Arctic Ocean Commons Frontier; Prospectivity.
“We believe, as many others do, that the most prolific remaining conventional oil and gas resources are in the Arctic or sub-Arctic, because we’ve pretty much developed the geologies south, whether that’s in the United States or whether that’s in Europe or Asia,” Shell's CEO John Hofmeister recently said.
The Last Great Frontier Province with Supergiant, Trillion Dollar Field Potential.
. Attractive High-Volume basins. Vast area of 1,300,000 square miles (80 million acres) containing entire oil and gas provinces, not miserable small tenements with just one or two individual structures.
2. Generous exploration period. No onerous time-span for Drill or drop decisions will enable a more sensible long-term exploration development regime.
3. Low exploration risk. Extensive rich basins with 10-20 billion barrel OEL prospects.
4. Newly Identified Arctic hydrocarbon kitchens.
5. Deep water typically makes for giant fields (1,000 - 4,000m).
6. Lower tax regime likely. Entire risk capital will be paid back before lower, more realistic taxes kick in.
7. No horrendous up-front "Signature-Bonuses" soaking up vast amounts of high-risk capital. I.e., China recently paid $4 billion for four prospects in Nigeria.
8. No onerous "Production-Sharing-Agreement" where typically between 70-85% of production revenues disappears straight into government bureaucracy’s coffers, virtually eliminating all the profit and destroying shareholder value. i.e., Indonesia, Venezuela, Algeria etc.
9. Direct access to both Europe and US-Asia-Pacific markets.
10. Once governments sign on, the region will have very low political risk.
11. Opportunity for control of the play.
12. Early hook-up and monetization via FPSO’s possible.
13. Excellent geographical diversification away from expropriation-trending countries, war-zones and other trouble spots.
14. Compared to northern Iraq, the Arctic is a pleasant working environment.
Recent estimates have found the Arctic could contain the equivalent of more than 400 billion barrels of oil and gas and massive amounts of another potential energy source, crystallized methane.
The Arctic continental shelf region is known to be rich in energy resources. The geology of both the Chukchi and the outer continental shelves and some parts of the deeper Arctic Commons share much in common with that of the highly successful onshore petroleum province of Prudhoe in northern Alaska. Scientists have recently found evidence of oil precursor sediments only 320km from the North Pole.
The Arctic region boasts some of the world's deepest sedimentary basins containing up to 10,000 ft deep high TOC sedimentary sections.
The US Geological Survey is currently preparing a new analysis for Congress. Donald Gautier, one of the principal authors of the as yet unpublished study, is willing to reveal a key piece of information: "The estimates will go up."
2004 DRILLING OPERATIONS IN THE ICE SHEET: The summer 2004 Arctic Ocean Lomonosov drilling project supported by two icebreakers, drilled to 420 meters below the sea floor on the Lomonosov Ridge. One of the more startling discoveries was rock with high total organic content in some of the sediments. The bottom of the hole encountered Cretaceous-age sands that geologists interpret as what is known as a passive margin, a slowly sinking shelf that sloped into an ancient ocean.
Hints of Oil Bonanzas Beneath Arctic Ocean
The studies on Arctic sediment that appeared recently in the journal Nature tell a dramatic story of polar warming and cooling over millions of years. But what they tell petroleum geologists may be just as striking. Though there is little mention of it in the papers, some scientists involved in the work said the huge amounts of organic material from dead algae and plants embedded in the ancient sedimentary layers suggested that the center of the Arctic Ocean could hold vast oil deposits.
The ice-cloaked Arctic Ocean was once apparently a warm, biologically brewing basin so rich in sinking organic material that some scientists examining fresh evidence pulled from a submerged ridge near the North Pole say the seabed may now hold significant oil and gas deposits.
So far, the coring project has mainly garnered the attention of climate experts, but word is also spreading among geologists focused on oil.
Petroleum deposits have been discovered along the shallow shelves fringing the Arctic from the North Slope of Alaska to northernmost Europe. But the 600 ft section of cores of dark, ancient organic rich rock extracted from the submerged Lomonosov Ridge mountain range, represent strong indications that massive super-giant oil-bearing deposits may lie in the nearby in the two-mile-deep basins in the Arctic Oceans Commons.
The cores provided the first evidence that vast amounts of organic material created by plankton and other life settled on the seabed. That kind of carbon-rich accumulation is a vital precursor to the formation of oil.
