Alaska Drilling - Now or Never?
Despite surging production from U.S. shale plays, the scale of long-term production remains uncertain, leading to the question of where will be the next major play? Attention is being focused on Arctic Alaska, where reserves are waiting to be exploited. Geologists estimate total Arctic oil reserves of nearly 134bn BOE, 28% of which lie in US territory, and some 39bn BOE of natural gas. So what’s the catch?
Early last week, hundreds of “kayaktavists” blocked the entrance to Seattle’s port where Shell docked its Arctic bound Polar Pioneer drilling rig. The activists are concerned with the environmental impact and risks of Arctic drilling. Wilderness experts say there is a 75 percent chance of at least one large spill occurring in the Chukchi Sea over the next six decades. Shell’s initial exploration attempts in 2012, ending with the Kulluk drilling rig running aground, increased concern over the safety and potential environmental impact of the drilling activity.
With high depletion rates and uncertainty around the long-term ability of unconventional production to meet growing demand, Alaska is of strategic importance. In the longer-term, Alaska has the production potential to maintain US crude supply for decades to come. And Alaska needs the revenues. This future supply, however, depends on decisions made now. It takes years to acquire a permit and begin production in Alaska due to difficult conditions and non-existent infrastructure. Shell expects environmental approvals will delay production till the 2030s.
Other nations, such as Russia are moving forward with Arctic drilling and China is ‘ready to assist’. U.S. reserves, however, remain untapped as the “Paddle in Seattle” protest attempts to derail Shell’s efforts for Alaska exploration. Shell has sunk over $6 billion in preparing to recover oil with plans to drill up to four exploratory wells over two years in the Chuchki Sea. Shell’s drilling program this year could determine the future of Alaskan and US crude supply over the coming decades.