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The harsh and pristine Arctic environment is gradually opening up for business, with retreating summer sea ice and increasing global energy demand. DNV GL believes that society, industry and authorities must prepare for new opportunities by gaining a better understanding of potential risk in the Arctic. This will enable safer, smarter and greener operations, with firm foundations in shared knowledge and informed decision-making.

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Emerging Opportunities

Emerging opportunities

Shrinking sea ice and increasing appreciation of the region’s huge energy potential will drive growth in offshore and marine activities in the Arctic over the next decade. The extent of that activity is, however, likely to be dictated by market conditions. 

New routes for the transportation of goods from Europe to Asia, utilising the North-east Passage along Russia’s northern coastline, will be explored and exploited, while rising global energy demand will heighten focus on the Arctic’s substantial hydrocarbon reserves. 

Global economic factors impact upon the viability of those reserves , but their very existence creates industry impetus, with a growing focus on developing innovative technology for safe and sustainable Arctic operations. 

Wherever there is industrial activity, there is also risk – and nowhere more so than in the Arctic. In some parts, the harsh environment increases the likelihood of accidents and, given the pristine state of many of the region’s ecosystems, any consequences could be significant. There are also ethical dilemmas to consider. These include the need to mitigate climate change versus the need for energy, environmental risk versus business risk, and the needs of the Arctic’s inhabitants alongside those of the rest of the world. 

DNV GL is committed to utilising its 150 years of experience in harsh climates to provide insights, solutions and a fact-based perspective with regard to new developments in this exciting frontier region.

Polar Bear in water

Hydrocarbon potential

The enormous hydrocarbon potential of the Arctic guarantees its allure for industry. Estimates vary, but a landmark 2008 United States Geological Survey (USGS) report provides a tantalizing picture for oil and gas operators. 

USGS believes that the region above the Arctic Circle holds technically recoverable resources of 90bn barrels of oil, 1,670 trillion cubic feet of natural gas and 44bn barrels of natural gas liquids. 

However, the question may not be how much of this is recoverable, but how much should be left in the ground? 

The Intergovernmental Panel on Climate Change (IPCC) has clearly recommended that global warming should be limited to 2 degrees above the historical average. To achieve this present CO2 emissions must be curbed, as we are already on a path to emitting more than is permissible if this goal is to be achieved.

A recent study (Nature) suggested 52% of the world’s natural gas reserves, 35% of oil reserves and as much as 88% of coal reserves must remain unexploited in order to limit global warming to 2 degrees. Such stringent requirements, in tandem with economic considerations, would severely diminish industry’s ability to develop Arctic resources.

However, it should be noted that there is currently no global warming regulation, meaning that the scale of potential activity is more closely related to price and cost factors.

Royal Arctic Line

Shipping: Full steam ahead?

Shipping volume in the Arctic is set to increase, driven by a greater flow of transport in and out of the region  and mounting offshore support activity. This will bring the challenges of operating in some of the globe’s most demanding waters sharply into focus.

Chief amongst the hazards vessels face include the icing of systems and equipment, liquids in tanks and pipes freezing, large loads and impacts from heavy ice conditions, and drifting icebergs and growlers (small, barely visible icebergs). Correctly identifying prevailing ice conditions will help protect a vessel from significant ice damage. Appropriate dimensioning methods are also needed to ensure the vessel has the necessary structural integrity, as is winterization, which prepares the ship for extreme icing, freezing systems and wind chill.

Trends and forecasts indicate that polar shipping will both grow in volume and diversify in nature over the coming years and these challenges need to be met without compromising either safety of life at sea, or the sustainability of the polar environments.

In an attempt to reduce risks - both to ecosystems and those working in the region’s harsh climate and icy waters - the International Maritime Organisation (IMO) has adopted the International Code for Ships Operating in Polar Waters (Polar Code) and related amendments to the International Convention for the Safety of Life at Sea (SOLAS).

This is a significant step that will help define vessel operations: safeguarding assets, ecosystems, and human life in the polar extremities.

Ice berg

Commercial viability

Global temperatures and energy demand may be rising steadily, but oil prices have trodden a more volatile path in recent times, plunging in value by more than 50% in the last six months of 2014 alone (Brent Crude’s barrel price stood at a high of UDS 115 in June that year).

Depressed prices have an obvious general impact on the viability of exploiting harder to reach (meaning more expensive) resources, with oil and gas operators tending to focus efforts, and reduced budgets, on more easily accessible hydrocarbons. This approach varies from nation to nation, but the desire to optimise investment and development portfolios does not.

In addition to price, the evolving geopolitical landscape, with sanctions targeting Russian interests, and the US shale gas revolution are unquestionably impacting on appetites for Arctic activity.

However, the resources are there - 20% of the world’s undiscovered but recoverable hydrocarbon reserves, according to USGS – and those with a long-term industry view are likely to retain interest in exploring their potential.

The focus on the Arctic may be wavering, but with the right technology, economic drivers and demand it will sharpen once again.

Melted ice

A unified approach

Collaboration will be central to success in the Arctic. 

Stakeholders from industry, authorities and society must work together to tackle the challenges of operating in this unique environment.

Rather than racing to establish competitive advantage, there is a real incentive to cooperate and deliver the advances in technology and infrastructure necessary for safe and successful Arctic development.

Cooperation on oil spill prevention and response is a priority. Although the likelihood of a major oil spill in the Arctic is low, the consequences could be significant. More emphasis should be put on regional risk assessments and cross-boundary response planning.

Infrastructure costs also need to be addressed with a ‘joined-up approach’ to make developments commercially viable. Financial burdens could be shared in joint ventures, bringing advantages to all parties involved, not only within the oil and gas industry. Maritime infrastructure such as ports, navigational aids and emergency evacuation resources are good examples of infrastructure that could benefit other industries such as tourism and fisheries.

In addition, research programmes and technology development should be united efforts, allowing parties to work together in neutral environments to facilitate innovations, products, practices, and standards that set industry benchmarks for the Arctic.