, at a cost of $215m. To withstand the Arctic conditions, the rig was constructed using low temperature-tolerant steel. However, following BP’s Deepwater Horizon oil spill in the Gulf of Mexico, drilling from the Liberty unit has been put on hold. Production is expected to commence by 2020.

The artificial Endicott Satellite Drilling Island, 4km off the Alaskan coastline, was the first continuously producing offshore oil field in the Arctic.

28

WPC Guide


Technical challenges and developments in the Arctic

ION Geophysical Corporation’s geophysical solutions ION Geophysical Corporation (ION), a provider of geophysical solutions for oil and gas companies, responded to the complex data collection situ­ ation by creating new technologies. These enable data acquisition to take place under the ice supported by special data-processing techniques that reduce the effect of ice noise. ION designed a programme to acquire and image seismic data under the icy waters safely and efficiently. The main part of this solution is ION’s intelli­ gent streamer steering system. Guided by soft­

can conflict with fishing activities. The Eureka con­ cept consists of subsea tunnels that lead to cav­ erns where a drilling rig can be placed and wells drilled to one or more fields. Oil can then be piped back to an onshore facility via separate tunnels. 3D seismic technology for oil and gas exploration Statoil’s five-year Arctic Materials projects were started in 2008 to establish criteria and solutions for the safe and cost-effective application of mat­ erials for hydrocarbon exploration in Arctic regions. Statoil is also developing an Arctic drill unit which can operate across a wide range of depths.

ware and Digi-FIN (a digitally controlled fin for vessels working in icy waters), vessel operators are able to tow the streamer cables in ice-covered water. Additionally, these systems allow the vessel operator to keep the streamer cables in the water in difficult conditions, such as storm-induced wind gusts. ION also pioneered processing methods, including a cascaded processing flow approach, to reduce the impact of ice noise. This helps in data collection as the removal of noise gives clearer images for hydrocarbon analysis.

Technologies for Arctic gas extraction Statoil is a leader in Arctic gas extraction. The com­pany’s Snøhvit field in the Barents Sea has no installations which are visible above the surface. The Arctic gas is sent ashore through a 143km pipe­ line to Melkøya near Hammerfest. There, the gas is processed before being cooled down to liquid form and shipped to customers around the world. Snøhvit is a model for future offshore dev­elopment in the Arctic. Statoil is the main operator with a 36.79% stake and is in partnership with Petoro (30%), Total E&P Norge (18.4%), GDF SUEZ E&P Norge (12%), and RWE Dea Norge (2.81%) of the $9.1 billion project.

DNV GL and the marine icing challenge DNV GL, a provider of offshore and maritime services, is in the process of completing Arctic research projects within the field of advanced computational mechanics. One of the projects aims to provide engineering tools for predicting marine icing, and to develop mitigation measures against it. Another project aims to develop ways to estimate ice loads on offshore structures. Floating system concepts will become more important in future Arctic oil and gas exploration and production activities. Currently, moored

floating structures have been used for oil exploration in the Beaufort Sea and off the coast of Newfoundland, Canada. There is still limited knowledge about the physics of the ice-structure interaction processes and research continues on developing the best tools for predicting the vessel and structure responses to marine icing and the corresponding load effects. DNV GL is investigating mathematical models for capturing the behaviour of moored floating structures in ice.

Arctic Oil and Gas

29


Technical challenges and developments in the Arctic

The field has no fixed or floating units above the three subsea fields, Snøhvit, as well as Alba­ tross and Askeladd. All production from 20 wells comes directly to shore through a 143km multi­ phase pipeline from water depths between 250m and 345m. For efficiency and environmental sound­ness, the company operates the field from Melkøya. An umbilical system carries electricity to the offshore installations, and fibre optic cables carry operating instructions to the installations. If something happens to an umbilical, the operation has a backup plan that allows a ship to travel to the fields and hook into the umbilical connection and accept signals relayed by satellite. Gas from the field travels through the pipeline and then water, liquids, monoethylene glycol antifreeze and CO2 are removed. The gas is then cooled to -163°C to form LNG. The gas, which is primarily methane (CH4), is converted to liquid form for ease of storage and transport, as its volume is about 1/600th the volume of natural gas in the gaseous state. It is produced close to the production facilities in a LNG liquefaction plant, stored, transported in cryogenic tanks on an LNG carrier, and delivered to a regasification terminal for storage and delivery to a pipeline system. The Arctic Lady and her sister ship the Arctic Princess are LNG carriers purpose-built to serve Statoil’s Melkøya LNG terminal. The ships have additional insulation and are heated by electrical coils on walkways and ladders. Deicing systems are in place on other parts of the vessels. Fire lines on deck and other piping systems are also pro­ tected against ice formation. There is also a heat­ ing system in the cargo manifold area to prevent ice from building up. Shell, Gazprom and Rosneft’s oil and gas extraction advances Despite recent issues, Shell has been a leader in the development and use of technology for oil and gas exploration and extraction in the Arctic. 30

WPC Guide

Like Statoil, Shell has made great use of seismic surveys for detecting oil and gas. Shell conducted open water surveys in the Alaskan Chukchi Sea and Beaufort Sea between 2006 and 2009. Shell has also conducted seismic tests on ice to avoid disturbing marine mammals. The company’s 3D seismic surveys have helped locate and analyse oil and gas reservoirs. As well as using sound waves to generate a 3D computer model of the undersea geology, Shell was able to obtain accurate information by re­ cord­ing vibrations on the ice and taking recor­ dings using microphones below the ice and on the seabed. The first successful test with 3D seis­ mic on ice was conducted by Shell in 2007. Gazprom has obtained environmental clear­ ance for an offshore well on the Russian Arctic shelf during the ice-free months. The well is equip­ ped with a filter device to protect marine life dur­ ing transport and operation of the rig. Rosneft has been exploring the Kara Sea using 2D seismic methods to determine estimated rec­ ov­erable oil resources. Further 2D and 3D seismic study of the Kara Sea’s Prinovozemelsky blocks is planned until at least 2016. The first wildcat well is scheduled for drilling in 2015. This will be drilled in an area that is not in the vicinity of known oil or gas fields. An agreement between Rosneft and ExxonMobil for joint offshore dev­elopment is a significant step in exploring and producing oil and gas on the Russia shelf. The two operators plan to work together to develop and create new under­ water exploration and production technologies. BP and ConocoPhillips on the North Slope To reach the oil and gas under Alaska’s North Slope, the producers use a number of drilling techniques. Many of these were developed in situ in Alaska by BP and ConocoPhillips. The operators use seismographs similar to those used to measure earthquakes to explore what cannot be seen by sending sound waves underground and


Technical challenges and developments in the Arctic

Arctic Princess leaving port at Melkøya. This vessel and her sister tanker were specifically designed to cope with operating in Arctic conditions.

measuring how long it takes the waves to reflect off rock layers and return to the surface. ConocoPhillips uses 3D imaging to find the location of more oil and gas from existing fields and to explore for new fields on the North Slope. This means surface disturbance is reduced, recov­ ery is enhanced, and there are fewer, more strate­ gically placed, production facilities. What does the future hold? There are challenges during all stages of explor­ ation, development and production for oper­ators with Arctic oil and gas ambitions. Oper­ators have to meet the many technical challenges outlined in this chapter, such as the Arctic’s re­moteness, climate, ice conditions, permafrost, vari­ability and ecosystem, as well as issues in relation to econo­ mics, politics, and regulations. In spite of these many difficulties, abundant Arctic oil and gas could help provide critical sup­

plies to maintain energy security and create job opportunities. Commercial collaboration and competition in the Arctic are vital for operators and governments to pioneer this frontier. Zhao Jiasheng is an International Department Assistant for the China Industrial Overseas Development and Planning Association. Vikram Sai is a petroleum engineering student at the Indian School of Mines, Dhanbad.

Arctic Oil and Gas

31


Oil and gas transportation challenges in the Arctic

Oil and gas transportation challenges in the Arctic By Greg Hearting Devising innovative transportation solutions is vital for a viable Arctic hydrocarbon sector. Exploration of the Arctic’s oil and gas reserves depends upon meeting the technical challenges of offshore installations. Design, construction and installation of offshore structures are manageable, even in the harsh Arctic environment, but it is most important to bridge the technological gap in transportation of oil and gas in the near future. The existence of Arctic oil and gas reserves has been known for decades but only now full-scale development of the region is taking place. While we know the hydrocarbons exist, the economic feasibility of exploration and extraction needs to be taken into account. One positive point is that Arctic oil and gas fields are large, and this can re­ duce overall cost because less infrastructure is needed, compared to small fields. The Arctic contains parts of multiple countries, thus development of the region is an international project. As well as specific transportation chal­ lenges, there are other challenges facing oil and gas operators in the Arctic, which can impact on transport. These include: the risk of cost overruns on very long projects, environmental regulations, technological issues associated with spill recovery, infrastructure issues, such as the high costs asso­ 32

WPC Guide

ciated with special equipment including ice break­ ers and special tankers, economic feasibility of Arc­tic oil and gas production in a competitive market where there are other ways to extract hydrocarbons at a lower cost and with fewer en­ vironmental risks, and political and jurisdictional issues which are still being debated between countries with Arctic interests. The discovery of oil and gas in the Arctic has posed one of the greatest transportation chal­ lenges of our time and it is a challenge that is unique in history. Since the discovery of the Prudhoe Bay fields in Alaska in 1968, transportation challenges have been an issue for operators. The classic ways of transporting crude oil include pipelines and shuttle tankers. In others regions, these methods are highly effective but the Arctic is somewhat different. Even if the offshore wells are successfully completed and the offshore installations can withstand the waves, wind and ice, the usual solutions are not necessarily viable in the Arctic. Using shuttle tankers is very difficult and almost impossible in winter and late autumn. Laying pipelines is also extremely costly and difficult because both offshore and onshore pipeline needs to be laid. But sometimes things only seem impossible – and Arctic oil transportation is no exception. Even though current transportation options in the Arctic are far from ideal, operators are making them work in frequently trying conditions. Overview of current transportation options in the Russian Arctic The Prirazlomnoe oil deposit The project, operated by Sevmorneftegaz with Gazprom as a partner, included the construction and installation of an offshore, ice-strengthened stationary platform, as well as the establishment of transportation facilities for operations in Mur­ mansk. The special feature of the project was the


Oil and gas transportation challenges in the Arctic

ability to inject drilling wastes into a specially constructed absorption well so environmental regulations could be met. Oil extracted from the deposit is then collected in a platform oil storage facility with a volume of 110,000m3. Then, using

in Ark­han­gelsk. The terminal is equipped with a modern en­vironmental cleaning system. These fields are being developed in a joint venture between LUKOIL and ConocoPhillips.

ice-strengthened shuttle tankers of deadweight 63,500 tonnes, oil is transported to the coastal transshipment complex of Belokamenka in the Kola Gulf. The oil extraction in this area is also connected with the development of the Dolginskoe deposit, located north of the Prirazlomnoe field.

Marine transportation infrastructure Marine shipping in the Russian West Arctic sup­ ports transportation of oil for export, mainly to Rotterdam in the Netherlands. The remaining ships go to Germany, France and Belgium. Oil is ex­por­ted by tankers from ports at Murmansk, Arkhangelsk and Varandey in the Pechora Sea and Vitino in the White Sea. Oil which is extracted by Arctikmornefte­gas­ razvedka (AMNGR) and ArcticNeft from the fields on Kolguev Island in the Barents Sea is either exported through the coastal transshipment com­­plex in the Kola Gulf or exported directly by shuttle tankers. Oil from the fields in the Nenets autonomous area reaches the oil storage tank of the company Naryanmarneftegaz via a branch of

Railway transportation centres and pipelines The northwest railway system runs north and north-east through the Arkhangelsk province, Komi Republic and Yamalo-Nenetsky autonomous area. The length of the railway route is more than 8,000km. Oil extracted from the Timan-Pechora oil fields is supplied via a pipeline system to the oil trans­shipment railway terminal at Privodino station. Oil is dispatched to Rosneft Sea terminal

The Prirazlomnoe platform being towed to its operating position on the Pechora Sea shelf. The operation had to be carried out while the sea was completely free of ice.

Arctic Oil and Gas

33


Oil and gas transportation challenges in the Arctic

The port of Murmansk is an important hub for the transportation of Russian oil to Europe.

the local pipelines. This storage tank is directly linked to a bulk oil terminal in Varandey. Finally, oil and gas are dispatched for export by tankers to the coastal transshipment complex in the Kola Gulf. Other transport solutions For a project to be successful, the most technically attractive and economical solution must be found. It can be said that the Arctic became a testing ground in the search for novel trans­por­ tation solutions that meet these requirements in difficult conditions. For example, Canada pro­ posed an innovative transportation system using airlifts. Boeing 747s were chosen for the case. Across diff­erent markets, a range of transportation ideas have been explored. USA Northstar is the first offshore Arctic field dev­elop­ ment with a subsea oil pipeline. The project feat­ ures twin 10-inch oil and gas pipelines extending 34

WPC Guide

9.7km offshore into the Beaufort Sea to a manmade island. The trenched pipelines were speci­ ally designed to safely withstand seabed ice gouging and permafrost. Onshore pipeline con­ struc­tion equipment was supported by thickening the floating sea ice. Thus, eliminating the need to mobilise offshore pipe-laying vessels and trench­ ing equipment. Moreover, it allowed the work to be performed during a time of a year when environmental impact caused by construction is minimal. The Northstar oilfield was discovered in 1983 by Shell. The pipeline design started in 1996. Develop­mental drilling started in 2000 and production start-up began in 2001. Through 2000 and 2001, a decision had been made to use a specially built ice road in winter across the frozen Beaufort Sea and in the summer, barges are used to bring supplies. Crude oil is processed on Northstar Island and ship­ped via pipeline to the shore at Point Storkersen then transported an additional 18km


Oil and gas transportation challenges in the Arctic

Transporting oil from the Northstar field in the Beaufort Sea required numerous challenges to be met. The oil is piped to shore from Northstar Island, seen here surrounded by ice, through the Arctic’s first subsea pipeline.

over­land to the Trans-Alaska Pipeline System (TAPS) Pump Station 1. Natural gas is transported to Seal Island via the second pipeline for use as fuel and will be used for future reservoir man­ agement purposes. The challenges scientists and engineers had to overcome to make the Northstar subsea pipeline a reality included: l Seabed ice gouging  Irregular keels beneath floating sea ice contact the seabed area in Beaufort Sea to form ice gouges or long narrow furrows. When the ice keel gouges the seabed, stresses are applied to the soil and this must be taken into the account when model­ ling the pipeline. l Seabed permafrost thaw settlement Northstar pipelines operate at temperatures above the soil pore water freezing point, which causes thaw bulbs to eventually form around the pipes. A thaw bulb is an area of thawed ground in permafrost located below a build­

ing, pipeline, river or other hear source. Without complicated computer analysis on how to better lay the pipe, a buried pipeline transitioning through thaw-sensitive perma­ frost will lose support. l Strudel scour  These depressions in the seabed are formed when a river overfloods seabed ice in a nearshore coastal zone. If the scour occurs above the pipeline route, it can leave a span of pipe unsupported. l Upheaval buckling  Buried pipelines can develop compressive forces and leaks during an upheaval buckling, which is when they buckle from underneath with upward pressure. The Northstar pipelines are designed to avoid buckling at the maximum operating temperature of 100°F. The Trans-Alaska Pipeline System (TAPS) Since the Arctic Ocean at Prudhoe Bay is ice-free for only six weeks of the year, the main TAPS pipe­ Arctic Oil and Gas

