Friday, December 30, 2011

Advice on development; NPC team recommends actions to make best use of Arctic energy resources

Alan Bailey
Petroleum News

The National Petroleum Council, or NPC, has published a working document containing recommendations to Energy Secretary Steven Chu on federal policies for the development of oil and gas resources in the Arctic regions of North America. With a broad membership from the oil and gas industry, academia, Native American groups, financial organizations and public institutes, and with private funding, the federally chartered NPC provides information and recommendations for the energy secretary on matters relating to oil and gas.

An NPC Arctic subgroup with representatives from several companies involved in the oil and gas industry, including ExxonMobil, Shell, Anadarko Petroleum Corp., Chevron and Schlumberger, prepared the document, the scope of which includes some areas south of the Arctic Circle, where climatic conditions are comparable to those in the Arctic.

Exploration needed

The working document says that exploration needs to proceed now, to begin to validate the huge quantities of oil and gas resources that the U.S. Geological Survey has estimated to exist in Arctic North America. Exploration is especially urgent in Arctic Alaska, to keep oil flowing through the trans-Alaska oil pipeline in viable quantities — low and lowering oil flow rates in the pipeline threaten mechanical problems with pipeline operation as well as economic problems, as the fixed pipeline operational costs become spread over fewer and fewer barrels of oil.
“TAPS (the trans-Alaska pipeline) is a national asset that has successfully delivered billions of barrels of oil to America,” the working document says. “With the current lack of exploration and development in Alaska, this critical asset could be decommissioned sooner than forecast, as the existing North Slope oil fields continue their production decline.”

Regulatory clarity

Access to prospective areas within the U.S. Arctic needs to be encouraged by the removal of regulatory uncertainty and by limiting the endless legal challenges that currently add to that uncertainty, the document says.
“Numerous Arctic producing fields exist around the world, both onshore and offshore, which are operating safely,” the document says. “Technology and practices to prevent and mitigate environmental risks already exist and will continue to be enhanced.”

The document cites the use of low impact Rolligon vehicles and the drilling of extended reach wells as examples of technologies that minimize Arctic environmental impacts. As new Arctic challenges emerge, new innovations will be made — technology will not be a limiting factor in Arctic exploration and development, the document says.

At the same time, a coordinated approach to permitting, as in Norway or Greenland, would lead to more predictable project schedules and eliminate redundant overlaps between the functions of different regulatory agencies.

Insufficient time

Infrequent lease sales, lengthy permitting procedures, a high incidence of litigation and short drilling windows all combine to discourage exploration and field appraisal operations, the document says. And existing 10-year lease terms do not allow sufficient time to ensure sustained exploration and production in Arctic basins, especially in the offshore.
“The realistic drilling window for offshore operations in the Arctic U.S. is typically 70 to 105 days,” the document says. That compares with a typical window of perhaps up to 150 days onshore in the Arctic, and a window of almost 365 days in the Gulf of Mexico. Yet all of these regions have the same 10-year lease terms. Under the current regulatory regime it typically takes four or five years from the first permit application to complete the necessary steps to be able to drill an initial exploration well in an Arctic offshore lease, the document says.

The document recommends the adoption in the United States of a system akin to the use of Canadian discovery licenses — Canada issues a license of this type to an operator that has made a substantial hydrocarbon discovery, to enable the operator to hold a discovered field until can be viably developed, the document says. The U.S. system of lease unitization and development planning can force an operator to abandon leases that are currently uneconomic, even although the constantly changing economic climate may subsequently lead to viability.

Jones Act

The Jones Act, the federal statute that requires all goods carried between U.S. ports to be transported in U.S. flagged ships, causes the United States to lag other nations both in Arctic development and in the deployment of ice breakers, ice-resistant tankers and other Arctic class support vessels, the document says. No equivalent statute exists in Canada, for example.
“While technology exists to find and extract the Arctic energy, a viable solution should be sought to improve the inherent cost premiums associated with complying with the Jones Act,” the document says. “A more reasonable policy would enable the future development of economically sub-marginal and marginal fields.”

The document also questions the current lack of federal oil and gas outer continental shelf revenue sharing with local communities. Given that communities on the North Slope of Alaska are concerned about risks to their livelihoods from offshore oil developments, there needs to be sharing of federal revenues with those communities, the document says.

Tanker use

The document also recommends consideration of the use of ice-resistant oil tankers as a means of transporting oil from the Arctic, rather than building new pipelines across onshore areas with multiple jurisdictions.
“Presently, oil tankering through the Barents Sea is common and this tankering capability is expected to be greatly accelerated in the near future,” the document says. “In the Russian Arctic, ice-breaking oil tankers are being loaded for (oil) export to North American and European markets via an ice-resistant floating storage facility located about as far north of the Arctic Circle as Prudhoe Bay.”