Conference delineates steady effort to open the Arctic

Victor Schmidt & Nina Rach

January 9, 2013

Delegates at the Arctic Technology Conference, held recently in Houston, examined the potential of the region to the oil & gas industry. Victor Schmidt and Nina Rach listened in.

icebreakersTwo Russian icebreakers create a wide path for the LNG carrier, Ob River, across the open Northern Sea Route to deliver LNG from Russia to Japan.

The Arctic is the next major region opening for the oil & gas industry. It covers 6% of the Earth’s surface and may contain 25% of the world’s undiscovered oil and gas. To date, 174 fields have been discovered, holding an estimated 17.2 billion barrels of oil.

While fear mongers condemn the ‘race’ to grab resources, there is no headlong rush to seize acreage positions. Rather, the industry has been working steadily since the 1980s in multi-company, multi-national consortia to understand the resource potential and environmental sensitivities of the region.

Eight countries hold territorial rights in and around the Arctic Ocean. Activities are governed by the 1982 United Nations Convention on the Law of the Sea, as there is no land mass within the ocean. This international treaty has been a major driver in the exploration and definition of the continental shelves underlying the frigid waters, encouraging countries to explore the limits of their respective continental margins to define potential extra-territorial claims. Meanwhile, the industry continues to develop procedures, infrastructure, and technologies to preserve life and perform work safely in the ice-bound environment.

The region has been under steady research, exploration and development since Alaska’s Prudhoe Bay was opened in the late 1970s. If anything, Arctic development requires the stamina and perseverance of a marathon by both companies and governments.

Industry experts gathered in Houston in December at the Arctic Technology Conference to review progress and share recent developments. The conference opened with a plenary session that provided an overview of technological advances and perspectives on future activity.

Norway

The Consul General of Norway, Jostein Mykletun, was the opening speaker and his plenary speech focused on the forces driving, and strategy behind, the Norwegian government’s High North Policy.

Mykletun said there is no energy ‘race’ in the Arctic, nor a ‘sprint’ for the Arctic Ocean. On the contrary, he said, Norway is cooperating with neighboring countries to sustainably develop arctic resources ‘based on sound environmental stewardship’. Norway aims to be a responsible actor in the region, which the Consul General characterized as ‘High North–Low Tension’.

He discussed the importance of the UN Convention on the Law of the Sea, the Arctic Council, and the interest of non-Arctic countries seeking observer status in the Arctic Council. The promise of energy reserves and the uncertainty of climate change are driving widespread interest in the Arctic, he said, exemplified by the formulation of arctic or high north policies in many countries.

The invitation extended to the Consul General was appropriate, as Norway plays an important role in arctic development, particularly with regard to natural resources. It is the world’s third largest exporter of natural gas and the fifth largest exporter of oil. According to the Royal Norwegian Consulate General, more than 140 Norwegian companies are established in Houston, the largest concentration of Norwegian energy companies abroad.

Various Norwegian companies were represented at the conference, including Statoil (also a sponsor), DNV, Axess, Aker Solutions, Frank Mohn Houston, Kongsberg Oil & Gas Technologies, MARINTEK and TECHNI. Norwegian institutions represented included the University of Stavanger, the Petroleum Safety Authority (Ptil), INTSOK, Innovation Norway, and the Royal Norwegian Consulate in Houston.

Ilulissat Declaration

In May 2008, Canada, Denmark, Norway, Russia and the US signed the Ilulissat Declaration, following the Arctic Oceans States Conference in Ilulissat, Greenland. The Declaration has four main goals: to safeguard stability and predictability in policy; to create sustainable management of the region; to strengthen international cooperation and legal order controlling its use; and to strengthen value creation and employment to support development.

Key elements to achieving the Ilulissat Declaration’s goals involve: planning for continual presence (including new settlement patterns), ongoing industry activity, continued research, and knowledge gathering to expand factual understanding of the region and its challenges.

These challenges include environmental sensitivity, low exploration activity due to limited data, political decisions regarding sea boundaries and territorial jurisdiction, economics of operating in the Arctic conditions, competition for resources, and the harsh environment in which people and equipment must operate.