35


Oil and gas transportation challenges in the Arctic

About half of the Trans-Alaska Pipeline is constructed above ground to mitigate some of the problems that would be caused by the heat of the oil travelling across permafrost.

line was built to move North Slope oil from Pump Station 1 at Prudhoe Bay to an ice-free port ter­ minal at Valdez, Alaska, 1,300km to the south. The TAPS includes the Trans-Alaska crude oil pipeline, 11 pump stations, several hundred miles of feeder pipelines, and the Valdez Marine Terminal. The pipeline was built between 1974 and 1977. The builders of the system had to address a range of difficulties, stemming mainly from the extreme cold and the difficult, isolated terrain. The con­ struction of the pipeline was one of the first largescale projects to deal with problems caused by per­ mafrost, and special construction techniques had to be developed to cope with the frozen ground. The first barrel of oil traveled through the pipe­ line in 1977, and full-scale transportation began by the end of the year. Several notable incidents of oil leakage have occurred since, including those caused by sabotage and maintenance failures. As of 2010, the pipeline has shipped almost 16 billion barrels of oil. By 2015, it is anticipated that daily oil throughput will approach 500,000 barrels per day, unless additional sources of oil are developed. 36

WPC Guide

The pipeline is 1.2m in diameter, and built in most places about 1.5m above ground to allow passage of wildlife underneath. The line is constructed in a zigzag pattern to allow for thermal expansion and to allow non-destructive movement during Alaska’s frequent earthquakes. The oil takes almost six days to make the trip all the way down the pipeline. When it reaches Valdez, it is loaded onto supertankers for transport to West Coast refineries or to Asian markets, where it has been exported since 1998.  At first, the engineers assumed that the pipeline would be buried underground. That’s how most pipelines are built, after all. But no one had ever built a pipeline in a place like Alaska, where it gets so cold that in many parts of the state, the subsoil is permanently frozen. This deep soil, which never thaws, is called permafrost. Planners realised that the pipeline couldn’t be buried in the permafrost, because the heat of the oil could cause the ice in the soil to melt. If this ice melted, the pipe would sag and might leak. In winter, the soil around the pipe would freeze again. This freeze-thaw cycle could cause the pipe to move enough to cause serious damage. To avoid these complications, the engineers made an important decision: About half of the 1,300km pipeline would have to be built above ground. They supported the pipe with refriger­ ation posts that are topped with aluminum radi­ ators. The posts conduct heat away from the soil. The pipeline is also wrapped in 10cm of fibreglass insulation. Both of these measures help to keep the permafrost solid. A second challenge for TAPS’ constructors was Alaska’s temperature, which ranges between -60°C and 35°C. Given that the metals used to make the pipeline expand and contract with changes in temperature, the pipeline had to be built to acco­ mmodate this. The engineers estimated that a 304m segment of pipeline could shrink by as much as 0.3m in the coldest weather and expand by an


Oil and gas transportation challenges in the Arctic

equal amount during the warmest season. If the pipeline were straight, even a small change in each segment of the pipeline would be disastrous. The pipeline would either snap if it contracted too much or buckle if it expanded. To prevent the pipe­line from breaking, the designers used a zig­ zag configuration to mitigate the effect of con­ traction and expansion. As well as extreme temperatures, TAPS’ engin­ eers had to deal with earthquakes, which are fairly common in Alaska. In fact, the largest earthquake ever to occur in the United States (measuring 9.2 on the Richter scale) took place in southern Alaska in 1964. The engineers had to build a pipeline that could survive such an event intact. A two-part system of “shoes” and “anchors” that hold the pipeline in place at fault lines where earth­ quakes have occurred was designed. The pipeline also had to allow enough movement so it does not fall off its supports if the ground moves. At the Denali fault zone, where earthquake activity has

been heavy, the pipeline is designed to move up to 6m side to side and 1.5m up and down. Canada The Terra Nova and White Rose mega projects in Newfoundland posed significant transport chal­ lenges for operators in Canada. Conducted from 1997 to 2001, the Terra Nova project was the first sub-Arctic subsea super-project. It was the first to use large scale open glory hole construction for iceberg protection and the first ever to use a disconnectable riser system in a harsh Arctic environment. After Terra Nova, the White Rose project was launched, building on lessons learned from Terra Nova. From the very beginning of the project, these chal­lenges arose: l The cost of project execution was relatively

high due to the remoteness of Newfoundland and the necessity of getting expensive equipment to the project location.

A close up view of the Terra Nova FPSO’s turret with the platform visible in the distance.

Arctic Oil and Gas

37


Oil and gas transportation challenges in the Arctic

The SeaRose FPSO; when operating in frontier regions these vessels allow additional transportation infrastructure to be kept to a minimum.

l The reaction time of the supply chain is longer. l The cost of unplanned intervention was

quite high. These economic challenges had been managed by thorough planning with the help of the best project managers available. There were also tech­ nical challenges. Subsea equipment on both pro­ jects is located in so-called glory holes. These are large scale depressions in the seabed formed by excavation to a size and depth so that the very top of subsea equipment is submerged. This means that an iceberg can pass overhead. Offshore exca­ vations of such size had never been attempted before. The selected technology was reverse circ­u­ la­tion drilling using a large-diameter bit. For White Rose, the glory hole dimensions were increased to facilitate better access to the subsea equipment. Trailer suction dredging was used to excavate the glory hole at the White Rose project. 38

WPC Guide

Both projects were divided into three phases: glory hole excavation, mooring system installa­ tion, and installation of subsea equipment in freez­ing conditions. In both projects, drill centres were connected to a floating production, storage and offloading (FPSO) vessel, with flexible flow­ lines and risers. These FPSOs can store between 700,000 and 850,000 barrels of oil (approximately eight to 10 days of oil production) and contain topside pro­ cessing units, accommodation and a turret. The FPSO’s turret is designed to allow the facility to disconnect from the subsea drill centres and move in the event of an emergency. An FPSO unit is a floating vessel used by the offshore oil and gas industry for the processing of hydrocarbons and storage of oil. An FPSO vessel is designed to receive hydrocarbons produced from nearby plat­ forms or subsea templates, process them, and store the oil until it can be offloaded onto a tanker or, less frequently, transported through a pipeline. FPSOs are preferred in frontier offshore regions as they are easy to install, and do not require a local pipe­line infrastructure to export oil. The following requirements are crucial for oper­ ating in Arctic using an FPSO. It must be able to: l Withstand high ice loads during winter without damage to the facilities. l Provide satisfactory performance in icy and stormy conditions. l Have a large capacity to store supplies because supply boat trips are limited in the difficult climatic situation. l Be able to disconnect from its mooring and risers and be towed away in case of an unavoid­able iceberg. Artificial islands in the Canadian Arctic The use of artificial islands may be one of the most important solutions for operators in the Arctic for transport, storage, exploration and ongoing dev­ elopment of the hydrocarbons sector. Conven­


Oil and gas transportation challenges in the Arctic

tional offshore technologies developed by the ind­ ustry over the years for the ice-free seas only have limited application in Arctic seas, where waters freeze and the operating season is usually just a few months of the year. If the lease owners rely solely on conventional technologies, the pace of Arctic offshore development will be extremely slow and not economically viable. The ability to conduct year-round operations is essential for success. To do this, new technologies such as arti­ ficial islands were proposed. There are three main artificial island technologies available now: l Gravel islands  In 1973, Canadian Beaufort

Sea exploration started with construction of the Immerk B-38, an artificial island built by ExxonMobil. Although the gravel island concept is relatively sim­ple, its successful implementation requires major engineering design. The temporary nature of gravel islands places a high penalty on over-design and can add to the project costs. l Spray ice islands  These are an alternative to gravel islands, largely because of the cost savings – they can be up to 50% less expensive to con­struct. To build a spray ice island, a sheet of exist­ing ice is sprayed with water which then freezes to make the ice thicker. This process is repeated so the ice island becomes thicker and heavier and settles into the water, finally resting on the sea­bed. The Nipterk P-32 ice island was built in the Canadian Beaufort Sea by Imperial Oil. Spraying started in 1988 and was completed in 1989. l Caisson-retained islands  These feature a steel retaining ring ballasted down onto a gravel berm with an interior filled with gravel. Using a subsea berm, it can be installed in deeper water that would be economically feasible for a standard gravel island appli­ cation. The Molikpaq structure was built by Gulf Canada in the Beaufort Sea, but it is now operated by Sakhalin Energy as an off­shore

production platform for Sakhalin Island on the Sakhalin-2 Project. The Molikpaq was the most heavily instrumented structure in the Beaufort Sea, with about 500 different sensors, includ­ ing 31 ice load panels that continuously measured structural responses to environ­ mental loads Iceberg-resistant platforms As well as artificial islands, iceberg-resistant plat­ forms play an important role in the Canadian Arc­ tic for transportation, exploration and extraction. The first ever iceberg-resistant platform was built on the Grand Banks, offshore Newfoundland, in 1979 and production commenced in 1997. The Hibernia gravity base structure was the first plat­ form installed for developing hydrocarbon re­ser­ ves on the Grand Banks. It is the world's largest oil platform – the platform is 224m high with a 185person capacity, and is capable of producing 220,000 barrels of oil per day. A dedicated fleet of shuttle tankers con­ tinuously operates between the platform and an onshore transshipment facility at Whiffen Head, adjacent to the Come By Chance Refinery. The platform always has at least one logistics support vessel in attendance. This vessel shuttles supplies and provides on-station emergency support. These support vessels are also tasked during the spring and summer months with towing small- and medium-sized icebergs which might collide with the platform. Norway Norway’s main methods of transportation for its Arctic oil operations are FPSO and shuttle tankers. Johan Castberg (formerly Skrugard) and Havis projects The Johan Castberg field was discovered in April 2011 and Havis in January 2012. Trans­ocean concluded initial drilling and an appraisal of Arctic Oil and Gas

39


Oil and gas transportation challenges in the Arctic

The Hibernia was the first platform to open the deposits of Canada’s Grand Banks to exploitation. At least one support vessel stays with the platform at all times to fill a variety of improtant roles.

Johan Castberg in March 2012 using the com­ pany’s Polar Pioneer rig. It encountered hydro­ carbons at approximately 1,250m below sea level. Statoil is also drilling exploration wells around the Johan Castberg area to further increase resources to make the project more robust. Drilling of the Havis prospect concluded in early 2012. The com­ bined estimated volumes from Johan Castberg and Havis facilities are in the range of 400 to 600 million barrels of recoverable oil. The development plan for the two oil fields, which are 7km apart, was announced in February 2013. The plan includes installation of a floating pro­ duction unit (FPU) with a pipeline to shore and an onshore oil terminal at Veidnes, outside Honning­ svåg, in Finnmark. The two fields will share com­ mon infrastructure. Production from the fields will be tied in to a semi-submersible floating installa­ tion through a subsea production system located in about 380m of water. Transportation of the produced oil from off­ shore to the onshore oil storage facility will be faci­litated by a pipeline measuring 280km in 40

WPC Guide

length. The oil will be stored in two mountain caverns. It will be transferred to the quay through a pipeline. Crude tankers will further transport the oil from the terminal. Goliat The Goliat field is located in the Barents Sea, north of Norway and Russia. It was originally awarded to Eni Norge (65%) and Statoil (35%) in 1997 and a dis­ covery well was drilled in 2000. A total of five wells have so far been drilled. When operational, pro­ duction is expected to be 100,000 barrels per day. Preliminary front-end engineering and design work has begun on the production templates from a development proposal that was approved by the Norwegian parliament in May 2009. The approved development plan includes subsea wells tied to an FPSO. As per the contract, Sevan Marine provided project and engineering management and preliminary service for developing the FPSO, which is being built. In January 2010, Sevan Marine signed another letter of intent with Esvagt, a company that speci­


Oil and gas transportation challenges in the Arctic

alises in delivering safety and support services at sea, for ensuring the safe delivery and standby of a vessel to be used for operation during the pro­ject. The vessel’s main role will be to respond im­me­diately in case of an oil spill as well as providing transportation. In February 2010, Eni Norge award­ed the EPC contract for the Goliat FPSO to Hyundai Heavy Industries. The contract is worth $1.16bn and inc­ ludes onshore commissioning and transpor­ta­tion of the FPSO to the field. In Nov­ember 2011, the Offshore Division of Lankhorst Ropes was contracted to supply mooring lines for the Goliat FPSO. The FPSO will receive power from a new shore­ side power supply system at Hyggevatn in Hammerfest, Norway. The power supply system, operated by Siemens, will comprise a substation at Hyggevatn, overhead transmission lines, a buried cable and an advanced reactive-power com­pen­ sation system. Powering the FPSO from land will reduce carbon dioxide emissions by half, com­ pared with onboard gas turbines and generators Conclusion Challenges in Arctic oil transportation are signifi­ cant due to the following factors:

l Remoteness of fields from existing

developments or from the shore. l Lack of infrastructure in nearby regions. l Limited access to fields due to the potential

impact of ice features. l Very long project development schedules.

Industry efforts are required to improve the qual­ity of ice data and improvement in ice load computation methods. There still remains a great need to study the efficiency of vessels sailing in the Arctic. Great care should be taken when en­ countering drifting hard multi-year ice floes. There is a long road ahead in terms of improving Arctic oil transportation and there is no doubt that technologies will improve significantly, because in today’s world, access to energy is one of the big-­ gest challenges faced on a global scale. Greg Hearting is studying oil and gas engineering at Robert Gordon University, Aberdeen.

Pipeline challenges in the Arctic Here are just a few of a many challenges which must be overcome to successfully launch a pipeline project in the Arctic: l Permafrost  In most applications, the

engineering problems associated with permafrost are caused by unpredicted melting in soil with high excess ice content. This melting will result in loss of strength and great settlement. l Route selection of Arctic pipelines  A route

should be found which has the maximum amount of rock, thawed or low ice content soil. At the same time, a route must cross terrain where construction is possible and where the

limits of pipeline hydraulic design can be met. l Thermal design  For example, the disturbance

required to construct a pile-supported, elevated pipeline along a southernmost margin of a permafrost, where it is warmer, can be enough to cause extensive melting and disrupt the project. l Varying oil temperature with time  The oil

temperature along the length of a pipeline depends on previous thermal history of the upstream portions of the project. This varying oil temperature with time and distance affects power requirements, hydraulic pressure, pump station locations etc.

Arctic Oil and Gas

41


Legal issues in the Arctic

Legal issues in the Arctic By Iain MacWhannel Who owns what?

