Arctic Prospective Oil Resources

In a world desperately thirsty for oil, the Arctic and its resources seems a very appealing option. With increasing demand for oil and increasing prices, there has been higher interest shown regarding the Arctic on the global scale. In 2008 US Geological Survey estimated that the are north of the Arctic Circle has 90 billion barrels of undiscovered, technically recoverable oil and 44 billion barrels of natural gas. This represents 13% of the expected undiscovered oil in the world (USGeological Survey, 2008).

The Arctic Circle appears to encompass 6% of the Earth’s surface, one third of which is found above sea level and another one third is in continental shelves beneath less than 500 m of water. The rest is deep ocean basins historically covered by ice (Gautier, 2009). Deep oceanic waters are known to have low oil potential at the moment but the continental shelves of the Arctic potentially have very high recoverable oil hidden within them. Until very recently the Arctic was seen as a very remote and technically difficult region to access with high costs of oil recovery. Whilst low-cost recovery oil was still widely available, little exploration was done in the Arctic. Some offshore wells have been drilled such as those in Mackenzie Delta, the Barents Sea, offshore Alaska and the Sverdrup Basin but even these were seen as economically unsustainable and hence were abandoned (Gautier, 2009).

However now there is an increasing interest in the Arctic due to various factors. Firstly after decades of substantial ice melting, the Northwest east passage can become a viable transportation route hence the Arctic becomes more accessible following the major decline in ice cover since 1987 (Harsem, 2011). Secondly in 2007 Russia planted a deep sea flag at the North Pole- Arctic region as an important evidence of leadership of the Kremlin. Third oil prices increases push for new discoveries to sustain high demand for oil. Finally in 2008 US geological study stated that about ¼ of the world’s undiscovered oil is probably located in the Arctic.

The exploration of the Arctic oil is still considered more technically challenging than any other environment. The USGS estimates that 84% of the oil and gas there is located offshore which means it is more difficult and expensive to recover than the oil and gas from onshore oil fields. Furthermore the US Geological Survey (USGS) did not consider economic factors such as the effects of permanent sea ice or oceanic water depth in its assessment of undiscovered oil and gas resources (USGeological Survey, 2008). Nevertheless all these difficulties don’t seem to scare the northern countries in the race to obtain these territories with the aim of exploration them for resources. The four Arctic countries- Russia, US, Canada and Norway are already looking to expand their activities in the Northern region whilst Iceland and Greenland are looking at becoming oil and gas producers. Figure 1 below shows the oil fields that are assessed by the USGS in their 2008 report about the Arctic oil. It is obvious that with oil being as highly valued resource as gold, new formations and the right of exploration could create major geopolitical conflicts between the countries involved. It is especially worrying as Russia and USA are involved- historical opponents and competitors against each other so perhaps we have a worry of another cold war approaching!? Russia has already landed some deep sea flags in the area to try and claim the northern territories.

Figure 1.

Source: USGS, 2008. Location of Arctic Basins assessed by the USGS.

Whilst little research is done to this day regarding the Arctic, its resources and whether they are economically sustainable to recover, evidence seems to suggest that the region certainly has a fair amount of unexplored resources buried under the surface. All of the northern countries that have potential access to the area are currently undertaking research into the area and its resources. Perhaps the Arctic oil is our solution to the problem of scarcity of oil and will push the peak oil point further away from what it could be otherwise hence oil is a worry for a very distant future. Also perhaps it could mean that non-conventional oil resources do not need to be explored just yet meaning high costs and likewise renewable energy is not the only solution.

Peak Oil

This blog post is more about economics of oil running out and the possible implications of the phenomenon on humanity rather than the physical facts about how much oil is left on our planet. Peak oil is the point after which oil production, which has previously trended upwards, will start to decline. Peak oil has now been seen as serious issue for a long time and it is in fact no about the oil fully running out but about the rates of oil discovery and production, the rate of demand for oil growth and the rate of technological change (Greene,2010). This is because whilst oil may still remain on the planet, its extraction could become economically unfeasible as all the “easy oil” will be extracted and it will no longer become profitable for countries to recover oil considering the costs of recovery and the profits they would obtain from selling this oil. Thus peak oil questions not only how much fossil fuels formations of hydrocarbons known as oil are left but also how much more can realistically be extracted from beneath the surface of our planet.

The peak oil debate is about how much longer it will be before oil production worldwide starts to decline and oil prices become very high thus forcing humanity to transition to other sources of energy and potentially a simpler lifestyle that requires less energy inputs (Whipple, 2008). The declining oil production does not only mean higher oil prices but also prices for virtually everything will also rise starting from petroleum products such as petrol and diesel for every day consumptions of humans in cars to even food as it requires transportation to its final destination and oil inputs whilst being produced. The big debate is whether we have reached the oil peak already or whether it is still to come. At the heart of the debate, geologists argue that oil supply is finite thus oil will eventually reach peak oil and productions will start to decline as there is simply not enough of it however economists believe that much like the Malthusian Theory discussed earlier in this blog, society will create new technologies for more efficient better extractions as the supply becomes more scares and thus we still have a lot of years ahead of us in our oil world.

