The hunt for oil (cont.)
Aside from the North Slope and some isolated facilities in Norway and Siberia, little is actually pumped out of the Arctic. But as the polar icecap continues to melt - it is shrinking 10% per decade - there will be continued pressure to push north and see what can be harvested below.
For now the northern Arctic is largely a mystery. "We know a whole lot more about the moon than we do about the Arctic," says Mead Treadwell, chairman of the U.S. Arctic Research Commission, an advisory council appointed by the White House. "Heck, we still don't even have good maps of the place yet."
Much of what we do know is based on a single scientific expedition in 2004, which was the first to take core samples near the pole. The immense challenges of the mission hint at how daunting it will be to drill for oil this far north: The project took almost a decade to organize and required two icebreakers to fend off icebergs for the ship with the drilling rig on its deck. One vessel, a huge Russian nuclear-powered ship, smashed the biggest ice floes, some a quarter-mile wide and eight- to ten-feet thick, while another, a diesel icebreaker from Sweden, attacked the smaller bits. "It was quite a feat," says Kate Moran, an oceanographer from the University of Rhode Island, who co-led the expedition.
What they found was surprising: The Arctic Ocean was once as warm as the Caribbean and filled with plant and animal life. But what caught the eye of the oil industry was the expedition's discovery that tiny Azolla ferns had accumulated on the sea floor 49 million years ago. If sandstone and clay subsequently formed an appropriate lid, the ferns could have cooked into oil or gas. "But that's something you'll never know until you drill," says Dave Houseknecht, a research geologist with the U.S. Geological Survey. "And there has been almost no drilling up there. Based purely on the geological structures, I don't think it has huge potential. Plus, there are far better and easier spots to get oil in the Arctic."
When it comes to the Arctic regions that are well south of the pole, geologists agree that the Russian territory boasts the most petroleum. The Barents Sea, located above Norway and Russia, is gas-rich, as are the Kara Sea and parts of the West Siberian Basin. The Laptev Sea and the northeastern coast of Greenland, though both largely unexplored, are thought to have potential as well. The problem: Most of those places lack the infrastructure needed to move the hydrocarbons to market. Some of the locales are so remote that it's difficult to imagine building that infrastructure economically - especially in places that have only natural gas, which is more costly to transport.
The American and Canadian side of the map isn't as promising, most geologists agree, with the possible exception of the Chukchi Sea. (The Chukchi also has the crucial advantage of being within range of the Alaska pipeline.) Indeed, a recent study by energy consultants Wood Mackenzie and Fugro Robertson concluded that Arctic reserves would ultimately prove "disappointing." "Our assessment is that the Arctic has not 25%, but 10%, of world reserves," says Wood Mackenzie vice president Andrew Latham. "And considering how hard it is to get, a very large fraction of that won't be developed."
During the winter it's difficult to see where Alaska ends and the Chukchi Sea begins. Located off the state's northwestern coast, the Chukchi is a Texas-sized triangle of the Arctic Ocean just above the Bering Strait. It's shallow - rarely deeper than 50 feet - and navigable about four months of the year. But geologically it's essentially a part of the North Slope buried under icy water. "The Chukchi is the greatest hope for Alaska," says Houseknecht, the USGS geologist.
The Chukchi holds 15 billion barrels of recoverable oil and 77 trillion cubic feet of natural gas, according to the U.S. Department of the Interior. But some oil executives believe the amount could be much more - somewhere between 20 billion and 40 billion barrels of oil and 200 trillion cubic feet of gas, making its reserves roughly comparable to those in the Gulf of Mexico.
"The problem is no one can find the stuff," a senior oil company executive says. "Either it has all leaked off to the surface or we haven't identified where it is trapped." Shell drilled four exploratory wells in the Chukchi back in the late 1980s, abandoned them after oil prices bottomed out, and then reappeared as the largest bidder in the recent lease sale. As Rick Fox, Shell's Alaska asset manager, puts it, "Nine-dollar oil is a lot different than $100 oil."
Assuming that the oil is there, extracting it won't be easy. "Think of it as going to the end of the earth and then getting on a helicopter for another hour," Fox says. "You'd better not forget your wrench." The nearest deepwater port is seven to ten days away, and with dangerous ice floes, a drilling rig has to be able to move within hours. And then there are the environmental concerns: a recently filed suit claims drilling in the Chukchi will destroy polar bear habitat. Still, Oppenheimer's Fadel Gheit, the dean of oil industry analysts, predicts that Conoco and Shell's multibillion-dollar bet on the Chukchi will ultimately be vindicated. "Are they crazy?" he asks. "I bet if you look back five to ten years from now, you'll say, 'My God, what a steal.'"
Of course, the Chukchi is enticing largely because other options are increasingly unappealing. Politics is a big reason. You don't have to worry about a civil war or a coup in Alaska. Conoco, according to an industry source, recently spent a year analyzing the viability of operations in the 192 places in the world where oil and gas are thought to exist. After factoring in politics, access, and profitability, Conoco was left with four regions. Those "focus areas," where the company will spend 60% of its $2 billion exploration budget, include the Chukchi, offshore Australia, North American gas fields such as New Mexico's San Juan basin, and the Gulf of Mexico. Says Stephen Brand, Conoco's senior vice present for technology: "There simply aren't that many places left."
"Please do not spit your chewing tobacco into the urinals, sink, toilets, or floor. Thank you." That's the sign on the paper towel dispenser in the men's room of the Deadhorse, Alaska, airport. The town may have an official population of five, but you wouldn't know that in its bustling airport, where a half-dozen packed Boeing 737s whisk oil workers to Anchorage and back each day.
Many say they can't remember it being quite this busy since the pipeline was finished in 1977. With oil prices soaring, companies have been flush (Conoco made $11.9 billion in profits last year), and they are opening their wallets. Newcomers like Anadarko (APC, Fortune 500) and Chevron (CVX, Fortune 500) are beefing up operations. BP (BP) and Conoco (COP, Fortune 500) are expanding their drilling and preparing to survey the route of their planned gas pipeline.
The two companies say they'll commit $600 million for preliminary work over the next three years on the 2,000-mile, $30 billion undertaking, which they believe will constitute the largest private-sector construction project ever built in North America. If the 30-year-old oil pipeline is any guide, it will require tremendous feats of engineering, thousands of permits, and a seemingly endless demand for workers.
On a recent Alaska Airlines flight to Anchorage, oil workers - some of whom have been taking this same flight for decades - relaxed as flight attendants came down the aisle twice within 15 minutes offering $2 cocktails. Over a double Crown Royal and Coke - the overwhelming onboard favorite - two men loudly discussed whether their sons should follow in their footsteps. After all, workers in the Slope can make upwards of $100,000 a year."What'd you tell him?" the guy in the blue baseball cap asked. "I said, 'There's good and bad to it up here. The good is the money and the bad is the money. 'Cause once you start making this kind of dough, it's hard to do anything else.'" With oil over $100, it's safe to say workers will keep flocking north. Still, you can't help feeling that oil doesn't have quite the glamour in Alaska that it did in the old days.