The question of who owns which parts of the Arctic and, consequently, who can exploit the nat­ ural resources within it, is the central legal chal­ lenge to further Arctic oil exploration and dev­ elopment. The matter is complicated by the fact that it is not just a legal problem, but a political issue too. The legal issues that the oil and gas industry most frequently encounters are broadly these: l Which law and jurisdiction will commercial agreements (and/or trading entities) be subject to? l How does the state collect revenue e.g. through royalties or taxation? l What process must be followed in order to obtain permission to explore for and/or produce oil? l What planning, environmental and safety laws must be complied with? The answer to each of the questions posed above varies from country to country and juris­ diction to jurisdiction. In fact, the answer to any given question may even change within a jurisdiction if the legislature of a particular state so determines. 42

WPC Guide

As things stand, five Arctic powers make com­ peting claims to sovereignty over the Arctic: Canada, Denmark (via its control of Green­land and the Faroe Islands), Norway, Russia and the USA. Given the impressive estimates of Arctic oil and gas reserves and the navigational advantage that could emerge from the continuing decrease in sea ice, it is not surprising that the Arctic powers’ are locked in territorial disputes. Until the disputes regard­ing where the respective Arctic powers territories begin and end are resolved, an assessment of the legal challenges of exploring for and/or producing oil and gas within a disputed zone are largely academic. It is important to be clear that it is not the entire Arctic region that is disputed – the territorial boun­ daries of some parts of the Arctic region are clearly determined by law. Additionally, hydro­car­ bon produc­tion already takes place in the Arctic in the territories of several of the Arctic powers, such as Russia and the USA. International law requires that the Arctic pow­ers resolve their disputes through agreement or via the dispute resolution processes that have been specially created. Given the lack of enforce­ment power that the dispute resolution forums possess, how­ever, it is most likely that the com­peting Arctic sovereignty claims will be resolved through diplomatic channels, rather than through litiga­tion. The time horizon for resolution is not a short one: not all of the Arctic powers have yet finalised the submission of their claims to the relevant inter­national organisation and the US has not even ratified the relevant international agreement and thus is not in a position to even submit its claim. Post-ratification, the US would have 10 years to submit its claim for determination. In the meantime, and because so much is at stake, the political and legal wrangling will continue. The good news is that agreements can, and have been, reached regarding even long-standing Arctic sovereignty disputes. For example, in 2010 Norway and Russia ended their boundary dispute regarding the Barents Sea.


Legal issues in the Arctic

The United Nations Convention on the Law of the Sea The United Nations Convention on the Law of the Sea (UNCLOS) established a comprehensive re­ gime of law over the world’s oceans and seas, including all uses of their resources. The original convention (the Convention on the Continental Shelf ) was an international treaty crea­ted to codify the rules of international law relat­ing to continental shelves. This came into force in June 1964. In 1973, a third conference was called (UNCLOS III) and UNCLOS in its present form was agreed. At the time of writing, 165 countries and the European Union have joined in the Con­ vention. The most notable absentee from the Con­vention is the USA, despite the fact that the USA helped draft its terms. UNCLOS covers a wide range of areas that are not directly connected to the Arctic oil and gas sov­ ereignty issue, such as rights of navigation and fishing. Perhaps most importantly for operators in the Arctic, the Convention defines specific Mari­ time Zones, measured from a carefully defined base­ line. Normally, the baseline follows the low-water line, but when the coastline is deeply indented, has fringing islands or is highly unstable, straight baselines may be drawn between appropriate points. The two key Maritimes Zones are: The Territorial Sea The Territorial Sea extends out from the coast for 12 nautical miles. The coastal state retains the right to use natural resources within this zone, but cer­ tain exceptions are made, such as foreign vessels are allowed “innocent passage” through the zone. The Exclusive Economic Zone (EEZ) The EEZ is measured from the baseline out to 200 nautical miles (370km). Within this zone, the coast­al state has exclusive exploitation rights over all natural resources. Foreign nations have free­ dom of navigation within the zone, subject to the

Six states have a claims to the waters of the Arctic.

regulation of the coastal state. Importantly, foreign states may also lay submarine pipes and cables in the EEZ of a coastal state. Pursuant to UNCLOS, coastal states have exc­ lusive sovereign rights over the Continental Shelf (CS) for the purposes of exploration and exploit­ ation. UNCLOS created a legal definition of the CS which differs significantly from the geological definition and, in certain circumstances, can oper­ ate to extend a coastal state’s rights of exploration and exploitation well beyond the EEZ. For ex­ ample, the Canary Islands have no physical/actual CS, but do have a legal CS. Conversely, uninhabited islands which do have a physical CS do not have a legal CS. Article 76 of UNCLOS defines the CS as “the natural prolongation of the land territory” (as opp­osed to the ocean floor) to the continental margin’s outer edge, or 200 nautical miles from Arctic Oil and Gas

43


Legal issues in the Arctic

C States have two options when defining the extent of their continental shelf, either 350 nautical miles seaward of the baseline, or 100 nautical miles seaward of the 2,500 metre depth contour (isobath).

the coastal state’s baseline, whichever is greater. In accordance with Article 76 of UNCLOS, a coastal state may therefore establish the limits of its legal CS wherever the continental margin extends beyond 200 nautical miles. A state’s continental shelf may exceed 200 nautical miles until the natural prolongation ends. However, it may never exceed 350 nautical miles from the baseline or 100 nautical miles beyond the 2,500m isobath (an imaginary line or line on a map connecting all points underwater with the same depth). In short, and roughly speaking, a coastal state’s rights to explore for and exploit oil may therefore extend up to 350 nautical miles from its coast line. The area beyond the CS and outside of the EEZ is classified as seabed and is owned “by all mankind”. UNCLOS created the International Seabed Authority (ISA) to administer all mineralrelated activities in the international seabed area beyond the limits of national jurisdiction and thus an area underlying most of the world’s oceans. The Commission on the Limits of the Continental Shelf A coastal nation is responsible for determining the extent of its CS. It does this by establishing its continental margin in accordance with the geological specifications provided for in UNCLOS. 44

WPC Guide

This is a significant task and the results must be submitted to the Commission on the Limits of the Continental Shelf (CLCS). The CLCS is a body established by UNCLOS and is comprised of geological, geophysical and hydrographic experts. The CLCS has two duties: (1) To review submissions and make recommendations regard­ing the extent of the outer limits of a coastal nation’s CS; and (2) to provide scientific and technical advice to submitting nations. A coastal nation must make its submission to the CLCS 10 years from ratification of the Convention or 10 years from May 1999 if it ratified UNCLOS prior to that date. The CLCS is not an Arctic boundary dispute panacea. Article 76(10) of UNCLOS provides that the recommendations of the CLCS “shall not prejudice matters relating to delimitation of boundaries between States with opposite or adjacent coasts”. A recommendation from the CLCS does not resolve relevant disputes between states regarding the extent of their sovereign rights and, consequently, does not resolve issues such as who has the right to drill for hydrocarbons at certain points in the Arctic. In particular, the US is not a party to the Convention and therefore, unless it becomes a party, will not make a submission to the CLCS.


Legal issues in the Arctic

The nature of the disputes over the Arctic As is the legal norm, where there is room for inter­ pretation and/or application of law, there is room for dispute. Article 76 of UNCLOS provides that coast­al states may use different interpretations and methods to calculate the maritime boundary. The CS is the “natural prolongation” of a state’s land territory to the edge of the continental margin. Measuring the continental margin is a complex task and is especially difficult in the Arctic because the sea floor of the Arctic Ocean conjoins Russian, Greenlandic and Canadian territories via the Alpha, Lomonosov and Mendeleev ridges. Where the “natural prolongation” of one CS ends and another begins is a question that first arose formally in 2001 when Russia made its submission to the CLCS. Russia claimed the entirety of the Alpha, Lomono­ sov and Mendeleev ridges. Canadian and Green­ landic/Danish objections quickly followed and the USA also objected to the submission and des­ cribed it, bluntly, as “flawed”. The two main issues in respect of Arctic sov­ ereignty are: Overlapping The EEZs of countries may overlap. Overlapping claims arise where coastlines are opposite or adja­cent. The method of determining the baseline for the pur­ poses of calculating the relevant Maritime Zones may be disputed. For example, in the Barents Sea dispute, Norway applied an equidistance method and Russia’s claim, originally made by Josef Stalin, applied a method involving sectors based on lines of meridian. Outer limits of the Continental Shelf Arctic countries disagree over the extent of the outer limits of their CS (which may also involve some overlapping). For example, Canada, Denmark (via Greenland) and Russia, all have competing claims to the Arctic that extend their respective Continental Shelves to the North Pole itself via a system of ridges on the floor of the Arctic ocean.

Current and recent disputes Eight countries have the geographic potential to make CS claims to parts of the Arctic: Russia, Canada, Denmark (via Greenland and the Faeroes Island), Norway, the USA, Finland, Iceland and Sweden The Barents Sea – Norway/Russia In September 2010, Norway and Russia ended a 40-year dispute over their maritime borders and signed a treaty, the main purpose of which was to facilitate new oil and gas exploration in the Arctic. The dispute erupted in the 1970s and was initially about fishing rights. Official negotiations began in 1974 and both states had fundamentally diff­ erent positions regarding the disputed area of 176,000 km2 and the rights to ex­ploit the natural resources that lay therein. Svalbard and Greenland Sea – Denmark/Norway The Svalbard and Greenland Sea dispute was similar to the Barents Sea dispute and an agree­ ment was reached in 1995 between the two states after a ruling by the International Court of Justice (ICJ) concerning Jan Mayen Island. Norway based

US Coast Guard icebreaker Healy and Canadian Coast Guard icebreaker Louis S. St-Laurent side by side, undertaking a joint survey to define the full extent of the Arctic continental shelf.

Arctic Oil and Gas

45


Legal issues in the Arctic

its claim on a meridian line method and Denmark based its claim on its continental shelf. The ICJ suggested that the countries should find a way to operate certain parts of the disputed area jointly and the two countries implemented such an arrangement. The Beaufort Sea – Canada/US Since 1977, Canada and the US have had com­ peting claims over 21,000 km2 of ocean. The Canadian claim is based on the legal principles that one cannot sell property rights that do not belong to them (i.e. the US territory was pur­ chased from Russia), and that states inherit the previous territorial boundaries of their original colonial state (i.e. Canada inherited the UK’s boun­ daries as agreed between Great Britain and Russia which calculates the boundary based on the “frozen ocean”). The US claim is based on the application of an equidistance method, but such a method has been dismissed as an inappropriate method in CS disputes by the ICJ. In 2010, the two nations undertook a joint survey of the CS in the Beaufort Sea and appear to be working towards a diplomatic solution as to who has the right to explore for and exploit oil in the disputed part of the Beaufort Sea. The Bering Sea – Russia/US The Maritime Boundary Agreement 1990 created a sea border between Russia and the US. The dispute, however, continues despite the agree­ ment because it has not yet been approved by the Russian parliament. The border extends north through the Bering Strait and the Chukchi Sea into the Arctic Ocean. The disputed area is 51,449 km2. The need for the boundary arose after the US purchased Alaska from the Russian Empire in 1867. At that time, maritime boundaries were limi­ted to only three miles (“as far as a cannon shot”). After the introduction of UNCLOS, its EEZ 46

WPC Guide

and the possibility of an extended CS claim, both parties failed to produce a map that made clear exactly where the border had been drawn during the original purchase negotiations. The 1990 agreement introduced several “special areas” outside of the EEZ in which the sides ceded their rights to the other. The US was the largest benefactor of territory under this agreement and quickly ratified it. The Soviet Union did not ratify the agreement before its collapse in 1991 and the Russian Federation has not done so either. The Arctic Ridges – Denmark (Greenland)/Russia/US In 2001, Russia made its submission to the CLCS and claimed the entirety of the Alpha, Lomonosov and Mendeleev ridges (and thus most of the Arctic region). Canadian and Greenlandic/Danish objections quickly followed and the US also objected to the submission and described it, bluntly, as “flawed”. The CLCS asked Russia to provide “further information” in order for it to make its recommendation. Russia has not yet provided the further information, but did, in 2007, use a submarine to plant a metal Russian flag on the seabed of the Arctic Ocean. Canada ratified UNCLOS in 2003 and submitted its claim in 2013. The Canadian claim overlaps with the Russian claim and is based on ridgelines stem­ ming from the northern Canadian islands. Denmark ratified UNCLOS in November 2004 so has until November 2014 to make its sub­ mission. Its submission is further complicated, how­ever, by increasing moves for independence being made by Greenland and the Faroe Islands, the landmasses from which Denmark’s current claims are calculated. The US has not yet ratified UNCLOS and if it does will have 10 years from ratification to make its submission to the CLCS. There can be little doubt, at this stage at least, that any submission that the US may make will be based on ridges extending into the Arctic Circle from Alaska.


Legal issues in the Arctic

V An aerial view of the Chukchi Borderland from the north, with tracks from mapping expeditions undertaken in 2003, 2004 and 2007.

Who will own what in the Arctic? UNCLOS provides that states are obliged to settle their disputes concerning the interpretation or application of the Convention by peaceful means. The Convention provides for three different dis­ pute resolution forums: l The International Court of Justice l The International Tribunal for the Law of the Sea l Arbitration Politics governs the enforcement of the deci­ sions of international courts and of international arbitration. The UN relies on states to abide by decisions or to rally against those that do not. The US Supreme Court has recognised this weak enforcement and found that decisions of the ICJ, the highest international court, are not binding in the US. Additionally, the US has not ratified UNCLOS and therefore is not subject to the UNCLOS dispute resolution options. The US is a part of the UN, however, and must resolve its disputes peacefully. Given the weakness of enforcement of the decisions of inter­national courts, and the fact that not all the Arctic powers are party to UNCLOS, it is unlikely that a legal resolution will be found to Arctic sovereignty issues. Diplomatic solutions to territorial disputes are as old as the disputes themselves. As is evident

from the Arctic disputes outlined above, solutions have already been found to some of the Arctic disputes. Simply agreeing to work together has often been the basis for the resolution of territorial disputes: Joint Development Zones (JDZ) have been created in the Arctic, but originate from elsewhere (such agreements have been put in place in Europe, the Middle East and Asia). Pursuant to a JDZ, sovereignty may or may not be determined, but the parties may agree to share resources within the disputed zone. Joint Development Zones may not be the answer to all of the sovereignty issues of the Arctic region, but it is more likely, based on past disputes, that diplomacy, not law, will unlock the dis­ agreements. Furthermore, the CLCS, despite its clear inability to bind submitting states through its recommendations, should continue to be a persuasive weapon in the diplomatic arsenal of each state and will colour the “who-owns-what” negotiations. Iain MacWhannell is a barrister at Thomas Cooper LLP in London. www.thomas cooperlaw.com Arctic Oil and Gas

47


Environmental challenges in the Arctic

Environmental challenges in the Arctic By Tamar Gomez Operators are balancing environmental protection with commercial feasibility in this most sensitive of regions.

Environmentally, the Arctic is extremely valu­able and extremely vulnerable. With its idio­syncratic and diverse ecosystem and its extreme weather conditions affecting exploration and production, there are sizeable challenges the industry needs

to address in order to ensure safe, sustainable and environ­mentally friendly operations. The challenges necessitate preventive meas­ ures to be taken by exploration and production stakeholders in the region. The goal of this chapter is first to highlight the major environmental risks and vulnerabilities linked to oil and gas explor­ ation and production in the Arctic and, second, to identify responses and solutions brought in by the oil and gas players, to stave off these risks. The Arctic environment and biodiversity The 2013 Arctic Council Report, Arctic Biodiversity Assessment Synthesis, defines the main charac­ teristics of the Arctic environment as its climate, its seasonal variability, the presence of a per­ manent or seasonal ice-cover, and its biodiversity, all of which are intertwined and dependent upon each other. The Arctic climate is defined by extremely cold and lengthy winters where temperatures range from -50°C and 0°C, and short, cool summers with

Balancing the world’s energy needs with the preservation of fragile Arctic ecosystems is one of the most important challenges we face in the years ahead.

