Opening of Arctic won’t lead to significant increase in oil production, says study

While a decrease in ice will allow increased shipping activity in the Arctic, it won’t lead to a significant increase in oil and gas production over the next two decades, according to a recently released study.

The study, published by the Center for International Climate and Environmental Research, Det Norske Veritas and Statistics Norway, suggests that depending on the price per barrel of oil, there will be only a small, if any, increase in the production of Arctic oil and gas towards 2030 and 2050.
“Extraction of oil and gas will become more expensive. New reserves are located offshore, far from markets and where conditions are tough, particularly during winter time. In spring and fall floating ice can create problems for the industry,” says Glen Peters at CICERO, lead author of the study.

Currently, 400 megatons of oil is produced annually in the Arctic, mainly in Russia. With a middle estimate for the oil price of $80/boe the scientists calculate only an insignificant increase in the production. The emissions from the activity are expected to decrease due to tighter regulations.
A higher or lower oil price will influence the production. A price of $120/boe might lead to the production increasing to around 600 megatons a year. If the price should drop to $40/boe the production is expected to decrease dramatically, down to between 100 and 200 megatons a year.
Given an oil price of $80/boe or more one expects a production top around 2020, followed by a decrease until 2035 before the production again starts rising.

“Existing fields will be emptied and new fields will come online. But since it takes time to get new fields up and running, we expect a temporary reduction in production,” says Peters.
The gas production is expected to decrease due to a large potential in Qatar and Iran that will keep the gas price down.

Due to more offshore production the shipping activity linked to oil and gas will increase. Today almost no shipping activity is linked to oil and gas industry.

Also trade related activity is expected to increase. According to the calculations around 8 percent of the container trade between Asia and Europe will go through the Arctic in 2030, in 2050 around 10 percent. On the other hand, the transport between America and Asia will keep the routes of today. Trafficking the Northwest Passage will be too difficult and expensive, according to the estimations.
Total shipping activity in the Arctic will increase. But due to today’s large shipping activity related to fishery and local commodity transport, the scientists expect the total increase in shipping activity to be marginal.

Still the Arctic is facing dramatic changes towards the next 40 years.
“We will have a large activity in areas that are practically untouched today,” says Peters. “Depending on sea-ice conditions, exactly which areas that will have the highest activity in the future is difficult to predict.”

July 4, 2011