Altogether, about 600 vertical feet of sediment from the Lomonosov ridge core is rich dark organic material, implying that there could easily be two vertical miles or more of similar organic layers in the deeper adjacent Arctic Commons basins.
"Everyone thought this ocean basin was starved of sediment," said Dr. Kathryn Moran, an oceanographer at the University of Rhode Island who was a co-leader of the 14-nation Lomonosov Drilling project. "We've already knocked that ball out of the park."
Arctic Oil Bonanza
“….As the ice melts, vast new oil reserves in the Arctic Ocean could become accessible…..
…There is some evidence that there may be energy riches beneath the polar ice. When scientists drilled this, the first and only borehole into the ocean bed not far from the North Pole, (in 2004) they found something to gladden the heart of any oilman:
HENK BRINKHUIS: What we found were significant amounts of organic-rich sediments. And that is one of the three key things you would need for oil accumulation. Marine biologist Henk Brinkhuis took part in that test drilling two years ago. They did not strike oil. Nor did they find all three conditions required for fossil fuels. But, he says, the sediment was rich enough to suggest there could be oil — and in large quantities:
BRINKHUIS: That is really, truly significant. That is really what you would need to have a good source rock. And the other indications are that it is vast. That it is actually covering the entire Arctic Ocean….”
There are three plays in the Arctic Ocean Commons, oil, heavy gas and methane-hydrates, or light gas. Typically in the Arctic circle the three are often found loosely stacked together. The pressure of deeper water also tends to make for bigger pools of hydrocarbons, thus improving the potential economic viabilty.
Many geologists view the Arctic Ocean Commons region as well endowed with petroleum resources. There are biosiliceous and organic carbon-rich sediments found in numerous areas in the high northern latitudes of the Arctic Ocean. Oil ands Gas prospectivity is considered to be low risk due to the obvious recently discovered gas seeps, oil shows in cores, as well as the abundance of large fold and fault structures that could trap oil and gas. Parts of the area are full of very complex structures that create numerous potential traps.
The principal driver for the perception of the high potential in the Arctic Ocean Commons is the observation that large areas share many of the key geological elements that contributed to the creation of the large accumulations near Prudhoe Bay in Alaska. Key source and reservoir formations extend offshore and are found in settings favorable for generating and capturing Petroleum.
It is widely known that enormous methane and methane hydrate is accumulated and continually released on the Continental shelf areas of the Arctic. It is only recently that oil and gas companies are considering giving the area closer attention for its obvious commercial energy reserves potential.
Temperatures that hydrocarbon source rocks reach when they become buried deep underground impact oil and gas production. When source rocks heat up during burial oil tends to form when temperatures reach a certain point. Higher temperatures at deeper burial depths can then crack the oil to produce natural gas. This is may or may not be the case in the Arctic Commons Deeps. Methane gas migrating upwards into freezing sands then gets compressed into methane hydrates. Thus three separate hydrocarbon resources can often be found and will eventually be developed.
The petroleum generating kerogens in source rocks tend to favor gas production in situations where the rocks were laid down on or near land. In rocks laid down in marine environments, the kerogens tend to favor oil production.
There is an excellent potential for the development of a number of supergiant fields, the large size of which will more than compensate for the extreme weather conditions and remote location. The probable lack of overly burdensome government lease entry imposts also makes the Arctic Commons potentially very attractive financially.
There are (10 - 20 billion barrels oil equivalent) supergiant prospects with minimal geological risk ready to drill now in the Arctic Ocean Commons.
One of the super-giant prospects in the Arctic Ocean Commons Deeps.
Many erosional features or collapse features that are usually caused by gas escape from the decomposition of organic matter in the sea-floor sediments have been discovered in the Arctic Oceans Commons.
Arctic Commons Deeps. Surface Cores with Organic Rich Black Mud.
Note: (Some of these cores were taken close to a 20 m depression that is hundreds of meters across that are due to methane gas escape.
Several of these depressions were discovered in this area).
There are excellent indications of thick and massive methane-hydrate accumulation in the arched structural features with free gas and perhaps oil accumulations underneath.
Companies that wish to significantly increase their long term oil and gas reserve base outside of politically unstable, (increasingly expropriation happy) countries, will most likely easily find what they need in the Arctic Oceans Commons.
Because of the obvious potential for super-giant field sizes, finding and development costs could be in the range of US$3.00 - $6.00 per BOE.