48

WPC Guide


Environmental challenges in the Arctic

temperatures varying between -10°C and 10°C. Arctic seasonal variability is distinct with ninemonth winters covered in almost complete dark­ ness, and short summers, when the sun never sets, creating a phenomenon called the “midnight sun”. Ice is the main component of the Arctic en­ viron­ment. It may be found as permafrost, sea ice, icebergs, or glaciers and lake ice which are att­ ached to landmass and made of fresh water. Water circulation patterns are notable since the Arctic Ocean is enclosed save for the Bering and Fram straits and the opening to the Barents Sea and the Canadian Archipelago. They are inherently related to the constitutive layers of the Arctic Ocean: the Polar Mixed Layer (PML) at the surface, the halocline and the Upper Polar Deep Water (UPDW) layer. Determining the water patterns of these layers remains challenging as models are constantly evolving (Source: Jones, EP, Circulation in the Arctic Ocean). The Arctic environment nurtures a range of unique species. What is more, the Arctic is also the

seasonal summer habitat of many migratory species. The relatively low number of Arctic spec­ ies, their acute adaptation to the environment and their high interdependency within the food chain makes them extremely sensitive to any changes (Source: Jones, EP, Circulation in the Arctic Ocean). Arctic species Arctic Whales Of the 17 species of whales, three can be found all year long in the Arctic. They are: l The bowhead Whale which can reach 20m long, 2.5m wide and weigh a hundred tonnes may be found in polar seas. The bowhead was hunted to the edge of extinction and is now a protected species. The Census of Marine Life project found that the bowhead migrates into sub polar waters when ice forms. l The Beluga whale, renowned for its pristine white colour can reach up to 6m in length, and weigh up to 1.5 tonnes. Belugas are an Arctic and sub-Arctic species whose habitat is

A wind-polished iceberg surrounded by sea ice off the Greenland coast. The major feature of the Arctic environment, ice in all its forms makes working in the region extremely difficult.

Arctic Oil and Gas

49


Environmental challenges in the Arctic

Previously hunted for their oil, skin and tusks, they are now protected. They feed upon Greenland halibut, Arctic and polar cod, Gonatus squid and shrimp.

While ranging over all the world’s oceans, killer whales are com­ monly seen in the region and the Arctic’s apex predator species.

generally estuary and coastal areas. They group into large herds (up to a hundred) during migration. Their diet consists mainly of fish: salmon, capelin, shrimp, herring, Arctic cod, molluscs and crabs. l The Narwhals are famous worldwide for their long ivory tusk. They live mostly in Canadian, Greenland and Russian Arctic waters.

Fish and crustacean Fish and crustaceans are essential to the Arctic environment and food web, representing a crucial part of many species’ diets. They often constitute a link between small amphi­pods and larger ver­ tebrates. The largest species of fish in the region are the Arctic cod, Arctic char, capelin, pollock, salmon and herring. They mostly live and repro­ duce near the bottom of the ocean. Crustaceans are profuse in Arctic water, more than 1,600 species making up about 25% of bottom-dwelling fauna of the region. Plankton Plankton are another crucial link with­in the Arctic food web as they constitute the basic diet of crustaceans and fish. Phytoplankton use the energy provided by sunlight in order to photo­

Narwhals, with their distinctive ivory tusks, were once a prized catch but are now a protected species.

50

WPC Guide


Environmental challenges in the Arctic

A phytoplankton bloom seen from space. The base of the marine food chain and too small to be seen individually with the naked eye, they are present in vast numbers.

synthesize carbohydrates. They are then preyed upon by zooplankton which themselves form the bulk of most local fish species’ diet. Polar bears Polar bears and seals are considered marine mam­ mals as they live mostly on sea ice in the Arctic region. Polar bears spend half of their time hunting, however only 2% of their hunt is suc­ cessful. They prey upon seals which provide them the sufficient amount of fat needed to sustain their own body fat. Polar bears are now on the Inter­ national Union for the Conservation of Nature (IUCN) Red List as a vulnerable species since their numbers have been steadily declining due to the shrinking of their habitat.

Polar bears are probably the Arctic’s most recognisable native species.

Arctic Oil and Gas

51


Environmental challenges in the Arctic

Numbers are swelled when migratory spec­ies arrive in the Arctic in spring where they stay for an intense breeding season.

A ribbon seal, one of the six species that make their home in the Arctic.

Seals There are six different seal species living in the Arctic: the harp, ringed, hooded, bearded, spotted and ribbon. Their life cycles are extremely dep­ endent upon their habitat since they live on the sea ice edge and females deliver their pups on ice. Seals mostly feed upon fish and crustaceans. Some species are considered endangered by the US National Oceanographic and Atmospheric Administration (NOAA). Seabirds The region’s seabird wildlife is rich with more than 40 native bird species breeding on sea­shores.

Arctic vulnerability The Arctic environment’s many vulnerabilities are a vital consideration for operators conducting oil and gas exploration and production activities The region’s natural equilibrium may deteri­ orate because of several factors: the weakening or disintegration of habitat and ecosystems; over­ exploitation of resources; contamination of air, water and soil; the introduction of invasive spec­ ies; and climate change. In 1997, the Arctic Pollu­ tion Issues: A State of the Arctic Environment report by the Arctic Monitoring and Assessment Pro­ gramme outlined the biggest oil and gas oper­ ation-related threats to this region. They come from the contamination of water and from the deteri­oration of ecosystems which may be caused by extensive industrial activities in sensitive areas and the potential consequences entailed. Ecosystem vulnerability Arctic wildlife has a tendency to group in speci­fic locations where the concentration of different species is particularly high, especially in coastal areas. Hence, oil and gas-linked weakening of the C A sea eagle and its catch photographed offshore Norway. Bird life and its food sources can be particularly vulnerable to environ­ mental damage.

52

WPC Guide


Environmental challenges in the Arctic

environment and habitat located in such areas, can wreak particular havoc for the ecosystem as an impact on one link may trickle down on the whole food chain. Exploration and production activities entail environmental disturbance which may impact the Arctic ecosystem. Oil and Gas Exploration in Arctic Offshore Regions, a 2002 report by the Inter­ national Association of Oil and Gas Producers found that noise and vibrations caused by oil and gas seismic exploration and drilling can be harm­ ful to species in their habitat. Offshore, the greatest hazard for marine mam­ mals is the risk of a collision with seismic explor­atory boats. Vibrations due to seismic exploration can also disrupt feeding and whale commu­nication. Onshore, physical disturbance caused by oil and gas activities has the most impact on the environ­ment. Physical disturbance encompasses any foot­prints of these activities such as roads, pipelines and construction work. For instance, large amounts of gravel from river beds are used to build roads. Such activity leaves a per­ manent scar on the habitat of local wildlife. This forces animals to go astray and deviate from their ori­ginal migratory paths, breeding or feeding grounds disturbing their life cycle. The habitat fragmen­tation entailed by the construction of long and linear pipelines and vehicle tracks can disturb the migratory cycles of certain species such as rein­deer and wolves. Also, the noise associated with oil and gas activities, especially during the short breeding season, may scare off seabirds and coax them into abandoning their eggs thus jeopard­ising the life of their off­spring. Other potential threats include stock­piled mat­ erials containing chemicals that may harm scavenger species. Contamination of the ecosystem by oil and gas activities is a major threat to the Arctic environ­ ment. Contamination can originate from hydro­ carbon leaks and spills and through the use of

chemical compounds in oil and gas activities. These chemical compounds are used to enhance and ease exploration and production phases or they stem from oil production itself. Drilling muds are used during exploration and production for evacuating cuttings during drill­ ing, and to lubricate and cool bore holes. Drilling mud contains a high concentration of potentially toxic chemicals that make up a substantial part of the pollution in E&P areas. Its containment and disposal is one of the main challenges faced by exploration and production companies. Oil production is also accompanied by water extracted from the hole along with hydrocarbons, traces of metal and acids. The disposal of this water is also a challenge for com­panies, especially in regard to protecting species such as whales, seals, seabirds, fish and plankton. Contamination can come from hydrocarbon leaks and releases but also from aqueous and solid waste coming from drilling and well-testing com­pounds. Off­ shore drilling especially poses a threat to the ocean ecosystem for its effects on plankton, the staple diet of fish. Oil spills Onshore oil spills are generally caused by pipeline leaks and accidents. These spills create intense and long-lasting pollution. Many plants die when in direct contact with hydrocarbons in great con­ centration and the effects of a spill last long after the visible consequences have disappeared. The chemical components contained in the oil enter the soil deeply and remain untouched esp­ eci­ally in cold temperatures. The Komi Republic oil spill in 1994 is a good case in point. An estimated 140,000 barrels of oil was spilled due to the failure of a pipeline. Twenty years later, the environment of the Kolka River region remains affected by the spill. For instance, the grayfish population has ebbed by 90% and in several places, plants have not started to grow back. Arctic Oil and Gas

53


Environmental challenges in the Arctic

Twenty-five years on, the Exxon Valdez disaster when almost 11 million gallons of oil were spilt from the grounded vessel still casts a shadow over any plans to utilise Arctic hydrocarbon resources.

Offshore oil spills are difficult to contain and can reach 1,000km2 scopes even if the quantity released is smaller than for onshore oil spills. The potential damage is higher when originating from leaks in facilities located near the shore and coast­ al areas such as fixed oil rig platforms. There have been no major marine oil spills in the Arctic so far but the consequences of catastrophes such as the Exxon Valdez spill in southern Alaska in 1989 are informative as to how much damage could be incurred and what lessons can be learn­ed by oper­ators and regulators. In the Arctic, especially, since different species tend to be concentrated in small areas the impact is multiplied. Hydrocarbon oil deposited on fur and feathers reduces their isothermal proprieties, lead­ ing to hypothermia and sometimes death for the animals. This was the case for 1,000 sea otters and 100,000 seabirds following the Exxon Valdez spill. Black carbon The US Environmental Protection Agency defines black carbon as the result of “an incomplete com­ bustion of fossil fuels, biofuels, and biomass”. When 54

WPC Guide

deposited on ice or snow, black carbon impedes the reflection of the sun and has a warming effect thus accelerating the melting of the ice. Black car­ bon is a factor of Arctic climate change, disinte­ gration of natural habitat for wildlife species and disturbance of the ecosystem. The main sources of black carbon in the Arctic are in diesel engine emissions and gas flaring. Meeting the challenges The potential environmental impact of oil and gas activity in the Arctic is threefold: contamination through chemical leaks and oil spills; physical dis­ turbance of natural habitats; and black carbon emissions. In response to these challenges, oil and gas exploration and production activities must be considered through the entire lifespan of an industrial project: starting with the preliminary phases, the mapping and baseline surveys of the area’s environment, to the industrial activity, and the monitoring of HSE mea­s­ures implemented and finally, to site rehabi­litation and decom­mis­ sioning. Preliminary research and contribution to the progress of knowledge is of utmost im­por­


Environmental challenges in the Arctic

tance, especially in an area with an extreme en­ viron­ment and hence subject to less on-site study. All factors must be integrated with the industrial decision-making process inc­luding the input of local communities, experts and scientists. Oil spill and contamination The response to potential oil spills can be divided into prevention efforts and response phases. Pre­ ventive efforts consist of oil and gas operators tak­ ing the appropriate safety measures to prevent a catastrophe. However, preventive measures should also include contingency plans for the event of a spill, detailing the alert process, the category of the spill and the response action plan. The con­ tingency plan should be adequately tailored to the capabilities and resources of the drilling zone and take into account the high Arctic seasonality and the facility type. Thorough staff training is crucial in ensuring a rapid and efficient response to a potential inci­ dent. The difficulty in ensuring a successful res­ ponse to oil spills is the accessibility of the wellsite as well as the winter weather conditions that prevent mobility and reactivity. What is more, current technologies involving booms to contain spread and skimmers to recuperate the oil are unable to prevent and contain spills located under the ice cover. Preventive measures are, however, crucial. In 2007, corrosion caused a rupture in a pipeline in Alaska’s North Slope, leading to 800 cubic metres of oil spilling onto the tundra. This spill could have been fairly easily averted if routine inspections on the pipeline were conducted and the corrosion detected and repaired. Hence, preventive meas­ ures and contingency plans are crucial along with further research in containment technologies to avert large-scale environmental disasters. As for chemical-linked contamination in oil and gas activities, technological advances and tougher regulation has led to almost every operator using

less polluting fluids during drilling and production processes. For instance, base fluids used in drilling muds are now water-based rather than oil-based. Several operators have established precise action plans in the event of an oil spill. Shell has created a four-stage response which includes: Planning and preparation; early detection and response; mechanical barriers and surface control; and con­ tingency planning. Shell has also developed a specific answer to a spill in Arctic conditions. Specific recovery methods include ice deflection (the use of environmentally acceptable dispersants which have proven their efficiency on ice). Furthermore, a major research programme, the Arctic Oil Spill Response Tech­nology Joint Industry Programme (JIP), was laun­ched under the supervision of the International Association of Oil and Gas Producers by BP, Chevron, ConocoPhillips, Eni, ExxonMobil, Shell, NCOC (North Caspian Oil Company) and Total in January 2012. The aim of the programme is to deepen and further the knowledge of the industry on Arctic oil spill responses. Research focuses on dispersant chemicals, the environ­ mental impact of oil spills, trajectory tracking of released oil, mech­anical recovery techniques and on site burning. Physical disturbance In seismic exploration phases which involve the use of large boats and streamers under the sealine, a major risk to marine life is disruption of marine mammals in their natural habitat. There is also the potential for collisions between vessels and marine mammals. As a result, seismic com­ panies, such as CGG, have established a safe zone surrounding the boat during marine acquisition phases and the company constantly scrutinises the surrounding area and stops data acquisition when a mammal penetrates the zone. CGG’s 2012 sustainable development report says that through the application of precautionary rules, the aim is Arctic Oil and Gas

55


Environmental challenges in the Arctic

The Oceanic Vega, one of CGG’s 3D seismic survey vessels, has been designed to limit its environmental impact.

to reduce the potentially negative impact of Arctic exploration activities on marine wildlife. During seismic exploration, in order to create a wavelength able to be recorded by the geophones placed on the streamers, receiving seismic subsurface data, companies use air gun sources. The activation of air guns consists in a sub-sea-surface detonation through the release of highly com­ pressed air. Airgun charges create extensive vib­ rations under the sea surface which may overlap the frequency of underwater marine mammal com­munication. As a response to this challenge, in 2011 Statoil and Shell launched a four-year study on the behavioural reactions of humpback whales to the sound of air guns which was out­ lined in Statoil’s 2012 sustainability report. Reducing black carbon emissions: the Alberta and Norway examples In Alberta, Canada, companies are obliged to recu­perate gas instead of flaring it, if it is eco­ nomically sound to do so. When recovering gas has a negative economic impact on the pro­ject, 56

