May 24, 2013

Where next for oil and gas exploration in the Arctic?

Last week the Arctic Council held its biennial ministerial meeting in Kiruna, Sweden.  The applications for Observer status by various nations occupied most of the headlines, but there were also important substantive developments for the oil and gas industry.

The Arctic is of particular interest to the industry as, on some estimates, it holds up to 13% of the world’s undiscovered oil, and 30% of its gas.  This week’s meeting took place at the right time, following a number of recent developments:

  • A number of agreements made in relation to drilling in the region involving key industry players such as CNPC, Rosneft, Eni, Statoil and Exxonmobil.
  • There has been heightened media attention on the environmental impact of oil and gas exploration in the region following the grounding of Shell’s arctic-class drilling unit “Kulluck and its subsequent decision to “pause” its Arctic drilling programme temporarily.
  • The United States has laid out a new plan for Arctic drilling, which makes plain that the region is a “core component” of its national security strategy and seeks to “enable the environmentally responsible production of oil and natural gas as well as renewable energy

At the meeting

  • China, Japan, South Korea, India, Singapore and Italy were admitted to observer status (the EU’s application was not approved)
  • An agreement was signed on Arctic marine oil pollution preparedness and response.  The agreement will now be ratified by the 8 permanent members of the Arctic Council (Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the United States), and is designed to strengthen cooperation, coordination and mutual assistance among the Council members in order to effectively combat oil spills, with Arctic activity now at a level which means that the risk is more than hypothetical.
  • The Arctic Resilience Interim Report for 2013 was published, and concluded that “abrupt changes have been observed in the environment across the Arctic.  Such changes risk crossing environmental thresholds, which can have long-term consequences that affect options for future development”.

The meeting raises a number of very interesting questions, on which we would welcome the views of the Offshore Energy Leaders Group:

  • Will the admission of the new observers have a significant impact on the business and regulatory environment for the oil and gas industry in the Arctic?
  • How far will the agreement on oil spill preparedness satisfy the environmental lobby, and what more can or should be done?
  • How will the conclusions of the 2013 resilience report affect attitudes to the region, and to plans to access its oil and gas reserves?

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