The constantly moving shallow draft ice sheet cover can be dealt with by various methods conceived by the Consortium Manager. The ice cover has the benefit of reducing wave action.
The arctic cold is financially beneficial for the compressing of gas to LNG due to the lower starting temperatures.
US Arctic EEZ Activity
Second to Norway, the US, with its politically secure investor-friendly environment has attracted a large share of Arctic oil and gas investment and rewards over the last 30 years. Within the US controlled EEZ, the Minerals Management Service, (MMS) has recently identified a total of 39 plays, including 24 Brookian plays, in the Beaufort and Chukchi seas planning areas. What makes the region particularly intriguing is the size of some of the structures — more than 12 of the identified structures exceed 150,000 acres in extent, thus exceeding the size of either the Prudhoe Bay or Kuparuk River fields. There are 24 identified prospects more than 100,000 acres in size and 95 more than 40,000 acres, the approximate size of the Alpine field.
Alaska probably holds about 20 percent of U.S. undiscovered conventional natural gas
Shell bought the Chukchi Burger leases in 1988 from the US Minerals Management Service lease sale. The Burger field was then drilled in 1989-1990. Burger could represent the largest offshore discovery on the Alaska OCS with perhaps 7 Tcf Gas and 724 Mmb condensate. Given the then low oil and gas prices there was not enough oil in the field to justify development at the time. Burger becomes financially viable at around $5.22 / Mcf. According to the MMS, all leases were abandoned by 1996.
Fast forward to 2008
Petroleum News Vol. 13, No. 8 Week of February 24, 2008
Audible gasps are still circulating
around the oil industry in response to the magnitude of Shell’s bidding in the
Feb. 6 Chukchi Sea lease sale.
“Internally we use words like ‘well thought-through’ to describe the lease sale,” John Hofmeister, president of Shell Oil Co., told participants in the Alaska’s Energy Challenge summit meeting in Anchorage Feb. 19. “Externally I’ll stretch it and say it was a bold move by Shell.”
Hofmeister said “the richness of the base” seen through seismic data from the Chukchi Sea had informed Shell’s bidding and that the company wanted to demonstrate its commitment to Alaska as a strategic region for the company.
“We felt that it was important for Shell to demonstrate its commitment through this $2 billion offering for the 275 leases on which we were high bidder … a commitment to the United States, a commitment to the State of Alaska,” Hofmeister said.
Having just spent $2 billion buying leases in the US EEZ Chukchi area, Shell recently announced; “Shell is committed to Alaska. The Alaska offshore is a future heartland for Shell and opens the next major chapter for Alaska resource development.
Plans to shoot seismic offshore Alaska’s Arctic are already picking up speed. Shell, ConocoPhillips and Houston-based GX Technology Corp. all plan to shoot seismic this summer in the Chukchi Sea, ahead of the MMS Chukchi lease sale planned for 2007.
The recent high oil and gas prices could see companies bidding billions of
dollars for Chukchi offshore Arctic shelf areas in 2007 when they again come up
for sale. How much money will be allocated for actual drilling is an interesting
question. Last time around oil companies reportedly spent $500 million buying Chukchi area leases and probably less than $100 million drilling.
The "highest bidder' method of allocating leases, which resulted in high lease prices being paid by major oil companies in the US government MMS sales in 1998. Had the effect of locking out the smaller more entrepreneurial oil and gas firms who might have drilled more wells than the paltry five exploration wells subsequently drilled.
Billions of dollars are
expected to be bid by major companies for the US Chukchi leases. A much smaller
amount of money could secure international rights and complete exploration
drilling of entire huge fields with multiple supergiant prospects in the Arctic
The Arctic Ocean Commons Consortium partners will not suffer the same counterproductive “Price of entry” Imposts. It is proposed that more of the Consortium's exploration money will go into finding and developing oil and gas production than on just about any other prospect on the planet.
Russia has the largest continental shelf EEZ of any nation with many geological similarities to the petroleum bearing regions on Alaska's North Slope. Russia is spending approximately $40 million on mapping and investigating the Western Arctic continental shelf next year.
The Responsible Consortiums work in the Arctic is going to benefit Russia's oil and gas industry by bringing greater attention to the potential for the entire Arctic region of which Russia already controls the lions share via its extensive continental shelf EEZ area.
Shtokmanovskoye, (Shtokman), Barents Sea.