WPC Guide

those companies who avoid or reduce flaring nonetheless are granted a royalty reduction. This policy instrument allowed for a 70% reduction of emissions in Alberta between 1996 and 2003. Norway issued a production flaring ban in 1972 and doubled it with a tax incentive on gas reinjection in 1991, keeping black carbon emis­ sions at a low level. Ecosystem protection and research projects Thorough knowledge of the Arctic ecosystem’s equilibrium is important in ensuring sustainable development in the region. Operating companies and stakeholders have developed programmes to ensure the protection of wildlife in the areas of operation. For instance, Shell has developed a programme of polar bear protection. Various mech­anisms are used on operating sites to pre­ vent polar bears from approaching the area, such as food management, noise makers and personnel trained to manage encounters with polar bears. The Arctic region’s extreme climate and difficult accessibility have curbed knowledge and research


Environmental challenges in the Arctic

on the region for a long time. A thorough under­ standing of the onshore and offshore ecosystem is necessary to prevent the negative impact of oil and gas industrial activities in the region. The joint effort of operating companies and national stake­ holders in promoting and furthering research and impact evaluation is a vital element for sustainable industrial operations. Several oil companies have been actively fund­ ing research on Arctic ecosystems with a particular focus on their response to petroleum components. The Statoil ARCTOS Arctic Research programme was launched in 2005. It continued until 2011 and was followed up in 2012 with a specific focus on the Lotofen-Vesterålen area. In 2011, Statoil, in conjunction with the Center for Ecological and Evolutionary Synthesis, assisted in research on an ecosystem-based model, Symbi­ os­es, that computes and evaluates the impact of oil spills and release on the marine environment in nor­ thern Norway. Results from this project are being synthesised and used to create a project model. Shell is involved in multiple research projects in the Alaska, Beaufort and Chuchki seas. They include 4MP, which stands for Marine Mammal Monitoring and Mitigation Programme. This con­ sists of monitoring the migration routes of whales. Other programmes funded by Shell include tagging walruses and polar bears. Regulation and technology In the last decade, tough regulation from the Arctic nations has prompted the development and use of technologies adapted to the very specific climate conditions of the Arctic. For instance, the systematic use of 3D seismic exploration means operators can obtain a more precise idea of subsurface formations and the need to drill numerous exploratory wells is curbed. This, in turn, reduces the potential impact on the local environment. Wells can now be drilled horizontally – this means one platform can conduct the drilling of

several deviated wells. This is a benefit to the environment because the risk of potential dam­ age entailed by each platform facility required for multiple wells is eased. Ice roads also allow ade­ quate industrial mobility without having a nega­ tive and permanent impact on the environment and habitat of migratory species. Even though environmental regulations have been toughened in multiple countries, they are not homogeneous across the Arctic nations. These regulatory gaps lead to loopholes and inconsis­ tency. However, the Arctic region is largely poli­ tically stable and international agreements are currently bridging these gaps in order to reduce regulatory discrepancies for companies. Finally, regulatory transparency is vital in order to ensure long-term investments and reduce industrial and environmental risks. PEW Environment’s 2013 report, Arctic Standards, Recommendations on Oil Spill Prevention, Response and Safety in the US Arctic Ocean states that transparency also implies operating companies’ openness in regards to their activities and environmental standards. Conclusion Sustainable oil and gas activities in the Arctic must be considered as a standard for all operating companies in the region in order to ensure the protection of the Artic environment. The sustain­ ability of these operations can only be ensured with the help of sound, transparent and consistent regulation across the Arctic as well as the adoption by operating companies of best practices and leading tech­ nologies adapted to the Arctic climate. Tamar Gomez is a research analyst at CGG and a WPC Writing Fellow. www.cgg.com Arctic Oil and Gas

57


Environmental challenges in the Arctic

Case study: Eni’s technologies face Arctic challenges Operating in the Arctic means working in a com­plex environmental context. This is because of the rich­ ness of the biodiversity and the par­ticularly sensitive local ecosystems. The cli­mate is difficult and there is a delicate balance to be struck bet­ween environ­ mental concerns and the economic systems of local communities. In such conditions, oil and gas com­ pan­ies that intend to operate in the area need to have a sustainable approach in every aspect. This includes using cutting edge tech­nologies, appropri­ ate guidelines to ensure the safety of the people, and continuous colla­boration with local communities. These particular needs led to the creation of the hydrocarbon extraction and production plant in the Goliat oil field in the Barents Sea. This plant defines the industry standard through the adop­tion of tech­ nologies and the construction of vehi­cles especially made for the Arctic. Discovered in 2000, Goliat con­ sists of two main reservoirs, both of which contain oil and a surface formation of gas. Drilling is continuing in another five wells and the start-up of production is expected by the end of 2014. It is expected that the site will remain active for 15 years, with the pos­ sibility of an exten­sion if new discoveries are made. The project utilises advanced technologies with low risk to the environment and the people em­ ployed, while taking into account the extreme conditions that characterise the area. These inc­ lude: the Arctic winter with very low temperatures and long months of darkness, the changeable and, at times, terrible sea conditions, and the fragile ecosystem. Attention has been paid to the reduction of emissions, discharges and risks of pollution. For each decision Eni makes in relation to technology, all possible solutions are compared with the aim of selecting the one that minimises the risks for the surrounding environment. For the Goliat project, Eni has contracted Hyundai Heavy Industries to construct a unique floating platform, the Sevan 1000 FPSO. Con­ceived as a pro­ 58

WPC Guide

duction plant in a singular cyl­indri­cal form, it allows hydrocarbons to be loaded onto special shuttle craft even in extreme cli­mactic and sea conditions. The platform, which is able to store as many as 1 million barrels of oil, will have half its electricity requirements met from dry land thanks to the installation of the longest undersea cable of this type in the world. This solution will reduce CO2 emissions by 50%. The asso­ciated gas will not be burnt rather be reinjected dir­ectly into the reservoir (up to 1 billion cubic metres per year) along with the water extracted with the hydrocarbons. The Goliat production field, which is already active, uses advanced wells and pipe­lines with innovative monitoring systems which are capable of intercepting and eliminating spills to prevent widespread coastal damage. To better understand and respond to the criti­cal environmental issues, Eni has worked in part­ner­ship with Statoil since 2006. Thanks to shared R&D acti­vi­ ties, as many as 30 projects have been set up based on strategic, logistical, indus­trial, mechanical and non-mechanical ways of preventing and man­aging oil spills in the Goliat area. These projects have in­ volved Norwegian uni­versities and research institu­ tes, consultancy companies and local communities. In addition, a coordinated system has been dev­elo­ped to respond to emergencies. The Coastal Oil Spill Preparedness Improvement Programme (COSPIP) was made possible with a $4.15 million investment between 2006 and 2013. COSPIP, which Eni has pioneered together with Statoil, will be used as the reference standard for future fields in the Barents Sea. The studies also include the Arctic Seas Biodiversity Project which has ex­panded knowledge of the Norwegian Arctic. COSPIP is developing oil spill contingency plans for the Barents Sea and offshore Lofoten. Con­sider­a­tions include coastal proximity, adja­ cent natural hab­itats and species, limited daylight and low tem­pera­tures. The four categories of the project are: Strategy, equip­ment and software applications, logistics and chemistry.


Environmental challenges in the Arctic

The Arctic Seas Biodiversity (ASBD) project In 2006, Eni Norge (the Norwegian part of the Eni business) invited aquaculture experts, Akvaplanniva to discuss and give advice on suitable strate­ gies and topics for biodiversity research targeted towards the company’s needs. In January 2007, Eni Norge commissioned Akvaplan-niva to assess Eni’s biodiversity-related needs and the status of biodiversity knowledge in legislation and environ­ mental management. In December 2007, Eni Norge and Eni E&P commissioned Akvaplan-niva to lead an applied research project addressing biodiversity in potentially sensitive areas above the Arctic Circle. The overriding mission of the ASBD project is to act as a test case for biodiversity in the marine environment and to provide Eni with researchbased decision-making power. ASBD undertakes basic research as well as advancing existing en­ vironmental management tools. The final chall­ enge of this project is to channel the knowledge gained into Eni’s operational practices. Research

will primarily focus on areas defined as particularly valuable and/or vulnerable in the Arctic LofotenBarents area by the Norwegian government. The Arctic Lofoten-Barents region is an impor­ tant interface between marine and continental systems. The area exhibits great marine pro­ ductivity and diversity, and it functions as a habi­tat for migratory birds, mammals and fish. The region is highly variable as communities and processes reflect the interactions between environ­mental forces, coastal geology, biology and ecology, as well as human activity. The Arctic coast is vul­ nerable to predicted and ongoing environmental change, including biodiversity destabilisation and anthropogenic impacts. With new advances ex­ pected in Arctic resource development, it is criti­ cal to undertake this biodiversity research. Speci­ fic areas covered by the research include the sea around the Lofoten Islands, the Tromsøflaket bank area, Eggakanten, a 50km zone off Finnmark, Svalbard, Bjørnøya, the marginal ice zone and the polar front.

Ballstad, in the Lofoten Islands, an important area for the study of the meeting of continental and marine environmental systems.

Arctic Oil and Gas

59


Community engagement

Community engagement These case studies demonstrate how all stakeholders can engage with communities in the Arctic.

Canada’s National Energy Board Gaétan Caron, Chair and CEO of Canada’s National Energy Board, outlines the board’s role in engag­ing with communities in the Arctic. In Canada’s north, the board has regulatory responsibilities for oil and gas exploration and production activities in the Northwest Territories and Nunavut, onshore as well as offshore. The

board focuses on safety, environmental protec­ tion, and the conservation of oil and gas resources, while land tenure, rights issues, benefits plans, and royalty management issues are administered by federal departments; Aboriginal Affairs and Northern Development Canada; and Natural Resources Canada. In April 2014, the devolution agreement trans­ ferred responsibility for most onshore oil and gas activities in the Northwest Territories to the Gov­ ern­ment of the Northwest Territories. How­ever, the board remains the regulator for the off­shore, Norman Wells Proven Area, trans-border pipelines and the onshore portion of the Inuvialuit Settlement Region. In regulating oil and gas development in the Northwest Territories and Nunavut, there are a number of important challenges which must be considered. On and offshore, the drilling season is short so the pressure for completion is high. Northern Aboriginal Land Claim Settlement Agree­ments – or lack of agreements in some areas – have helped shape the regulatory landscape in the Canadian Arctic. These agreements, such as the  Inuvialuit Final Agreement  and the  Nunavut

Holding meetings in often remote communities is vital to advance knowledge gathering and engagement.

60

WPC Guide


Community engagement

Land Claim Settlement Agreement, have esta­ blished co-management boards with government and Aboriginal representation. Northerners have told board members that they are looking for a balance between protecting the environment, economic growth and respons­ ible development, although this tends to differ between individuals, communities, and land claim areas. As a result of recent offshore incidents, such as the Deepwater Horizon incident in the Gulf of Mexico, Canadians have heightened expectations about environmental and safety requirements. While not unique to the north, a significant proportion of recent and potential operations in the north, such as proposed deep-water offshore operations, are of interest to many people. In the Beaufort Sea, two offshore seismic programs were conducted in 2012, with the potential for further seismic and drilling activity. Currently, no drilling is taking place in Canada’s offshore Arctic, but

there are two proposed projects – one led by Imperial Oil Resources Ventures Limited, as the operator of a joint venture between Imperial, ExxonMobil and BP, referred to as the Beaufort Sea Exploration Joint Venture; and the other by ConocoPhillips, which is in the initial planning phase for development of the Amauligak offshore oil and gas field. This is the largest oil and gas discovery in the Beaufort Sea. The nature of development in the north nec­ essitates a unique approach to community eng­age­ ment. As such, the board’s review of the safety and environmental requirements for offshore dril­ling in Canada’s Arctic environment, called the Arc­tic Review, was held following the Deepwater Horizon incident. The objective was to gather infor­mation and knowledge through meaningful en­gagement and dialogue. This was achieved through extensive community engagement and holding a week-long roundtable meeting in Inuvik so everyone could benefit from face-to-face dialogue. The result was the development of filing requirements for off­ shore drilling in the Canadian Arctic. During the Arctic Review, the board heard that if there was a drilling accident, life in the North

While change is inevitable, looking after the welfare and preserving the lifestyles of the indigenous peoples of the Arctic is an important goal.

Arctic Oil and Gas

61


Community engagement

would change irrevocably. Some people told us that, if there were to be an accident like the Deep­ water Horizon in the Canadian Arctic, they would not be able to provide for their families, even if there was financial compensation. Despite con­ cerns about potential hazards, many people recog­nised the importance of energy and were not opposed to development, but emphasised that it must be done right. An important finding was that the National Energy Board has the regulatory tools needed to protect the safety of northern residents, workers, and the Arctic environment. This includes the use of risk-informed, management system-based regu­ lations, allowing flexibility in terms of the means of achieving compliance while requiring a con­ sistent level of performance. Much of the infor­ mation that the board gathered through the Arctic Review has been incorporated into the board’s filing requirements for future applications for offshore drilling in the Canadian Arctic. Drilling will not occur in the Arctic unless the board is satisfied that drilling plans are safe for workers and the public, that they will protect the environment, and that the resource will be con­ served throughout the drilling operation. Pro­ cesses for environmental screening or assess­ment under the various land claim agreements must also be respected. Another essential element of strengthening the regulatory framework in the Arctic is through northern engagement activities. In 2013, the board held more than 50  meetings throughout the Northwest Territories and Nunavut. Board mem­ bers and staff met with northern communities, youth, governments (Aboriginal, territorial, federal and international), environmental non-govern­ ment organisations, regulatory agencies, and land claim institutions. These meetings have involved, among other things, discussing major concerns around oil and gas exploration and development, explaining the board’s role, and getting feedback 62

WPC Guide

on guidelines the board developed to clarify its expectations of regulated companies.  The board remains committed to listening to those who would be most affected by oil and gas activities in Canada’s north in support of realising shared objectives for safety and environmental protection. This is an edited version of a speech given by Gaétan Caron to the 14th Annual Arctic Oil and Gas Symposium, 2014. www.neb-one.gc.ca Case study: ConocoPhillips ConocoPhillips has suspended plans to drill in Alaskan waters for 2014 because of uncertainties surrounding US federal regulations and permits. But with 98 leases in the Chukchi Sea, it is clear that ConocoPhillips has not yet completely aban­ doned all plans for hydrocarbon extraction in the Alaskan Arctic. In the meantime, the company has taken great strides in terms of community engage­ment, particularly with the native peoples of Alaska. The company has embarked on a programme of actively seeking to learn from traditional and local knowledge and to build inclusive, hon­est and respectful relationships with stakeholders. In particular, ConocoPhillips has worked closely with the North Slope residents who live nearest to the company’s operations. The company has sought to engage openly and transparently in order to promote understanding of our activities, learn more about local concerns and collabora­tively seek solutions. Strategies include ensuring open lines of communication through community meetings, updates to local governments and tri­bal councils, and one-to-one conversations with community members. The aim is to build a strong and visible presence in nearby commu­nities, simul­taneously creating opportunities for Alaska residents. As a result of extensive community engage­ ment, representatives of ConocoPhillips have been


Community engagement

ConocoPhillips Career Quest mentoring programme has been well received and led to employment opportunities at Alpine (pictured) and Kuparuk.

invited to participate in community cele­brations and given the opportunity to share in the rich cultural traditions of their neighbours. Conoco­ Phillips is investing in educational, cultural and youth programs in the local area, such as Ilisagvik College in Barrow, the Northwest Arctic Borough Magnet School, and the Alaska Native Science and Engineering Programme at the University of Alaska. Working jointly with the Arctic Slope Com­ munity Foundation and the North Slope Borough Autaaqtuq Fund, ConocoPhillips has helped fund new playgrounds in Nuiqsut, Point Hope and Wainwright, training programs in Anaktuvuk Pass, STEM (Science, Technology, Engineering and Mathematics) summer camps, tribal system and health care system training, and the North Slope food banks. Supporting traditional knowledge Conoco­Phillips supports community-based pro­ jects such as the Northwest Arctic Borough’s Sub­

sistence Mapping project and Inuit Circumpolar Council-Alaska’s Food Security Project. These pro­ jects aim to gather and preserve traditional knowledge so it can be integrated into project development and decision making. Mentorship opportunities In 2012, Conoco­Phillips was recognised by the North Slope Borough School District for its Career Quest programme, developed in partnership with Trapper School in Nuiqsut. The Career Quest programme provides the opportunity for high school students to work alongside a Conoco­Phillips mentor in areas such as fleet and camp main­ tenance, information technology, emergen­cy res­ ponse, drill site operations and food service. The students earn high school credit, and some Career Quest students have transitioned into internships and full-time employment at Alpine and Kuparuk. www.conocophillips.com Arctic Oil and Gas

63


Global summar y

Global summary A round-up of developments, issues and future plans for Arctic oil and gas exploration and extraction.