The peak oil equation describe “Hubbert’s Peak” which is the theory that the shape of conventional crude oil production is approximately a bell-shaped curve as shown by figure 1 below (Dipeso, 2005). Production increases after the oil field is opened, followed by a peak when about half of the oil from the reservoir has been recovered and then it starts to decline again. This theory states that rate of oil production is only dependent on the amount of oil that is left under the surface and as its quantity starts to decline, less can be produced. This is the geologists’ approach to the peak oil theory. This theory is named after Hubbert who was an American geologist who once predicted peak oil in America in 1956 stating that USA peak oil would occur in the 1970s. Whilst when he first proposed his theory, no one paid much attention to it not believing him but it is now obvious that what he predicted was actually true and US oil production hit its peak in 1970 (Dipeso, 2005). Nothing seemed to slow down the decline in American oil production albeit a significant amount of new technologies allowing oil recovery from ocean deep waters or the discoveries of new oil fields in Alaska. In 1970, the US oil production was at 3.5 billion barrels of oil but by 2003 the production fell to less than 2.1 billion barrels as seen in Figure 1.

Figure 1.

Source: Haubrich, 2007. US peak oil.

On the other hand, the economists argue that like Malthus, Hubbert did not consider technological change in his equation. They say that reported size of recoverable oil are more than just its quantities below the surface but the supply of the recoverably oil can be expanded through technological improvements and by changes in the economics of oil such as lower production costs of oil and higher prices of the end product. As evidence they give the example that only 50 years ago the oil lying beneath the deep ocean floor was not recoverable but due to the new efficient and economically sustainable technologies today it is. Furthermore when the Western oil companies were kicked out of the Middle East, it also forced them to come up with new technologies and innovate in their methods of production to find and produce oil. The drills can now reach 10 miles below ground and are able to move horizontally as well as vertically, reservoir modeling has also been improved showing the precise locations of oil and gas and many new EOR methods have been synthethized thus allowing up to 80% oil recovery from each reservoir compared to the only 30% recovery just a few decades ago (Dipeso, 2005). Thus economists, seen as the optimists here, argue that global peak oil will not be reached until at least 2030.

Alternative theories also exist that instead of oil reservoir life being represented as a bell-shaped curve, it is actually more like a “plateau” after the peak has been reached and humans will keep coming up with recovery methods to sustain the needed levels of oil recovery (Haubrich, 2007). Supply of oil in the future is hard to predict as it requires extrapolation and the current and historical oil production data show no levels of decline thus when extrapolated, only increase in production is mainly seen. Figure 2 below shows the historical and current oil production growth and these are the data from which the future production of oil is extrapolated. It has been shown that global oil production has actually increased by 2.4% per year since 1965 hence economists argue that there is nothing to worry about (Haubrich, 2007).

Figure 2.

Source: Haubrich, 2007. Total annual world production of crude oil.

Some studies such as that by Haubrich, however try to use complex mathematical methods to try and predict when people oil will occur. His study suggests that although historically there is no evidence of decline, if annual oil production was plotted as a fraction of cumulative total, it shows a decrease as shown by Figure 3 below. When further mathematical methods are applied, this study predicts peak oil in 2007 or in 2014 using different mathematical methods and equations. These potential oil peaks are shown by Figure 4 below.

Figure 3.

Source: Haubrich, 2007. Annual oil production as a fraction of the cumulative total.

Figure 4.

Source: Haubrich, 2007. Global peak oil predictions.  

Furthermore there is evidence from such reports as the European commission to suggest that Europe has already reached its peak oil as well. This is shown by figure 5 below. Historical data show that oil production in the EEA (which is EU25- the EU that included 25 countries at the time the report was published in 2005 together with Norway which is part of the EEA but not the EU) peaked in 1997 at 6.2 md/b and has been in decline since (European Commission, 2005).

Figure 5.

Source: European Commission, 2005. Historical data for oil production in the EEA showing a decrease since 1997.

Figure 6 below shows the oil production decrease in the North Sea, which is where most of the oil fields in Europe are located. This is a more specific illustration and evidence to support the data given by Figure 5.

Figure 6.

Source: European Commission, 2005. Oil production history in the North Sea per sector showing a decrease since 1997.

Overall we can conclude that peak oil is in fact a scary phenomenon whether it is going to occur or not. It is evident that although the projections for peak oil being in the very near future or that it has already occurred might not be true but that some day we sure will reach peak oil. Regardless of the optimistic views of the economists regarding new technologies, oil is a finite resource so it is just a matter of time how long we can sustain our oil based life as it is today. Oil currently accounts for one third of global energy supply and more than 95% of transport energy use. It is a critically important sector where there are no easy substitutes to oil yet in our society today (Miller, 2013). This means that we are in desperate times to develop alternative sources of energy or oil production from non-conventional oil in the nearest future before it is too late. From now on in my blog, I am going to explore non-conventional oil and how useful it is to us as well as renewable sources of energy and try to conclude whether our civilization without oil is a sustainable one and if we can keep our familiar ways of life the same as what they are now.