According to an assessment conducted by the U.S. Geological Survey (USGS), the Arctic holds an estimated 13 percent (90 billion barrels) of the world's undiscovered conventional oil resources and 30 percent of its undiscovered conventional natural gas resources. While risks associated with economics, the region's harsh environment, and ongoing territorial disputes are considerable, potential rewards are immense.
At the end of August 2011, ExxonMobil announced that it had partnered with Russian state company Rosneft for the joint exploration and development of hydrocarbon resources throughout the world, including portions of the Arctic's Kara Sea. The American company is not alone among international oil companies wishing to exploit the Arctic's energy resources. Fellow supermajor Shell, for example, filed exploration plans for its acreage in the Chukchi and Beaufort Seas off Alaska, and is hoping to begin drilling in 2012. Britain's Cairn Energy, which has initiated exploratory drilling off Greenland, planned to drill five Arctic wells this year, but has yet to make a commercial discovery.
Despite the massive size of the Arctic's resources, looking to the region as a potential source of commercially viable crude oil production is a relatively recent development. While costs remain high due to harsh environmental conditions, high crude oil prices have made this region more economically attractive. Finding large Arctic oil and natural gas deposits is difficult and costly; developing them into commercially profitable ventures is even more challenging due to the following factors:
- Severe winter weather requires that equipment be specially designed to withstand the frigid temperatures.
- On Arctic lands, poor soil conditions can require additional site preparation to prevent equipment and structures from sinking.
- Gas hydrates can also pose problems for drilling wells in both on- and offshore Arctic areas.
- Long supply lines and limited transportation access from the world's manufacturing centers require equipment redundancy and a larger inventory of spare parts to insure reliability, while increasing transportation costs.
- Higher wages and salaries are required to induce personnel to work in the isolated and inhospitable Arctic.
Studies on the economics of oil and natural gas projects in onshore Arctic Alaska estimate costs to develop reserves in the region can be 50 to 100 percent more than similar projects undertaken in Texas. Challenges facing natural gas development can be especially daunting. Despite the fact that the Arctic is particularly rich in natural gas, exploitation of those resources could be impeded by the low market value of natural gas relative to that of oil and because the world's natural gas consumers live far from the region and the long-distance transportation of natural gas is considerably more expensive than that for oil and natural gas liquids.