Canada The desire to exploit the Arctic waters off the coast of Canada for oil and gas is not new. The first partnership between a private company and the Canadian government was established in 1967, Panarctic Oils. Throughout the 1970s and ’80s, the government undertook further oil and gas explor­ ation with discoveries made in the Beaufort Sea Basin, Mackenzie Delta region and the Arctic islands (34 wells in Nunavut’s High Arctic Islands and three in the Eastern Arctic offshore). The National Energy Board (NEB), set up in 1991, is responsible for regulating Canada’s oil and gas exploration and production activities. After a slump in interest in the Arctic in the 1990s, the NEB has only presided over the drilling of one well in the Canadian Arctic, the Devon Paktoa C-60 explor­ ation well in the Beaufort Sea. This was drilled dur­ ing the winters of 2005 and 2006 but aban­doned by March 2006. Despite a slowdown in Arctic activities during the 1990s and early 2000s with the withdrawal of multiple companies, there has been a noteworthy increase in interest since 2007 and 2008 when six discovery licences were issued so three companies 64

WPC Guide

could further investigate the Beaufort Sea. In the Beaufort Sea basin, exploratory drilling began in 1972 and 90 wells were subsequently drilled. Major players, Chevron and Statoil, have signed joint exploration leases across a 2,060km2 area of the Beaufort Sea with Chevron remaining the main operator while Statoil owns a 40% stake. The two companies plan to launch a 3D seismic programme because of strong confi­dence in the presence of further oil and gas re­sources in the area and clarification on regional drilling safety. In 2013, Imperial Oil Canada, Exxon­Mobil and BP filed a joint application to drill at least one well in the Beaufort Sea. There may be an issue with sovereignty over an area of seabed which lies under the geographical North Pole – Canada made a claim to this area at the end of 2013, and Russia has also claimed sovereignty. There are now competing claims for an Exclusive Economic Zone (EEZ) under the Third United Nations Convention on the Law of the Sea (UNCLOS) of 1994. This defines an EEZ for countries with maritime frontiers as extending 200 nauti­cal miles from a national coastline. Canada and Russia are both UNCLOS signatories but the treaty is unclear on the issue of Arctic disputes as a country can secure control of the ocean floor beyond the 200-mile limit if it can prove that the seabed is an extension of its continental shelf. At the time of publication, Canada was preparing documentation for sub­ mission to the UN Com­mission on the Limits of the Continental Shelf (CLCS). A partial sub­ mission was filed to the CLCS by Canada in December 2013. However, more geological data is required before a full submission can be made. Russia is also planning to make a similar sub­ mission to the CLCS to support its claim to this disputed territory. As well as the disputed North Pole territory, Canada is also claiming sov­ereignty of parts of the Atlantic Continental Shelf off its eastern coast.


Global summary

New regulations are also expected to come into effect for Canadian hydrocarbon dev­ elopment in the Arctic. In the western Arctic, hearings run by an aboriginal regulator will take place in regard to plans led by Imperial Oil to drill explor­atory wells in the Beaufort Sea in 2020. Meanwhile, in the eastern Arctic, the NEB is considering a proposal for seismic exploration near Baffin Island. There has been much com­ munity opposite so the federal government has started a strategic en­viron­mental assessment to consider which parts of the ocean should be opened up for exploration and which should remain closed. China China may well be the wildcard nation in the race to develop hydrocarbon resources in the Arctic despite not being one of the eight self-declared Arctic states. While there have already been disputes between Arctic states over extended seabed claims under the UNCLOS, this could take decades to resolve. In the meantime, China has become a prominent advocate for Arctic govern­ ance becoming a global matter rather than one that is limited to certain nations. This inter­ nationalisation of the sovereignty of Arctic oil and gas reserves may be welcomed by other countries keen to exploit opportunities in this area, especi­ ally from the developing world. For China, any plans to have a presence in the Arctic hydrocarbon market are part of a long-term strategy. While the Arctic states and relevant com­ panies are still developing the necessary tech­ nology for extraction and transportation, and en­ viron­mental, economic and political issues are still being dealt with, China has time to make its own investments, and to develop technology and ex­ per­tise. If China can successfully do this, it will help the country establish itself as a more power­ ful player in the potentially lucrative Arctic oil and gas industry.

Greenland Greenland’s desire to exploit Arctic oil and gas reserves comes largely from a desire to find a new source of income apart from fishing. This is politi­ cally and economically important to Greenland as a new source of income would help reduce its dependence on subsidies from Denmark – Greenland is part of Denmark but has been a selfgoverning colony since it was granted home rule in 1979. The operators that have been granted the latest round of leases now face major technical challenges but if gas and oil can be successfully and safely extracted, the rewards are potentially enormous. In 2008, the US Geological Survey ranked the East Greenland region fourth out of 25 oil and gas provinces in the Arctic for hydrocarbon potential. The survey estimated that the region contained up to 31.4 billion barrels of oil equi­ valent in oil, gas and natural gas liquids. The region is divided into three distinct geological areas: the North Danmarkshavn basin, the South Danmarkshavn basin and the Thetis basin. Oil exploration commenced in Greenland in 1976. Six test drillings were conducted across 1976, 1977 and 1990 but these activities did not prove that there was the potential for economi­ cally viable extraction. In 1989, Denmark gave a consortium of companies a prospecting licence for exploration in the Greenland Sea, off Greenland’s west coast. This was known as the Kanumas Pro­ ject and involved ExxonMobil, Statoil, BP, Japan National Oil Company, Texaco, Shell and Green­ land’s national oil company, NUNAOIL. Between 1990 and 1996, more than 7,000km2 were docu­ mented with seismic data from northern areas offshore from eastern and western Greenland. Additional licences were offered for further prospecting in the early 2000s but no major companies applied. However, in 2010, British company, Cairn Energy found hydrocarbons in Greenland for the first time. This took place in the Arctic Oil and Gas

65


Global summar y

summer of 2010 and by November 2010, Greenland awarded its first offshore oil and gas exploration licenses. After the initial excitement of 2010, the pace has slowed in the development of Greenland’s Arctic hydrocarbons sector. The outcomes of drill­ ing that has taken place since 2010 have been lacklustre. While there have been some “shows” of hydrocarbons across multiple basins, there have been no commercial discoveries as yet. Cairn Energy is operating an eight-well drilling plan over an area of more than 85,000km2 but is evaluating its plans for the future in the wake of the disappointing results. However, Shell and Statoil are looking to ramp up their exploration work in Arctic Greenland with Statoil buying into Cairn’s Pitu license in 2011. In December 2013, the Greenland government granted exploration and exploitation licences to

three consortia. The block 8 Amaroq lease, off the coast of north-east Greenland, was awarded to BP in partnership with Italy’s Eni, Denmark’s DONG Energy and NUNAOIL. The size of the area is 2,630km2 and BP has described it as a “long-term play” and the first step is to develop a 2D seismic work programme. Statoil, Conoco­Philips and NUNAOIL have been awarded the Avinngaq lease in block 6 of the Greenland Sea. Chevron, GreenPex, Shell and NUNAOIL have been awarded the Umimmak (block 9) and Nerleq (block 14) leases. The technical challenges facing these operators are immense, largely because these licence areas are located in the Fram Strait, which is the deepest gateway between the Arctic and other oceans and experiences two alternating currents. Approxi­ mately 10-15% of the Arctic’s total ice mass is trans­ ported south via this strait every year. Through­out

During its 2011 drilling programme Cairn utilised the Ocean Rig Corcovado, a sixth generation drillship.

66

WPC Guide


Global summary

the year conditions vary dramatically between the east and west parts of the strait, with the west experiencing more ice-free days than the east. It is expected that any drilling operations that take place will require extensive ice management by icebreakers, which will add to the costs. Political developments in Greenland may also have an impact on the Arctic ambitions of these operators. When a coalition headed by Prime Minister Aleqa Hammond of the Aiumut party came to power in March 2013, he expressed dis­ approval at the speed at which oil and gas exploration was taking place. Hammond has pro­ mised increased oversight of Greenland’s Arctic hydrocarbon activity, hesitated to issue any new licences and put the Kanumas leases on hold. How­ever, soon after the election, Industry and Minerals Minister Jens-Erik Kirkegaard clarified this stance, explaining that new licences would be

issued as old ones expired. Hammond has also said after taking office that he would like to intro­ duce royalty payments for mining licences instead of relying on corporate taxation. Finally, like all operators looking to develop Arctic hydrocarbon reserves in a profitable manner, the operators in Greenland will be watching international oil and gas prices closely to determine the outcome on potential revenues for projects with such tight margins. Norway The opportunities for the Norwegian oil and gas industry to exploit Arctic reserves is enormous and much progress is being made, with the focus on the Barents Sea, a marginal sea of the Arctic Ocean. Overall, Norway’s oil and gas production is focused on the Norwegian Continental Shelf (NCS) which takes in the North Sea and the Norwegian

The view from the Snøhvit LNG plant at Melkøya, as yet the only LNG plant within the Arctic Circle.

Arctic Oil and Gas

67


Global summar y

Sea as well as the Barents Sea. However, factors such as rising costs, lack of infrastructure such as no Arctic pipelines and some poor exploration results will all have an impact on the long-term future of hydrocarbon development in the Norwegian Arctic. Snøhvit, an enormous field in Norway’s Arctic waters, is already productive. Statoil, the Norwegian national oil company (majority state-owned), oper­ ates the world’s northernmost liquefied natural gas production facility near Hammerfest. This facility, the only LNG facility operating north of the Arctic Circle, draws gas – the equivalent of around 48,000 barrels of oil a day from the Snøhvit field. CO2 is separated from the gas and reinjected into the field’s Tubåen formation for storage. The remaining gas is chilled to form LNG at Melkøya and shipped to customers in the US, Brazil, South Korea, Turkey and some EU countries. Since 1981, Norway has opened the Barents Sea for exploration with Statoil leading the charge, discovering the Snøhvit gas fields. Ever since, a number of international energy companies have joined Statoil in this venture. In the Russian Arctic, Statoil has been part of the evaluation of the sub­ stantial Shtokman gas field along with Gazprom and Total. The Shtokman gas field is 600km off­shore in the Barents Sea. With Total, Statoil also parti­

cipated in drilling in the Kharyaga field in the 1990s. Other areas of the Barents Sea which are ear­ marked for further exploration include the Skrugard and Havis discoveries, which were found in 2011 and 2012 respectively. Skrugard and Havis, re­ named Johan Castberg by Statoil, are believed to contain between 400 and 600 million barrels of oil in total. The appraisal of Skrugard and Havis was com­ pleted in March 2012, confirming up to 600 million barrels of oil across the two sites and in February 2013, a two-site development concept was ann­ ounced. This will include a semi-submersible float­ ing production unit located in 380m of water attached to a 280km pipeline to shore and an onshore terminal at Veidnes, near Honningsvåg in Finnmark, Norway’s northernmost and eastern­ most county. It is expected that 14 production wells will be drilled as well as injection wells for water and gas for pressure support. The oil will be stored in mountain caverns. Sevan Marine has won the contract to undertake a concept study for application of a floating production unit for the field’s development. A feasibility study was under­ taken in 2011 which Sevan Marine also conducted. Aker Solutions was awarded the contract to under­take the preliminary studies for the two

Views fore and aft from the Ob River, an LNG tanker which carried the first ever LNG cargo via the Arctic Northern Sea Route from Hammerfest in Norway to Tobata in Japan. The vessel was escorted on its pioneering journey by nuclear-powered icebreakers.

68

WPC Guide


Global summary

fields’ development. The project has experienced delays and is currently under review because of local opposition and a change to the Norwegian tax regime which will result in higher taxes or oil and gas operators. Resource estimates and invest­ ment levels are still uncertain. The Norvarg and Skalle areas of the Barents Sea are also of interest to operators. Oil and gas have been discovered at Norvarg, located 220km north of Snøhvit. A gas well drilled on a large dome had Jurassic and Triassic reservoirs. Total has also found oil from an appraisal well at the Norvarg project. Statoil and Ithaca Petroleum also have interest in the Norvarg area. Skalle is a minor gas discovery. The Transocean Leader semisub drilled 25km north of Snøhvit and it is estimated that between 88 and 280 bcf of gas could be present. Operator Lundin Petroleum has a 25% interest and other stakeholders in the Skalle prospect are RWE Dea Norge and Petoro both with a 20% stake, and Spring Energy and Talisman Energy Norge both holding a 17.5% stake. Other areas with potential for Norway include the waters around Jan Mayen, a volcanic island in the Arctic, and the area between Bjørnøya and Svalbard which has not yet been opened for petroleum exploration. Little is known about this area, available data is sparse and in winter, large parts of the sea are covered in drift ice. Political as well as technical decisions will need to be made in order for new parts of the Arctic to be opened to hydrocarbon exploration and extraction. But despite some delays with full development in the Norwegian Arctic as well as geological, political and technical challenges, there is still plenty of optimism. A disagreement over border delineation with Russia has been resolved and this will pave the way for further oil and gas ex­plor­ ation with more of the Barents Sea expected to become available to Norway. In 2010, a treaty was signed between Russia and Norway over 175,000 km2 of disputed territory in the Barents Sea. The

A diagram of the SPAR platform planned for the Aasta Hansteen gas field, it will be the first such installation on the Norwegian continental shelf.

treaty outlines a compromise agree­ment which splits this territory roughly in half. Norway plans to extract the equivalent of one million barrels a day of gas from new Arctic wells by 2020 within acceptable environmental limits. With oil production declining in the North Sea, it is hoped that discoveries in the Barents Sea in particular will help overcome a drop in production and revenue. More than $10 billion worth of projects have been announced to further improve Norway’s capa­city to extract and transport offshore natural Arctic Oil and Gas

69


Global summar y

gas from the Arctic. Statoil has revealed plans to spend $5.7 billion on developments in its Aasta Hansteen gas field in the Norwegian Sea. Statoil holds a 75% stake in Aasta Hansteen, OMV has 15% and ConocoPhillips has 10%. Furthermore, $4.5 billion will be spent by a consortium of 10 firms to build the 480km Polarled pipeline. This pipeline will bring gas from the sea to an onshore processing plant at Nyhamna. With plans to sell 86 blocks, mainly in Arctic offshore areas, Norway hopes this pipeline and the Aasta Hansteen dev­ elopments will further stimulate the energy sec­ tor. These large-scale projects are seen as a testing ground for development in more remote areas such as the Barents Sea, where infrastructure is still scarce. While Norway has higher taxes on oil and gas production compared to many other markets, the country continues to attract interest and invest­ ment in its oil and gas sector, including the Arctic projects, because of its fiscal policy stability. Russia Russia is set to begin large-scale oil and gas operations over the coming decades and may be poised to become the leading nation in Arctic oil and gas development. The country has enormous hydrocarbon resources on its continental shelf and the government has been offering generous in­ centives to ensure exploration continues and ex­ trac­tion becomes a reality. While Russia’s Arctic plans have attracted widespread criticism from environmental campaigners, the country is on tar­ get to be one of the first to commercially exploit the region’s hydrocarbon reserves. There are two strategic regions for oil and gas industry development in Russia: the far north and East Siberia. While important hydrocarbon reser­ ves have been discovered in the Caspian Sea and Sakhalin Island (north of Japan in the Sea of Okhotsk), the bigger prospects for Russia can be found at the Yamal peninsula, the Barents Sea 70

WPC Guide

shelf, East Siberia and the Far East. The West Siberian basin reportedly holds around 133 billion barrels of oil resources in the Arctic Circle. The overall area Russia is keen to exploit covers 6.2 million km2 and most of this is in the Arctic. There are 20 major oil and gas provinces and basins already discovered on the Russian shelf. Of these, 10 have proven oil and gas reserves. Gazprom and Rosneft hold all the licenses for exploring the Russian continental shelf – Gazprom has 16 and Rosneft has 29. Rosneft has announced plans to spend around $40 billion over the next decade exploring the Russian Arctic. In December 2013, Gazprom issued a statement in which CEO Alexei Miller described the company as “the pioneers of Russia’s Arctic development.” The company is pumping oil from its Prirazlom­ noye offshore Arctic field, which is estimated to have oil reserves of 581 million barrels. By 202021, Gazprom hopes to reach peak production of 132,000 barrels per day at Prirazlomnoye. In April 2014, Gazprom loaded its first shipment of oil from the Prirazlomnoye field. It was a 63,500-tonne load of oil for consumers in north-western Europe. This is the first time that Arctic oil has entered the global market. While Gazprom and Rosneft are leading the way with Russia’s Arctic hydrocarbon develop­ ment, a number of other Russian companies are lobbying for a more liberalised approach to access­ing Arctic exploratory projects. To this end, LUKOIL has put forward the idea of a national company as an umbrella for multiple companies to be involved in exploring the Russian Arctic for resources. The Russian government is seeking to streamline legislation and the regulatory frame­ work surrounding many sectors, including oil and gas, so that more foreign investment is allowed. There are already indications that greater liberalisation is coming to the Russian energy sector. Rosneft has entered into an agreement with ExxonMobil for a joint offshore development


Global summary

The first oil was offloaded from the Prirazlomnoye platform to the tanker Mikhail Ulyanov, one of two vessels built specially for the task of transporting cargoes from the field, on 18 April, 2014.

in the Kara and Black Seas. The deal was signed in 2011 and according to the terms, Rosneft has a 66.7% stake. Rosneft has also signed similar joint ventures with Norway’s Statoil to explore the Barents and Okhotsk seas, and with Italy’s Eni for Barents Sea projects. Gazprom had plans to develop a mega-LNG project in the Russian Arctic with Statoil. However, owing to rising costs and the impact of the shale boom on the LNG market, Statoil pulled out of this deal, known as the Shtokman development, in June 2012 when the original agreement expired. In the wake of this, Gazprom announced in December 2012 that it would continue the project but has postponed any further investment decisions until 2014. Gazprom and Rosneft are expected to remain as the two driving forces behind Russia’s Arctic oil

and gas development. Based on information from Russia’s Ministry of Natural Resources and Environ­ment and the Ministry of Energy, it is expected that by 2020, around 41 licenses will be issued to Rosneft and 32 to Gazprom. Rosneft is expected to continue exploration in the Barents and Okhotsk seas and Gazprom is expected to focus on projects in the Kara Sea. For Russia, many of the challenges presented by exploring and developing Arctic regions for oil and gas are also experienced in areas that are not in the Arctic Circle but experience similar con­ ditions. An example of this is Sakhalin Island. The fields in this area experience pack ice that is up to 1.5m thick for up to seven months of the year. Severe wave and earthquake activity is also ex­ peri­enced here. Arctic Oil and Gas

71


Global summar y

The Sakhalin shelf is an important proving ground for Arctic technologies due to similar environmental conditions.

Because of the similar conditions, the Sakhalin shelf has been an important location for operators keen to develop oil and gas reserves in the Arctic The Sakhalin shelf will remain the leading resource supplier in the Russian far East and the Asia Pacific in the near future. Sakhalin-2 includes the first LNG plant in Russia (9.6m tonnes per year) and geological exploration continues as part of the Sakhalin-3, Sakhalin-4 and Sakhalin-5 projects. Russia has signed a treaty with Norway over disputed Arctic territory (see under “The Barent Sea”, p45) and is currently in the process of submitting a claim over territory underneath the North Pole which Canada is also claiming (see under “The Arctic Ridge”, p46). 72

WPC Guide

United States Along with the United States’ shale gas boom, the prospect of further exploration and production of Arctic resources off the coast of Alaska is very exciting. It is estimated that the North American side of the Arctic contains approximately 65% of the ocean’s undiscovered oil and 26% of its undis­ covered natural gas. In particular, the Alaskan Arctic region is estimated to hold around 30 bil­ lion barrels of oil. While the focus on Arctic resources is currently on oil, the focus may be shifted in the long term to the extraction of natural gas. There are five areas which make up the Alaskan Arctic – the Arctic National Wildlife Refuge (ANWR),


Global summary

Operated by ConocoPhillips, the Kuparuk River Unit is North America’s second largest oil field, 40 miles west of Prudhoe Bay on Alaska’s North Slope.

the Central Arctic, the National Petroleum Reserve – Alaska (NPRA), the Beaufort Outer Continental Shelf (OCS) and the Chukchi Sea OCS. The main reason for most of the Arctic’s oil and gas reserves remaining unexplored is due to concerns about the impact of extracting these hydrocarbons on the Arctic environment and climate change issues. In May 2013, the US Government released the National Strategy for the Arctic Region. This docu­ ment describes plans to develop Arctic oil and gas off the American coastline as part of a “broader energy security strategy, including our economic, environmental and climate policy objectives.” This strategy builds on the 2009 national security dir­ ective issued under President Bush’s adminis­ tration as well as President Obama’s 2010 national security directive. The 2010 directive stated that the US is “an Arctic national with broad and

fundamental interest in the Arctic region, where we seek to meet our national security needs, pro­ tect the environment, responsibly manage re­ sources, account for indigenous communities, sup­ port scientific research and strengthen inter­ national cooperation on a wide range of issues.” There are several plans afoot to proceed with oil and gas drilling in the Alaskan Arctic by mul­ tiple companies. Shell has received approval from the Environmental Protection Agency (EPA) to drill exploratory oil and gas wells in the Beaufort and Chukchi seas. This was after a long process which involved Shell having to provide an oil spill contingency plan for approval from the Depart­ ment of the Interior’s Bureau of Safety and Environ­mental Enforcement (BSEE). However, it has been announced that Shell has abandoned plans to continue their activities in the Arctic in Arctic Oil and Gas

73


Global summar y

Two US Air Force Chinook helicopters joined the mission to help the stranded Kulluk platform in January 2013. The accident provided a graphic example of the difficulties of operating in Arctic waters.

2014 and it is not been confirmed if or when drilling will commence. Prior to this announcement, two mishaps ham­ pered Shell’s plans to start drilling in earnest. Plans to be the first operator to drill in the Alaskan Arctic in 2013 came unstuck after Kulluk, an oil rig being towed to Seattle, ran aground on a remote island in the Gulf of Alaska on New Year’s Eve 2012 and, a few months earlier, an oil spill containment sys­ tem failed a test. Shell remains keen to start dril­ ling for hydrocarbons in the Arctic and has found another rig to replace the Kulluk. If Shell makes a return to the US Arctic, the Chukchi Sea will present greater challenges for the company as it is deeper and further away from infrastructure than the Beaufort Sea. An advan­ tage for operators seeking to drill in the Beaufort Sea is that it is closer to the Trans-Alaska Pipeline System (TAPS). The first oil from the Beaufort Sea 74

WPC Guide

could be extracted for commercial production by 2020 and from the Chukchi Sea by 2022. The operator and owners of TAPS (BP, ConocoPhillips, ExxonMobil, Koch Industries and Chevron) are keen to identify new supplies of oil as these will be required to keep the line economically viable. TAPS is presently operating at less than 50% of its total capacity. BP is another player with ambitions in the Beaufort Sea. Work on its Liberty prospect in the sea was temporarily shelved in 2012 after pro­ blems with a custom rig and increased scrutiny of all offshore operators after the Deepwater Horizon oil spill in the Gulf of Mexico. Since then, BP has been granted an extension on Liberty by the Bureau of Ocean Energy Management (BOEM) and the BSEE. At the time of publication, it was still uncertain as to if and when BP plans to resume hydrocarbon activities in the Arctic.


Running head rhp

ExxonMobil’s Arctic Expertise ExxonMobil uses an integrated approach to guide operations in the unique Arctic environment, such as off Canada’s East Coast where the Hebron project is under development. The Hebron oil field, which lies more than 320km southeast of St John’s, the capital of Newfoundland and Labrador, is estimated at up to 1 billion barrels, with first oil expected in 2017 at a peak flow of 150,000 barrels a day. The design and construction of the Hebron platform incorporates ExxonMobil’s longstanding leadership in ice technology and experience in Arctic environments. Hebron is one of several large-scale oil developments ExxonMobil will bring into production over the next five years. The company will employ its expertise in Arctic development and project execution to develop this world-class resource in challenging operating conditions. The Hebron platform is designed to withstand sea ice, icebergs and the harsh weather typical in this part of North America. It consists of two elements: a standalone pedestal-like gravity-based structure (GBS) and a topsides deck. The GBS will be about 120m high, with about the same diameter at its base. It will be built with 130,000m³ of reinforced concrete and have storage capacity of 1.2 million barrels of crude oil. The 69,000-tonne topsides deck will sit atop the GBS. Oil, water and gas separation will be conducted on the platform, and the resulting stabilized oil will be stored with in the GBS. The oil will be transported by pipeline to tankers. New Arctic Ventures ExxonMobil will also bring the industry’s longest history of Arctic exploration, development and production to the new Russian ventures. This includes nearly 90 years of experience and 143 Arctic/subArctic wells drilled since 2000. It also includes an uncompromising commitment to the highest standards for safety and the environment.

The strategic relationship between Rosneft and ExxonMobil involves joint exploration, technology sharing and staff exchanges worldwide. Initial exploration is focused on three worldscale, liquids-prone opportunities in Russia. Their combined oil and gas potential is believed to be significant. Three blocks in the Kara Sea cover 31 million acres (125,450km²). A deepwater block on 3 million acres (12,140km²) in the Russian sector of the Black Sea has prospective structures with giant-field potential. A third opportunity covers 23 onshore blocks on nearly 3 million acres in Russia’s prolific West Siberia basin. A pilot development here has the objective of developing near-term, tight-oil liquid resources from the Bazhenov and Achimov formations. These areas represent about a 20% increase in ExxonMobil’s global net exploration acreage. Rosneft and ExxonMobil are preparing for drilling the first Kara Sea well this summer. Five further wells are planned by 2020. In the Black Sea, plans are being finalized for initial drilling in about 600m of water. The project will incorporate arctic equipment design and operating practices used in the Sakhalin project. It will also have a state-of- the-art ice-defense system consisting of multiple advanced ice-breaker vessels and an extensive ice-detection system. Additional support will become available from the new Arctic Research Center (ARC). The initial focus of the ARC will be to develop technology to support the Kara Sea joint venture. Commitment to safety, environment and operations integrity management has proved its value during last year’s work in the Kara Sea. The partners employed multiple vessels to conduct 2D and 3D seismic surveys, as well as environmental studies, monitoring of ice conditions and sea state. The work to develop the Hebron project and explore the Kara Sea and other Arctic areas will be guided by the proven operations integrity management system ExxonMobil has employed successfully time and time again.

Arctic Oil and Gas

75


Glossar y

Glossary of terms Appraisal well  A well drilled to determine the extent of hydrocarbon reserves and the likely production rate. Arctic Circle  One of five of the major circles of latitude. It is the parallel that runs 66° 33’ 44” north of the equator. Countries with territory that falls within the Arctic Circle include Canada, Greenland, Norway, Russia and the United States. Arctic Natural Wildlife Refuge (ANWR)  A region in Alaska administered by the US government with the aim of protecting wildlife, fish and plant resources. Barrel  A unit of volume measurement for petroleum products – 7.33 barrels = 1 tonne, 6.29 barrels = 1 cubic metre. Basin and petroleum system modelling (BPSM)  The quantitive and visualisationbased modelling of sedimentary rock basins and petroleum systems. Biome  See ecosystem. Body waves  Seismic waves that are analysed for the purposes of determining whether there are oil or gas deposits in geological structures. Boreal forest  An ecosystem characterised by forests made up of coniferous trees such as pines, larches and spruces. The term is used, especially in Canada and Scandinavia, to refer to the more southern part of the ecosystem while “taiga” is often used to refer to the more barren, northern­most areas approaching the tree line and the tundra ecosystem. Caisson retained islands (CRI)  Watertight islands that are built in the Arctic for the facilitation of oil and gas exploration.

76

WPC Guide

Casing  Pipe cemented in a well to prevent it from caving in and to seal in formation fluids. Christmas tree  The assembly of valves and fittings which are installed on top of a casing to control the production rate of oil. Coal seam gas (CSG)  Also called coalbed methane (CBM), it is methane found in coal seams. It is always present in coal mines and can be produced when coal is being mined from virgin seams. A competitor to Arctic gas projects. Condensate  Hydrocarbons which are in the gaseous state under reservoir conditions. These become liquid when pressure or temperature is reduced. Concrete island drilling system (CIDS)  A drilling system that has been established on a concrete island because it is more stable than drilling on ice. Conventional oil and gas  Refers to crude oil or gas which is extracted by conventional means and methods. Cretaceous period  A geological period and system from approximately 145 million to 66 million years ago. It follows the Jurassic period and is the longest period of the Phanerozoic Eon. Crude oil  A naturally occurring, unrefined petroleum product made up of hydrocarbon deposits. It can be refined to produce useful products, such as gasoline, diesel and different types of petrochemicals. The viscosity and colour of crude oil can vary, depending on its hydrocarbon composition. Cryotic soil  See permafrost Drill  1. To bore a hole. 2. Equipment with cutting edges that is used to bore holes. Drilling  The use of a rig and crew for drilling operations, and the associated processes such as production testing, data collection and preparation for production.