Barents 2020 Project

In September 2010, Russia and Norway signed a treaty on maritime delimitation and cooperation in the Barents Sea and Arctic Ocean, removing a serious impediment to future development and demonstrating that longstanding differences can be resolved. The treaty was ratified by a Russian State Duma vote in March 2011.

Barents 2020 (B2020) is a project between Norway and Russia that had four phases, according to Sigurd Robert Jacobsen, principal engineer at Petroleum Safety Authority Norway (PSAN, www.ptil.no). The project recommended uniform safety levels, a predictable HSE framework and improved basis for future cooperation in the Arctic, and identified areas that need updated standards, documented in position papers and reports. In phase four, the project expanded to include French, American and Dutch specialists. The final Barents 2020 report is ‘an assessment of international standards for safe exploration, production, and transportation of oil and gas in the Barents Sea’.

Jacobsen said that the overall aim of these initiatives is to find common standards and define a predictable HSE framework for the Norwegian and Russian continental shelf. PSAN follows up on B2020 recommendations, now constituting 130 different guidelines.

B2020 was directly followed by the Circumpolar Knowledge Sharing project, financially supported by the Norwegian Foreign Ministry. The first seminar for operators and safety regulators took place in Stavanger in May 2012, with seminars planned for Russia and Canada in 2013. Future seminars will be held in the US and Greenland.

Jacobsen also mentioned an industry initiative: the Norwegian Oil & Gas Association northern areas work group is engaged in a project to develop new survival suits for the Arctic.

One overarching principle in Norway is that the operator is always responsible and accountable. Non-operating partners also have a duty ‘to see to’, he said.

New shipping routes

The ice cap is shrinking, which has opened high-latitude shipping opportunities. Using new routes where ice is thinner can save up to 40% in travel time compared to current routes through the Suez Canal or Panama Canal, and save as much as 20% in fuel, due to the shorter routes along the southern edges of the Arctic Ocean.

The Arctic will be developed because of strong oil demand worldwide, strong gas demand in Asia, and retreating sea ice that is opening the Northern Sea Route to shipping. Last November, this opportunity was demonstrated by the LNG carrier Ob River, which shipped an LNG cargo from the Snøhvit terminal in Hammerfest, Norway to the Tobata terminal in Japan. It discharged the cargo in early December. Russian nuclear icebreakers cleared the icy route ahead of the vessel.

LNG

Expanding Knowledge

More needs to be done to define the ocean’s underlying geologic structures and this work is being carried out as part of the Law of the Sea’s requirement for countries’ extraterritorial claims beyond the exclusive economic zone (EEZ), which extends up to 200nm from the coast.

Seismic data grids now cover a large part of the Arctic shelf, though the top of the world is hidden by a polar ice cap. Definition of the sediments and country borders under this pack ice await subsea data collection and analysis. Data collection has been performed in multiple campaigns. The first wave of activity was driven by Cold War security concerns and done under military auspices from ice islands and from submarines on classified missions.

A second wave occurred through public access mapping under the Scientific Ice Expedition (SCICEX) surveys of 1995-99. This program was a collaborative effort between the US Navy and academic researchers from many universities, using nuclear-powered submarines for scientific studies. The goal of the program was to acquire comprehensive data about Arctic sea ice, water properties, and bathymetry, to improve understanding of the Arctic Ocean basin and its role in Earth’s climate.

The need of the nations around the Arctic Ocean to define their continental margins to claim territory under the Law of the Sea Convention set off a third wave of activity in 2004. This legally binding process allows nations to extend their margins beyond the standard 200nm EEZ. Much of this data has been collected using submarines.

A fourth wave is now underway, as multi-year sea ice melts and allows access to formerly ice-bound seas. In particular, recent seismic acquisition in the Canadian Basin has included both open water surveys and surveys done with tandem vessels – an icebreaker plus survey vessel.

