Exploration in the Arctic has a Long Term Future - Arctic gas resources provide huge potential for the energy industry says Wood Mackenzie

15th November 2006

The story of the energy industry in the Arctic circle is likely to be a tale of Russian gas, according to a recent joint study by Wood Mackenzie and Fugro-Robertson, "Future of the Arctic". The study found that 80% of the overall hydrocarbon resources in the Arctic are gas, and 69% is specifically Russian gas.

Alan Murray, Senior Petroleum Economist at Wood Mackenzie and author of the study, will be presenting the significant findings of the study at the Oil & Gas in the Arctic Conference in Murmansk on Thursday 16th November at 1pm.

Talking ahead of the conference, Murray said: "These findings show that the Russian Arctic has potential for oil and gas operations over and beyond the development of the giant gas fields which have been discovered in the Barents Sea and Yamal peninsula."

The study shows that a key challenge to maximizing the value of the Russian offshore will be deploying development solutions which are currently at the cutting edge of technology, and are currently untested in Russian waters.

"Subsea technology, which can operate underneath pack ice, is the key to the economic development of much of the gas in the Arctic, explained Murray. The limits of this technology are still being tested, and as these solutions are deployed more often, the costs of this should reduce, he said."

Transportation of gas from such remote parts of the globe presents a great challenge to the energy industry. The Yamal peninsula is 2,000 km from Moscow and 4,000 km from Western Europe, however, the existence of future pipeline capacity in Western Siberia is key to the economic development of gas resources in the Russian Arctic. This contrasts sharply with similarly remote parts of Canada and Greenland.

Under the most likely scenario, it is projected that gas production from the Russian Arctic will contribute around 600 billion cubic metres (bcm) per year, however this peak will not arrive until at least 2030.

"This assessment indicates that the Arctic offers the opportunity of substantial production growth and renewal to companies who have the willingness to invest in the long term future of the Arctic," stated Murray.

Aside from the striking potential in gas from the Barents and Kara Seas, the study also identified investment potential for oil and gas companies in other parts of the Arctic.

"Some of the most profitable parts of the Arctic will be those where oil can be found in close proximity to existing pipelines and infrastructure. These will not have the sheer scale of the gas resources in the Russian Arctic, but they will offer strong returns to companies who can identify the best prospects and develop these fields effectively," explained Murray.

Murray continued: The Arctic has long been considered as one of the final frontiers for the oil and gas industry. What we are seeing is that the Arctic is far from homogenous, and different parts of the Arctic offer distinct opportunities that will appeal to a wide range of investors. Exploration of many parts of the Arctic is in its infancy, and the companies who are involved are at the beginning of a long and challenging journey.