Shell, Statoil in the Arctic: High Stakes Despite Hurdles, Timing Key to Success

Shell paused its Arctic drilling campaign because of difficult weather conditions, suggesting once more that exploration off Alaska could be hindered by natural hurdles. 

Despite the high stakes, Shell put on hold its drilling in the Chukchi and evacuated workers “because of extreme weather conditions,” a company spokesman said in an email. According to Associated Press, on Friday, winds reached 29 miles per hour, with gusts of up to 37 miles per hour.

On Monday, US President Barack Obama will travel to Alaska to discuss measures to tackle climate change. According to the New York Times, Obama will not focus on the oil and gas drilling offshore that he allowed earlier this month. 

Production in the Arctic is not a short-term project for any company, but early explorations could give a first-mover advantage to regional players. 

It comes as no surprise that Norwegian scientists and companies are working to reap the benefits of their geographical position.  

‘On 22 August, Yngve Kristoffersen and Audun Tholfsen returned to Longyearbyen after completing a feat no one has done since Nansen and Johansen - spending the winter alone in the central Arctic Ocean’ reads a note released by the Norwegian Petroleum Directorate (NPD).

According to the NPD, which has been one of the sponsors of the expedition, the data set from the 2014/15 Fram expedition will be ‘one of the most important Arctic Ocean references in many disciplines for years to come.’ 

‘The seismic data collected from the Lomonosov Ridge and the Morris Jesup plateau will provide new knowledge of the geological development of the northern marine on the Barents Sea shelf.’

Statoil is not losing time either.  

‘On 21 August the Polarled gas pipeline crossed 66 degrees and 33 minutes north of the equator becoming the first pipeline to take the Norwegian gas infrastructure across the Arctic Circle. This will open a new gas highway from the Norwegian Sea to Europe’ the Norwegian company recently wrote.  

The 482-kilometre long and 36-inch wide pipeline, reportedly the very first pipeline across the Arctic Circle, will run from Nyhamna in western Norway to the Aasta Hansteen field in the Norwegian Sea. According to plans, its should be the deepest pipeline on the Norwegian continental shelf. 

’It will be the first time a 36-inch wide pipe is laid in such deep waters anywhere in the world’ Statoil reported in the note.  

But not all the Arctic prospects are rosy. In January, Statoil followed GDF Suez and Dong Energy, handing back the majority of its oil and gas exploration licenses in the Arctic.  

Russia is reportedly having problems in the Arctic too. 

The Wall Street Journal wrote last week that U.S. restrictions on OAO Novatek are squeezing the massive Yamal LNG liquefied-natural-gas venture, adding that western sanctions are slowing down Russian plans in the Arctic.  

All in all, it is clear that timing and technology will be key to successfully enter the Arctic. Among other factors, the success of a Arctic rush will depend on eventual opposition from societies and green groups, and market conditions. As shown by Shell’s case, weather will play a key role too.

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci