THE BUSINESS (EU): The Iceman Cometh: The Polar icecap is in retreat and the Artic Circle is ready to give up its hidden energy treasures: Frozen assets: the retreat of the Arctic polar cap is revealing the rest of the world’s oil and gas reserves, which big companies are keen to exploit as price increase make exploration in the harsh climate more cost effective (ShellNews.net) 14 Nov 04

'Oil companies are going into hasher areas but the rewards may be larger'

By Richard Orange

GLOBAL warming, if the doomsayers are to be believed, will have disastrous effects on the world. But one group of nations would stand to benefit.

According to the eight-country Arctic Council's report last week, the Arctic ice is half as thick as it was 30 years ago and will disappear by 2070. But for those countries, while wildlife will suffer and the Inuit be displaced, it is hard not to consider the upside.

The lost ice will reveal what, according to the International Energy Agency, could amount to as much as 25% of the remaining oil and gas in the world. It will also open up fisheries and unblock trade routes East and West around the Arctic passage that could cut shipping times from the UK to Japan by 12 days.

The Arctic Council meets in Reykjavik on 24 November. Discussions, while mostly environmental, are likely to touch on economics. "It's a paradox," says Pal Pretstrud, vice-chairman of the Arctic Climate Impact Assessment Survey told The Business. "The combination of the ice and snow disappearing and high oil prices will make the Arctic area much more interesting for future oil developments, and then you have more emissions," he said.

Squabbling has begun. Denmark triggered a slew of light-hearted articles last month by announcing an expedition to prove the North Pole was part of Greenland, giving it rights to shipping channels, fisheries and resources. Canada and Russia have similar investigations.

Any economic benefits from ownership of the North Pole are far off, so disputes are low key. But around the Arctic rim they are more heated. Only last week, a top executive at Norwegian oil firm Statoil Erling Overland made an urgent call for Norway to end its 30-year quarrel with Russia over parts of the Barents Sea to allow the exploration necessary for Norway's oil production to remain stable.

The US and Canada have long been arguing over who owns parts of Canada's resource-rich Mackenzie Delta. Extracting oil and gas from the Arctic is nothing new. BP has been milking the reserves of the Prudhoe Bay on Alaska's north coast since the 1970s.

"The onshore Arctic is something the industry knows well," says a BP spokesman. "It's something we've been doing for 40 years." The Arctic is a grim place to operate, cased in sheets of ice and snow for nine months of the year, and with 2,500 feet of permafrost a few feet below the ground, even when the surface thaws. It is on dry land, though, so when all is taken together, it is no worse than, say, the North Sea."

The thawing Arctic ice will allow access to offshore areas previously too ice-bound or too prone to icebergs, which can demolish any drilling or production equipment.

Oil companies are already vying for Arctic resources they  previously ignored. Top of the list are oil reserves in environmentally sensitive areas and projects to get the region's gas reserves to market. 

Tony Reinsch, an energy expert at PFC Energy in Canada says: "What's driving the move to the Arctic more than anything else is that as the number of global opportunities become more limited, oil companies have been increasingly forced to go into areas that are harsher and more difficult to operate in, but where the rewards may be larger."

One longstanding environmental blockage could soon be overcome. After a 10-year struggle, one of the most attractive hunting grounds for Arctic oil and gas, the Arctic National Wildlife Reserve next to Prudhoe Bay, which geologists believe could hold 10.4bn barrels, looks almost certain to be drilled. George Bush lost a congressional vote on the issue last year by just four votes. A shift to the Republicans in Congress mean that he should now have the edge.

The chairman of the Senate energy committee has called for the reserve to be opened since Bush's re-election. Norway will next month drill its first Arctic well since the oil companies won the go ahead from the government to explore the Barents Sea. The government allowed new drilling in selective areas at the end of last year after a long battle with environmentalists over cod breeding grounds. In exchange, oil companies will have to be on their environmental best behaviour.

In the past, finding gas in the Arctic was almost as bad as finding nothing, given the difficulty of bringing it to market. But the price gas now fetches and advances in transport techniques has changed this.

In the US, companies are close to a decision on whether to build a pipeline to bring Prudhoe's untapped gas reserves to the lower 48 states, while on Canada's North Coast, work is afoot to pipe the huge, long-ignored Mackenzie Delta gas reserves to consumers.

In Europe, there are similar gas developments. In the Barents Sea, the $8bn (£4.3bn, €6.3bn) Snohvit Liquefied Natural Gas project, which should keep supplying the UK and US for 30 years, will hit the market next year. But the newest area for gas is Russia's Arctic coast.

To develop Russia's Arctic gas, Russian gas monopoly Gazprom needs western help. It has courted Norway's Statoil and Norsk Hydro, ExxonMobil and ChevronTexaco, and Shell, to help it to develop the Shtokman gas field in the Barents Sea. Shtokman is one of the world's largest gas fields, twice the size of any in Norway. But while the Barents Sea on the Norwegian side has no icebergs (the Gulf Stream warms the waters), the Russian side does; Shtokman is 600km offshore.

All these resources pale into nothing, however, next to the potential energy resource of the region's natural gas hydrates, an ice-like crystalline solid trapped beneath the Arctic permafrost. Relatively little is known about hydrates, let alone about how to produce them and little progress is expected for decades. Theoretically, however, the world's hydrates contain more energy than all known conventional reserves of oil, coal, and natural gas put together.