Personnel Needed

One of the reasons the Arctic is being developed at a glacial pace is the shortage of arctic specialists. According to Prof Anatoly Zolotukhin of the Gubkin Russian State University of Oil & Gas, Russia is currently producing up to ten arctic specialists each year. But the need is much greater, with more than 100 new professionals required each year to work this region.

In addition, there is no significant infrastructure to support arctic operations. Environmental response specialists are needed to quickly address spills because of the sensitive nature of the high-latitude environment.

Because weather changes quickly across the region, forecasters and trackers are needed to keep operations personnel informed. FPSOs and other floaters operating in the Arctic will need new capabilities for quick disconnect of flow lines and risers to respond to shifting sea ice and attendant loads.

In addition, community liaisons are needed to work with the indigenous populations, to preserve local rights and lifestyles. At the same time, members of these groups need to have the option of being involved with industry activity, so they can share in the rewards that come from Arctic development. To attract companies and capital, business conditions need to offer more favorable treatment, Zolotukhin says. Additionally, students need to be taught in English to take advantage of the industry’s primary language.

John Hogg, VP of exploration & operations at MGM Energy in Calgary, and chairman of the Arctic Technology Conference, said ‘Careers in the Arctic are mostly associated with development of resources, from labor to technical to professional,’ and jobs are quite varied.

Shell’s Activities

As knowledge has advanced, the industry has drilled in the higher latitudes. According to Robert Blaauw, Shell’s senior advisor for Global Arctic Theme, about 500 wells have been drilled in the Arctic without incident. The company’s goal is to find integrated drilling solutions that allow slimmer wells to be drilled faster, and with fewer people. This will limit the footprint of industry and lighten the logistical load required for Arctic operations.

shells oil spillShell’s oil spill response crews practice laying out nearly 600m (1500ft) of a floating, curtain-like device designed to contain oil from the Nanuq response vessel near Valdez, Alaska, in May 2012.

Shell recently drilled topholes for two wells off the north coast of Alaska that required about 2000 people to provide logistical support for the drilling operations, to constantly monitor and practice spill containment procedures, to watch marine mammals, and to provide for emergency and medical care. This comprehensive effort is required because of the lack of infrastructure to support drilling operations.

Susan Childs, Alaska Venture Support Integrator manager, spoke about the lengthy, drawn-out process that characterizes arctic operations and shared details of the 2012 exploration drilling program. She said Shell’s exploration plans began in 2007 and it took five years to begin drilling. Site-specific air quality permits require six years, and oil spill response plans (OSRP), begun in 2007, continue to be modified. Shell’s purpose-built oil spill response vessel Nanuq will be on standby at all times in the Chukchi Sea.

Shell now has the most robust arctic oil spill response system in the industry, on standby 24/7, with three areas of spill response: offshore, near shore, and onshore recovery. Post-Macondo, the company also made a voluntary commitment to develop an oil spill capping system, designed to capture hydrocarbons at the source. Shell says the capping stack will remain staged in Alaska to allow for rapid deployment.

The company has acquired LOAs and IHAs from NMFS and NOAA (letters of authorization, incidental harassment authorization; National Marine Fisheries Service; National Oceanic & Atmospheric Administration) and has submitted 10 APDs (application for permit to drill).

Childs said that Shell implemented a real-time ice and weather forecasting system in 2012 to support ice management with around-the-clock ice forecasting using real-time satellite coverage (available through Shell Ice & Weather Advisory Center). The Fennica serves as the primary ice management vessel supporting the Noble Discoverer drilling rig in the Chukchi Sea. The Nordica serves as the primary ice management vessel supporting the Kulluk drilling unit in the Beaufort Sea.

There was tight security at a sold-out luncheon presentation by Pete Slaiby, VP of Shell’s Alaska Venture. ‘[The US] is an arctic nation,’ he said, as he discussed the impact of dynamic, multi-year ice on operations, the prospect of automated underwater vehicles, the need for timely permits and high operating standards, and the Arctic Challenger spill barge. Any energy company that will shy away from its obligation to safely exploit ‘shouldn’t be working in the Arctic’, said Slaiby. OE