Press release

Arctic Offshore Oil and Gas Outlook

March 2, 2015
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Author: Jon Marsh Duesund, Senior Project Manager, Rystad Energy

Publisher: E&P Magazine

The Arctic is believed to hold vast oil and gas resources and is seen by many as the final big frontier within the oil and gas industry. Part of the reason for this belief is the deep sediment layers in the Arctic, which provide good conditions for source rock formation. However, the recent drop in the oil price, combined with environmental issues, has raised concerns of whether these resources will ever be produced. According to Rystad Energy’s global cost of supply curves, Arctic projects are part of the most costly supply and are more at risk of not being developed than other sources of supply.

Large resource potential

The resource potential for selected regions is shown in Figure 1. The selection of provinces in the chart is based on offshore regions north of the Arctic Circle but also includes some sub-arctic provinces, e.g., Newfoundland-Labrador off the eastern coast of Canada and the Sea of Okhotsk in Far East Russia.

Several of these provinces are believed to hold large oil and gas resources, though about 80% of this potential has not yet been discovered (blue colors) and depend on successful exploration to be proven. The latter is especially true in some of the very frontier Russian provinces and Greenland. In the Kara Sea, for instance, there have only been five exploration wells drilled with no dry holes.

From the color coding in the chart one can see that some of the resource potential is related to already producing fields (brown), sanctioned fields currently under development (yellow) and discovered nonsanctioned fields (green). Fields in the brown and yellow color categories are generally situated in either ice-free areas (Newfoundland and Norwegian Barents Sea) or in areas with longer ice-free periods (Sea of Okhotsk). There has been production from offshore fields in northern Alaska for years, but these fields have been developed with extended-reach drilling from shore or artificial islands. Parts of the Sakhalin development in the Sea of Okhotsk also have been developed with extended-reach wells from shore.


Several challenges

The discovered nonsanctioned fields (green) represent future project opportunities, but here one finds mostly large gas discoveries far from any infrastructure, Shtokman in the Russian Barents Sea being a prime example. There also are big gas discoveries in the Kara Sea and northern Canada. In addition to the lack of infrastructure, other key Arctic challenges that stall many developments include ice, icebergs, icing, darkness, HSE (e.g., spill containment and personnel evacuation) and remoteness.

Remoteness especially is a big and costly challenge for oil companies, as seen for Exxon Mobil’s and Rosneft’s Kara Sea campaign and Cairn’s Greenland campaigns. Some of the other underexplored provinces such as East Siberian Sea and East Greenland may have even more difficult environments to operate in, so it will take time to prove the big resource potential in the Arctic regions.

To demonstrate how Arctic challenges affect projects, Figure 2 shows the historical lead time from discovery to first production for selected projects in Arctic provinces. On average these projects needed more than 21 years to be developed. In comparison, the last 40 standalone projects on the Norwegian Continental Shelf (NCS) have averaged 12 years from discovery to startup.

These projects have been developed during different price regimes, but the lead time nevertheless highlights the challenges with developing Arctic fields. Interestingly, the gas fields have historically not taken much longer to develop compared to oil fields despite a more significant need for infrastructure. All of the gas fields included in the chart have an associated LNG export facility.


Recently awarded acreage

Despite the key Arctic challenges, several companies have taken Arctic positions over the last years. A significant share of offshore acreage has been awarded in Arctic provinces. In total, the Arctic makes up about 30% of the awarded offshore acreage since 2010. Russia provides the bulk of this acreage, and awards here alone equal the size of the combined awarded acreage in Southeast Asia and South Africa.

The driver for this is mainly the various joint ventures Rosneft has entered into with foreign companies, most notably Exxon Mobil, Statoil and Eni, but also Asian companies Inpex and ONGC, covering several provinces, including the Kara Sea, former disputed area between Russia and Norway, Laptev Sea, Chukchi Sea and the Magadan Shelf in the Sea of Okhotsk. Additionally, Gazprom has been awarded large licenses in the Barents Sea. Going back further than 2010, there was also a lot of acreage awarded in Arctic provinces, e.g., Chukchi Sea in Alaska and Western Greenland in 2008.

Exploration in the awarded Arctic acreage will take time as most of the provinces are very frontier and there are limited ice-free windows during which drilling can be performed. Campaigns in the most remote areas require the mobilization of multiple vessels over a long period of time, which mainly only the big companies can afford.

As discussed, one would expect longer lead times from discovery to startup in Arctic provinces. This is partly driven by the limited ice-free windows that will slow down any appraisal efforts once a discovery has been made. The current sanctions against Russia also will slow down activity. For example, Exxon Mobil has suspended its Kara project indefinitely, and no drilling is expected in 2015.

Due to commercial reasons, companies like Chevron and Statoil also have put Arctic exploration efforts on hold in Canada and Greenland, respectively. Shell, on the other hand, intends to resume exploration in the Chukchi Sea in 2015 following a failed campaign in 2012.

Overall, Arctic exploration is expected to be fairly slow going forward. Shell’s big spending on licenses in 2008 occurred just before the oil crash in 2008, when the perception was that the era of cheap oil was over. Similarly, Exxon Mobil entered into its agreement with Rosneft just when shale oil production had started to take off (and later contributed to the current drop in the oil price). As such, Rystad Energy does not expect many significant Arctic exploration campaigns in the short and medium term. More long term, toward 2020, efforts may pick up again as the oil price may be closer to $100/bbl.

Driving production growth

Despite significant Arctic challenges and likely limited short-term exploration efforts, there are already several discovered Arctic fields that potentially will be developed in the longer term, as indicated in Figure 1. As such, a step-up in production is possible after 2020 as some of these discoveries will mature, which can be seen in the projected production from Arctic regions given in Figure 3. Currently, the bulk of Arctic offshore production is coming from Sakhalin in Far East Russia and Grand Banks off eastern Canada. In the short term, selected projects will provide a slight growth, e.g., Prirazlomnoye (onstream late 2013) in the Pechora Sea (southeastern extension of the Barents Sea), the Goliat development in the Norwegian Barents Sea (expected onstream in 2015), Kirinskoye (Sakhalin III, commercial production expected from 2015) and Arkutun-Dagi (Sakhalin I). It should be noted that all these projects have seen significant delays.

Going past 2020, stronger growth is expected from several provinces. Key projects include the Bay du Nord development (deepwater Newfoundland), Hebron (Grand Banks), Johan Castberg (Norwegian Barents) and Kirinskoye South (Sakhalin III). All of these projects are expected to be commercially viable, though some of them have yet to select the concept of development. Looking even further toward 2030, several other regions may also come into play, e.g., the Kamennomysskoye development in the Ob Bay in Russia, Northwest Canada (McKenzie Delta and Beaufort Sea) and more. The profitability of some of these developments is more questionable and the timing is very uncertain, especially in the Russian provinces. The ongoing sanctions against Russia will further stall progress.

Given the current relatively low oil price combined with Arctic challenges, it is clear that field development in new Arctic frontier provinces will be slow, including outside Russia. Shell’s struggles in Alaska and constant delays at Shtokman represent some examples of this. The latter project will likely not come onstream until closer to 2030. Regions like Greenland and the Kara Sea, which have recently received more attention, are not expected to contribute significantly before 2030, which would be in line with the observed historical lead time for Arctic projects. However, production from Arctic provinces is still expected to gradually grow, with a step-up after 2020. 

Article Contacts

Contact: Jon Marsh Duesund, Senior Project Manager

Phone: +47 24 00 42 00

Mobile: +47 97 02 36 99


About Rystad Energy

Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.


Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), Africa as well as South East Asia.