Appetite for Arctic oil rises in line with crude prices

Daniel Silva, Yahoo News 1 Jul 08;

The appetite for Arctic oil has surged in line with rocketing crude prices but environmental concerns and a diplomatic stalemate stand in the way of exploration, experts say.

At a time when supplies are struggling to keep pace with surging demand from developing countries, the industry is increasingly looking to new frontiers in its search for new reserves, with the Arctic clearly in the sights.

"There is lots of oil under the North Pole," said geologist Donald Gautier of the US Geological Survey at the World Petroleum Congress this week. He estimated that the Arctic holds 100 billion barrels of oil.

But while extracting the oil from the harsh Arctic environment poses unprecedented technical challenges, the biggest barrier to exploration is the disputed ownership of the region which makes it difficult to get permission to drill, he added.

"Technology is critical on the one hand but the real issue in access to those continental shelves," said Gautier.

Five countries that border the Arctic Ocean -- Canada, Denmark, Norway, Russia and the United States -- dispute the sovereignty of the region's waters and they have become more vocal in their claims as interest in the region's resources rises.

Last year Canada announced it would build eight Arctic patrol vessels to reassert the country's northern sovereignty.

"Canada has a choice when it comes to defending our sovereignty in the Arctic; either we use it or we lose it. And make no mistake this government intends to use it," Canadian Prime Minister Stephen Harper said at the time.

Shortly after, Russian explorers placed a rust-proof titanium Russian flag on the seabed below the North Pole in what was seen as a bid to further Moscow's claims to the Arctic.

The North Pole is not currently regarded as part of any single country's territory and is therefore administered by the International Seabed Authority.

Environmental concerns also put the brakes on oil exploration in regions like the Arctic that are opening up to oil development thanks to technological developments, said David Boone, the president of Canada's Escavar Energy, an oil and gas producer.

"Even as space age technology opens up new areas, environmental concerns can shut them down just as quickly," he said.

The danger of oil spills in such a sensitive environment, where the cold means crude breaks down at especially slow speed, and the risk of disruption to local ecosystems figure as the two biggest concerns.

Industry leaders and analysts agree though that with oil prices at record highs, oil firms are not short on the cash that would be needed to open up new areas to oil exploration.

"Anyone who suggests that the oil industry does not have the money to invest with oil at 140 dollars a barrel is being facetious," said StatoilHydro vice president for business development Robert Skinner.

Earlier this month BP, ConocoPhillips and MGM Energy Corp were awarded exploration rights by the Canadian government for three offshore blocks in the petroleum-rich Arctic region in a lease sale.

The World Petroleum Congress, a gathering of executives from major oil companies and ministers from top oil producing nations held every three years, wraps up on Thursday. It is one of the industry's biggest events.