The Giant Shtokman gas and oil field is an early indicator of the potential for energy within Russia's Arctic Shelf territory. The Shtokman gas condensate deposit lies in the Barents Sea, in the north of Russia. The timing of the project is intended to coincide with an increase in demand for LNG, principally from the US market and the search for operational partners focuses on the need for external expertise in LNG transport and deep water / long distance gas production.
Reserves of gas have been put at 3.2 trillion m³, with another 31 million tonnes of condensate. (Approximately 22 billion tonnes oil equivalent).
The development cost has been estimated at up to $25 billion. The field will be commercial for 50 years, with stable production accounting for half of the time. Between 22 and 24 billion cubic metres will be liquefied to produce 15 million tonnes of LNG to be shipped to the US.
The Shtokman field was discovered in 1988 to the east of Murmansk. It lies 555km from land, in 350m of water. The field covers an area of 1,400m² and lies inside the arctic. It is subject to icebergs of up to 1 million tons drifting at up to 0.25m/s, and 1.2m drift ice moving at up to 1m/s.
A wide diversity of basins characterizes Canada’s sedimentary area north of 60 degrees north. The sedimentary basins of Northern Canada occupy an area of 2.5 million square kilometers (965,255 square miles), with approximately 62% offshore. Significant occurrences of oil and gas have been discovered in several of the basins.
Oil and Gas company exploration efforts in the 1970's and 1980's have already resulted in the discovery of significant oil and gas reserves within the remote frontier basins of the Mackenzie Valley and the Arctic Islands within the harsh Canadian Arctic Circle. Less than 350 Wells have been drilled in the huge Arctic Islands/Mackenzie regions.
The first discovery in the Arctic Islands was Drake Point, which blew out in 1969. This is the largest discovery in the Arctic Islands Sverdrup Basin, with 5.4 Tcf of recoverable gas resource. The first discovery in the Mackenzie/Beaufort Basin was the Cretaceous Atkinson Point oil discovery in 1970, with 42 million barrels of recoverable oil. The most significant discovery to date is the Taglu gas discovery in 1971, with 2.7 Tcf of recoverable gas. This bodes well for the prospectivity of the Canadian Arctic coastal plain and deep areas in the Arctic Oceans commons.
The Canadian Arctic islands has proven reserves of 334 Million barrels of oil and 17.4 Trillion cubic feet of gas, (The gas consumption of Canada is approximately 1 trillion cubic feet per year).
Discovered oil and gas north of 60 occurs in reservoirs
ranging in age from the Cambrian to the Miocene. The major Mesozoic oil and gas
discoveries occur in the Arctic Islands Sverdrup Basin and along the basin
margin of the Beaufort/Mackenzie. The Mesozoic discoveries of Beaufort/Mackenzie
are primarily Cretaceous with recoverable resource of 66 million barrels of oil
and 1,400 Bcf of gas. The Mesozoic dominates the discoveries of the Arctic
Islands Sverdrup Basin with 332 million barrels of recoverable oil and 17,383
Bcf of recoverable gas.
Tertiary oil and gas discoveries occur in the prograding deltaic sequences of the Beaufort/Mackenzie Basin, with 939 million barrels of recoverable oil and 8295 billion cubic feet of recoverable gas. The one field in Baffin Bay has an estimated 2.3 Tcf in a Paleocene sandstone.
Companies recently paid the Canadian Government a record $70 million for the rights to spend even more money drilling for oil and gas in the Arctic Mackenzie Valley region. (Governments are becoming increasingly successful in extorting key-money up front from oil companies merely for the right to explore. This high-risk up-front expense, contributes significantly to the cost of finding and producing hydrocarbons and ultimately results in the ever-increasing price people pay at the pump).
The Mackenzie Valley holds 1.5 billion barrels of proven oil reserves, and 9 trillion cubic feet (tcf) of proven gas reserves. The Mackenzie Delta and Canadian Beaufort Seas are thought to hold significantly greater reserves, with an estimated 5.8 billion barrels of oil and 65 tcf of gas.
The Mackenzie River Valley is also rich in wildlife. A pristine sub-arctic region, the Mackenzie Valley is home to huge populations of caribou as well as black bears, grizzly bears, moose and wolves. It is also a major North American migratory corridor for waterfowl breeding along the arctic coast. Companies will need to be very careful to preserve the fragile environment while meeting the energy needs of Canada.
The $7 billion Mackenzie Gas Project is a proposed
1220-kilometre natural gas pipeline system along the Mackenzie Valley of
Canada's Northwest Territories to connect northern onshore gas fields with North
The natural gas exploration and development companies involved in the Mackenzie Gas Project have interests in three discovered natural gas fields in the Mackenzie Delta - Taglu, Parsons Lake and Niglintgak. Together, they can supply about 800 million cubic feet per day of natural gas over the life of the Project. Other companies exploring for natural gas in the North are also interested in using the pipeline. In total, as much as 1.2 billion cubic feet per day of natural gas.
With all the oil and gas discoveries proliferating around the Arctic Ocean Commons area, coupled with recent discoveries of oil-gas source rocks, gas seeps and oil shows in the Arctic Ocean Commons and the global tendency to find larger oil and gas pools in deeper waters, one could reasonably expect the United Consortium to find significant hydrocarbon reserves in the Arctic Ocean Commons.
Unconventional Energy; Methane Hydrates
Apart from large scale conventional oil and heavy gas potential, the Arctic is known to contain massive quantities of methane hydrates, a combination of gas and water produced in the crushing pressures deep within the earth at a point where the structure is freezing cold - literally, ice that burns. The arctic as hydrates resource hold great potential as a virtually inexhaustible supply of “environmentally-friendly” fuel for the 21st Century.
Methane is produced by the decomposition of organic material in the sediment or by thermal processes similar to those responsible for the formation of oil. As the methane moves through the sediment, it combines with water at the low temperatures and high pressures beneath the ocean to produce an ice-like solid. Methane gas hydrates exist along continental margins worldwide, most in sediments tens to hundreds of meters below the sea floor in waters more than 500 meters deep.
Gas hydrates concentrate huge volumes of methane gas by combining methane with water under certain temperature and pressure conditions. Typically we have a methane molecule within a lattice of water and this forms a solid substance within the pores in the subsurface. The gas storage capacity’s tremendous — that’s one thing that makes hydrates very attractive as an unconventional gas resource. When gas hydrate crystals break down or disassociate they can yield 164 to 180 times their volume of free gas.
Scientists believe that there could be more valuable carbon fuel stored in the vast methane hydrate deposits scattered under the world's seabed, permafrost and arctic ocean than in all of the world's known reserves of coal, oil and gas put together.
In 2002 a team of oil companies and
scientists from Canada, Japan, India, Germany and the US showed it was possible
to produce methane from the icy deposits below Canada's Northwest Territories.
BP and the US government are carrying out similar experiments in Alaska. The
international research program involving the Department of the Interior’s U.S.
Geological Survey proved conclusively that it is technically and financially
feasible to produce gas from gas hydrates.
Depressurization and thermal heating experiments at the Mallik site in the Mackenzie Delta of the Canadian Arctic were extremely successful. The results demonstrated that gas can be produced from gas hydrates with different concentrations and characteristics, exclusively through pressure stimulation. The data supports the interpretation that the gas hydrates are much more permeable and conducive to flow from pressure stimulation than previously thought.
Ice that burns
Where there's Gas Hydrates there's often oil: Large gas hydrate accumulations are known to occur in the so-called Tarn and Eileen trends that lie in an area over parts of the Alaskan Prudhoe Bay, Milne Point and Kuparuk River oil fields — drilling programs associated with these oil fields have found gas hydrates near the surface. The gas hydrates have accumulated in shallow reservoirs that form part of the same petroleum system as the Prudhoe oil fields that lie below them. Chemical analysis shows that the gas must have leaked up fault zones from the underlying oil fields.
Gas hydrate deposits can best be viewed as shallow gas fields in which pressure and temperature conditions caused the gas to turn into gas hydrate. Free gas often lies trapped directly below the gas hydrates, where the reservoir rocks dip below the base of the gas hydrate stability zone.
The USGS has estimated that the Tarn and Eileen trends trends together contain as much as 100 trillion cubic feet of gas. That compares with total reserves in place of 47 tcf of conventional natural gas on Alaska's North Slope.
Fresh water forms a major byproduct of gas production from gas hydrates. This fresh water production might provide a viable alternative to seawater desalination plants for supplying water.
Hydrates may become a very stable huge source of natural gas from the Arctic within the next five to 10 years and could one day provide the bulk of the world's gas needs.
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