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Oil and gas production from the Arctic region is estimated to grow to over 700 thousand boe/d by 2020 with primary contributions from Norwegian developments such as Goliat and Aasta Hansen, and Hebron and Hibernia Southern Extension in Canada. Long-term growth is expected from the Norwegian and Russian Barents Sea. This article assesses the status and outlook for the Arctic region, illustrated by the three key drivers: production, exploration success and spending.
Figure 1 depicts the total production for the Arctic region from 2010 to 2030, split by country. The selection includes all offshore developments located on the Canadian arctic coast or north of the 66 degree latitude. Over 80% of the volumes produced in the region over this time period come from Norway and Canada, while Russia and United States (Alaska) produce the rest. Crude oil accounts for around 70% of the total production.
Historically, Norway’s Arctic production has been from the Snohvit field in the Barents Sea, with the Goliat field starting up in March 2016. Moreover, the gas field Aasta Hansteen in the Norwegian Sea is expected to be put on stream in late 2018, contributing to the production increase over the next three years. In the longer term, production contributions are expected from the Johan Castberg, Wisting and Alta discoveries.
Canada’s Arctic production has been primarily from the Hibernia and Terra Nova fields in the Newfoundland and Labrador province. The Hebron discovery is planned for first oil in late 2017. In Russia, Gazprom’s Prirazlomnoye was brought online in late 2013, and is expected to contribute 85 thousand bbl/d of peak production to be reached around 2020. Significant additions to Russia’s production in the Arctic region are not expected before the late 2020s when Varandey-More and Medyn-More are slated for development.
Figure 2 shows the offshore discovered volumes for the Arctic region from 2000 to 2016. Since 2000, 10 billion boe of resources has been discovered in the Arctic, with more than half of the volumes originating from Russia. In 2014, a discovery of a giant Universitetskaya (Pobeda) field in the Kara Sea was announced by Rosneft. The field is estimated to hold more than 2.6 billion boe of recoverable resources. Gazprom also had tremendous success in the Kara Sea back in 2000, when Kamenomysskoye fields with 2.3 billion boe of resources were discovered.
These projects will add significant volumes to the future Russian oil and gas supply, but at the moment rapid commercial development is constrained by lack of technology and infrastructure. Consequently, the fields are not expected to be developed before 2030. Norway has also made some significant discoveries in the Barents and the Norwegian Sea over the last years. Goliat, Asta Hansteen, Alta and Johan Castberg are among important fields that are seen to add volumes to regional production in the medium term.
Furthermore, notable Arctic discoveries have also been made in North America. Some of the largest Canadian projects include Statoil-operated Bay du Nord and Husky Energy’s White Rose West, bothholding around 200 million boe of reserves. Finally, last year we witnessed a similar in size discovery of Smith Bay field in Alaska. Overall, only 8% of total discovered Arctic resources constitute already producing and sanctioned fields, with the remaining part yet to be developed in the future.
Figure 3 shows the total spending in the Arctic region from 2010 to 2025. Spending levels have fallen sharply from the peak of $13 billion in 2014 down to barely $7.3 billion estimated for 2017. The reduction has been led by cuts in Canadian spending in particular, where expenditures have gone down by more than 40%. Investments are expected to bottom next year at the level of $7.1 billion. In the medium to long-term, increasing oil prices are anticipated to incentivize investments into Arctic fields.
Spending levels are therefore forecasted to grow by nearly 20% per year in the future, reaching $25 billion by 2025. Investing three times more than today, Norway is expected to be the largest contributor to this growth. Johan Castberg, Wisting and Alta will be among the major Norwegian fields with rapidly flowing investments. A significant increase in Canadian investment levels is only estimated post-2022, driven by Bay du Nord and Paktoa discoveries. Although Russia is forecasted to start to actively invest in Arctic developments only after 2025, the country is anticipated to become one the main players in the region in the long term.
Production in the Arctic region is set to grow with especially rapid expansion forecasted by 2025 and onwards. Norway and Canada are currently the main producing countries in the region, and their production volumes are anticipated to increase as important greenfield projects are developed and put on stream. However, massive discoveries are still in the pipeline to be sanctioned, which provides the exceptional potential for future regional expansion. Russia in particular stands out in terms of discovered resources in the Arctic. Russia is therefore seen to become a key regional player post-2030.