Glossary

Drilling rig  A unit for drilling that is not permanently fixed to the seabed, such as a jack-up unit, a drillship or a semisubmersible. Dry holes  A well that has been drilled but does not produce oil or gas in commercially viable quantities.

Geophysical surveys  Surveys that are used to collect geophysical data. Different sensing instru­ments may be used and data can be collected from above or below the Earth’s surface or from aerial, orbital or marine platforms.

Ecosystem  Areas with similar climatic conditions, such as communities of plants, animals and other organisms. Also referred to as a biome.

Glacier  A slow-moving mass of ice which has originated from an accumulation of snow. Conti­ nental glaciers spread out from a central mass and alpine glaciers descend from a high valley.

Exclusive Economic Zone (EEZ)  A seazone that has been prescribed by the United Nations Convention on the Law of the Sea in which states have special rights over the exploration and use of marine resources.

Gravel island  An offshore island constructed largely of gravel for the purposes of exploratory drilling.

Exploration drilling  Drilling that is performed to determine the presence of hydrocarbons. Exploratory well  A well that has been drilled by an energy company or government in the hope of finding a new source of hydrocarbon. Also known as wildcat wells. FPSO vessel  Floating, production, storage and offloading vessel. A floating facility for offshore hydrocarbon extraction that is usually based on a converted oil tanker hull. An FPSO is fitted with hydrocarbon processing equipment for the separation and treatment of crude oil, water and gases that arrive on board from sub-sea wells. Fracking  See hydraulic fracturing. Fracture acidising  A well-stimulation operation in which acid, usually hydrochloric acid, is injected into a carbonate formation at a pressure above the formation-fracturing pressure. See also, matrix acidising. Gas hydrates  Crystalline, water-based solids that physically resemble ice, in which small molecules, usually gases, are trapped inside “cages” of hydrogen-bonded water molecules. Also called gas clathrates or clathrate hydrates.

Greenfield development  The creation of planned communities or commercial activities on previously undeveloped land, such as rural, agricultural or unused spaces outside of urban areas. Greenhouse gas (GHG)  Gases, either naturally occurring or man-made, which allow sunlight to enter the Earth’s atmosphere freely. These gases absorb infrared radiation and trap heat in the atmosphere. Guar  A bean that produces gum. Guar gum can be used as a drilling fluid. Substitutes have been developed to mimic the characteristics of guar without creating residue. This also addresses the issue of guar supply uncertainty. Hydraulic fracturing  Also known as fracking, it is the forced opening of fissures in sub­ terranean rocks by introducing liquid at high pressure for the extraction of oil or gas. Hydrocarbon  A naturally occurring organic compound comprising hydrogen and carbon. The most common hydrocarbons are natural gas, oil and coal. Ice islands  Large pieces of ice that have become separated from the land to form floating islands. Frequently attributed to climate change. Jurassic period  A geological period and system that took place between 201 million

Arctic Oil and Gas

77


Glossar y

and 145 million years ago. It was a part of the Mesozoic era.

Petrochemicals  Any substance obtained from petroleum or natural gas.

Kick  A well “kicks” when the formation pressure exceeds the pressure exerted by the mud column.

Petroleum  A thick, flammable mixture of gaseous liquid and solid hydrocarbons occurring naturally beneath the Earth’s surface. The origins of petroleum are the accumu­lated remains of fossilised plants and animals. Petroleum can be separated into fractions including natural gas, gasoline, lubricating oils, naptha, kerosene, paraffin wax and asphalt. It can also be used as raw material for a range of derivative products.

Liquefied natural gas (LNG)  Natural gas, cooled to -162°C, that has been converted to liquid for ease of storage, transportation and distribution. Matrix acidising  The injection of acid into a geological formation at a pressure below that which will create a fracture. The acid flow is confined to the natural permeability and porosity of the rock with no new fractures created. Mud  A mixture comprised of a base substance and additives used to lubricate the drill bit and counteract the naturally occurring pressure of the formation. Natural gas  Gas which occurs naturally. It is often found in association with crude oil. National Petroleum Reserve – Alaska (NPRA)  A 95,505km2 area of land on the Alaska North Slope which is owned by the US federal government and managed by the Department of the Interior, Bureau of Land Management. It lies to the west of the Arctic National Wildlife Refuge. Natural gas  A fossil fuel. Natural gas is a mixture of naturally occurring hydrocarbon gases and it is primarily used a fuel and for making organic compounds. Deposits are found beneath the Earth’s surface. Methane is the primary compo­nent of natural gas but it also contains varying quantities of ethane, propane, butane and nitrogen. Permafrost  Also known as cryotic soil, perma­ frost is soil at or below the freezing point of water (0°C/32°F) for two or more years. Permeability  The property of a formation which quantifies the flow of fluid through pores and into a wellbore.

78

WPC Guide

Proven reserves  Reserves which, on available evidence, are virtually certain to be technically and economically viable for production – i.e having a greater-than-90% chance of being produced. Rayleigh waves  A type of surface acoustic wave that travels near the surface of solids. Analysis of these waves can be used in seismic exploration of the Arctic. Recoverable reserves  The proportion of hydrocarbons that can be extracted using available techniques. Refinery  An industrial plant where a crude substance, such as crude oil, natural gas or coal, is purified so it can then be turned into more useful products. Relict permafrost  Permafrost that exists in places where it could not form under present conditions. This reflects past climatic conditions such as earlier colder temperatures. Riser (drilling)  A pipe between a seabed blow-out preventer (BOP) and a floating drilling rig. Riser (production)  The section of pipework that joins a seabed wellhead to the Christmas tree. Sedimentary basin  An area in which sediments have accumulated over a period of time at a significantly greater rate and thickness than surrounding areas.


Glossary

Sedimentary rock  Rock formed by the deposition and solidification of sediment, usually transported by water, ice in the form of glaciers or wind. These rocks are frequently deposited in layers.

Trans-Alaska Pipeline System (TAPS)  One of the world’s largest pipeline systems, it includes 12 pump stations, the trans-Alaska crude oil pipeline, the Valdez Marine terminal and several hundred miles of feeder pipelines.

Seismic exploration  A set of geophysical methods used in the exploration of potential oil and gas fields in the Arctic, based on a study of artificially induced waves of elastic vibrations in the Earth’s crust.

Triassic period  A geologic period and system that took place between 248 million and 206 million years ago. It is part of the Mesozoic era.

Shale oil  An unconventional oil extracted from shale rock by processes such as pyrolysis, underground mining and surface mining. These techniques convert the organic matter within the rock (also known as kerogen) into synthetic oil. This oil can be used as a fuel or upgraded to meet refinery stock specifications by adding hydrogen and removing impurities. The products can be used for the same purposes as those which come from crude oil. Shale gas  Natural gas found trapped in shale rock formations. Shelf  The extended perimeter of each continent and associated coastal plain. Single steel drilling caisson (SSDC)  A drill with a watertight retaining structure for use underwater. Sovereignty  The quality of having an independent authority over a geographic area. Subarctic  The Northern Hemisphere imme­dia­ tely south of the Arctic. This area covers much of Alaska, Canada, Iceland, Siberia, northern Mongolia, the northern parts of Scandinavia, Scotland and parts of northern England. In general, these regions fall between 50°N and 70°N latitude. Taiga  A Russian term for forest in the cold, subarctic region. This lies between the tundra to the north and the temperate forests to the south. The taigas are found in Alaska, Canada, Scandinavia and Siberia. See also boreal forest Talik  A Russian term that refers to a layer of year-round unfrozen ground that lies in permafrost areas.

Tundra  The coldest of the ecosystems, tundra is characterised by a very cold climate, limited drainage, low diversity of plants, short season of growth and reproduction, low precipitation and frosty landscapes. From the Finnish word tunturi, meaning “treeless plain”. Unconventional oil  Petroleum that is produced or extracted using techniques other than the conventional oil well method. Unconventional resource  An umbrella term for oil and natural gas produced by means that do not fit the criteria for conven­tional produc­tion. The term is currently used to reference oil and gas resources whose porosity, perme­ability, fluid trapping mechanism or other characteristics differ from conventional sandstone and carbo­ nate reservoirs. Coalbed methane, gas hydrates, shale gas, fractured reservoirs and tight gas sands are all examples of unconventional resources. United Nations Convention on the Law of the Sea (UNCLOS)  A comprehensive regime of law for the world’s oceans and seas. UNCLOS governs all uses of the oceans and their resources. It was signed in 1982 and involves the participation of more than 150 countries. Viscoelastic diverting acid (VDA)  A self-diverting, polymer-free acidizing fluid used for high fluid efficiency during acid fracturing processes. Viscosity  The property of a fluid that resists the force tending to cause the fluid to flow, or the measure of the extent to which a fluid possesses this property.

Arctic Oil and Gas

79


Director y of useful Arctic organisations and institutions

Directory of useful Arctic organisations and institutions Abisko Scientific Research Station, Sweden: www.polar.se/abisko Agricultural and Forestry Experiment Station, University of Alaska: www.uaf.edu/snras/afes Agricultural Institute of Iceland: www.rala.is Akvaplan-Niva Polar Environmental Centre: www.akvaplan.niva.no Alaska Anthropological Association: www.alaskaanthropology.org Alaska Climate Research Center: climate.gi.alaska.edu Alaska Geobotany Center: www.geobotany.uaf.edu Alaska Oil and Gas Association: www.aoga.org Alaska Oil and Gas Conservation Commission: doa.alaska.gov/ogc Alfred-Wegener Institute for Polar and Marine Research, Germany: www.awi-bremerhaven.de Arctic and Antarctic Research Institute: www.aari.nw.ru Arctic Council: www.arctic-council.org The Arctic Institute: www.thearcticinstitute.org Arctic Monitoring and Assessment Programme: www.amap.no ArcticNet, Canada: www.arcticnet-ulaval.ca Barrow Arctic Science Consortium: www.arcticscience.org Bureau of Minerals and Petroleum, Greenland: www.govmin.gl Canadian Polar Commission: www.polarcom.gc.ca Canadian Society for Unconventional Resources: www.csur.com Center for International Governance Innovation, Canada: www.cigionline.org Cold Regions Research Centre: www.wlu.ca/~wwwcoldr Danish Arctic Institute: www.dpc.dk Danish Arctic Station: www.arktiskstation.ku.dk Energy Research Institute of the Russian Academy of Sciences: www.eriras.ru European Centre for Arctic Environmental Research: www.arcfac.npolar.no Geological Association of Canada: www.gac.ca 80

WPC Guide

Gubkin Russian State University of Oil and Gas: www.gubkin.ru Institute of Arctic and Alpine Research: www.instaar.colorado.edu International Arctic Research Center: www.iarc.uaf.edu International Arctic Science Committee: www.iasc.no International Association of Oil and Gas Producers: www.ogp.org.uk International Energy Forum: www.ief.org International Maritime Organisation: www.imo.org International Petroleum Industry Environmental Conservation Association (IPIECA): www.ipieca.org International Scientific Center Arktika: www.arktika.magadan.su International Union for Conservation of Nature: www.iucn.org Inuit Circumpolar Council: www.inuitcircumpolar.com Joint Organisations Data Initiative: www.jodidata.org Memorial University of Newfoundland: www.mun.ca Ministry of Petroleum and Energy, Norway: www.regjeringen.no National Energy Board, Canada: www.neb-one.gc.ca National Research Council of Canada: www.nrc-cnrc.gc.ca Norwegian Petroleum Safety Authority: www.ptil.no Norwegian Polar Institute: www.npolar.no/en Oceans North Canada: www.oceansnorth.org Oil and Gas Institute, Russian Academy of Sciences: www.eriras.ru Organisation for Economic Cooperation and Development (OECD): www.oecd.org Research & Development Corporation of Newfoundland and Labrador: www.rdc.org Trofimuk Institute of Oil and Gas: www.sbras.ru Union of Oil and Gas Producers, Russia: www.sngpr.ru United Nations Environmental Programme (UNEP): www.unep.org US Energy Information Administration: www.eia.gov World Petroleum Council: www.world-petroleum.org


Acknowledgements

Acknowledgements For WPC: Director General: Dr Pierce Riemer Director of Communications: Ulrike von Lonski For ISC: Editor-in-Chief: Mark Blacklock Managing Editor: Georgia Lewis Publisher: Nigel Ruddin Publications Director: Robert Miskin Finance Director: Yvonne O’Donnell Finance Assistants: Maria Picardo, Anita d’Souza Senior Consultants: Jeffrey Fearnside, Michael Gaskell, Karin Hawksley, Jonathan Unsworth Art and Design Director: Michael Morey Printed by: Buxton Press Ltd WPC and ISC would like to express their thanks to the following companies, people and organisations for providing pictures. The credits are listed by article. Where the pictures for an article came from a variety of sources, the appropriate page numbers are given in brackets after each source. Cover: Gazprom (left), Harald Pettersen/Statoil (centre & right). Message from the Director General, WPC overview: WPC. Introduction to Arctic oil and gas: ConocoPhillips.

2006 Expedition (20), Shtokman Development AG (21), Øyvind Hagen/Statoil (22), J. Pinkston and L. Stern/US Geological Survey (USGS) (23), Alyeska Pipeline Service Company (25), Harald Pettersen/ Statoil (26), ExxonMobil/Business Wire (27), Bob Webster (28), Allan Klo/Statoil (31). Oil and gas transportation challenges in the Arctic region: Gazprom (33), Euno [CC BY 2.0] (34), BP (35 & 36), Suncor Energy Inc (37, 38 & 40). Legal issues in the Arctic: ISC [adapted from material taken from the CIA World Factbook] (43), ISC [adapted from material from continentalshelf.gov] (44), USGS (45), UNH/NOAA (47). Environmental challenges in the Arctic: Gazprom (48), Mike Dunn, NC State Museum of Natural Sciences/ NOAA Climate Program Office, NABOS 2006 Expedition (49), Robert Pittman/NOAA (50 upper), Glenn Williams / US National Institute of Standards and Technology (50 lower), Jeff Schmaltz/NASA Earth Observatory (51 upper), Luna sin estrellas [CC BY 2.0] (51 lower), Michael Cameron, NOAA/ NMFS/AKFSC/NMML (52 upper), Martin de Lusenet [CC BY 2.0] (52 lower), NOAA Office of Response and Restoration (54), CGG (56), Arnstein Rønning [CC BY 2.0] (59).

Other challenges for Arctic oil and gas exploration: Gazprom (16 & 17), ConocoPhillips (19).

Community Engagement: Leslie Philipp [CC-BY-2.0] (60), Gazprom (61 & 61 inset), Chris Arend/ ConocoPhillips (63).

Technical challenges and developments in the Arctic: Mike Dunn, NC State Museum of Natural Sciences/ US National Oceanic and Atmospheric Adminis­ tration (NOAA) Climate Program Office, NABOS

Global Summary: Cairn Energy (66), Øyvind Hagen/ Statoil (67), Gazprom (68 left, 68 right, 71 & 72), Statoil (69), Chris Arend/ConocoPhillips (73), SSgt Aaron M. Johnson/US Air Force (74).

Arctic Oil and Gas

81



The World Petroleum Council Guide to Arctic Oil and Gas