Arctic allure fades for oil companies

Thanks to global warming, the Arctic is viewed as the next frontier for oil and gas companies. At least it was.

The agreement between BP and Russian oil giant Rosneft announced on Monday is said to give the British group a firm foothold in the Arctic, a region often hailed as a new frontier for oil and gas companies.

But the allure has faded with the rise of cheaper energy sources such as shale gas.

BP plans to sell its share in the Russian joint venture TNK-BP to Rosneft in return for $A16.6 billion and an additional 12.84 per cent stake in Rosneft, a state-owned firm.

Analysts said the deal would allow the British oil major to revive its stalled efforts in the Arctic, after a tie-up with Rosneft last year was blocked by BP's Russian partners in TNK-BP.

Interest in the region surged in 2008, when the US Geological Survey estimated it could hold 22 per cent of the world's undiscovered oil and natural gas resources. However, since then, interest has waned somewhat.

In a recent survey, entitled ‘The Arctic: no big bonanza for the global petroleum industry’, two Norwegian researchers estimate that the proportion of hydrocarbons produced in the region would not rise in coming decades.

Rather, they argue, the Arctic's share of global oil production will remain around 8 to 10 per cent between now and 2050, while its share of gas production will fall to about 10 per cent from the current level of 22 per cent.

The researchers base their forecasts on technological advances that have made it possible for energy companies to exploit unconventional natural gas deposits, prompting an energy revolution that could allow the United States to become self sufficient in natural gas.

"At one point, the Arctic was the Holy Grail ... Today, we're no longer in that situation since there are many other places in the world where there is potential," Patrice de Vivies, who heads northern European exploration at the French energy group Total, said in September.

"Why go and look for things under harsh conditions, when you can have it in areas that are much easier to travel to," he asked.

In the far north, a region watched closely by environmental activists, most deposits are offshore, far from land and infrastructure. Conditions are often extreme, with dark winter months and drifting icebergs making exploration more expensive and drilling seasons shorter.

Total has treaded carefully, sticking to onshore operations or to ice-free waters such as the Barents Sea.

Other companies have been more active, including Norway's Statoil, one of the groups Rosneft turned to, or the US group ExxonMobil and Eni of Italy.

The Norwegian firm has ventured into so-called intermediate waters, where they could be faced with drifting ice.

"It was very challenging 20 years ago to go to the (workable ice-free) Arctic and it's relatively easy today," said Runi Hansen,

In intermediate waters, "I'm quite confident that it will be the same in the future," he added.

For some, the Arctic has been a costly adventure.

Despite spending hundreds of millions of euros, efforts by Cairn Energy west of Greenland have so far been unsuccessful.

Anglo-Dutch giant Shell has postponed drilling campaigns in northern Alaska due to stringent technological requirements prompted by environmental concerns.

In another sign that Arctic operations pose stiff challenges, a decision has yet to be taken on the enormous Shtokman gas field in the Barents Sea, which was to be developed by a consortium including Russian giant Gazprom, Total and Statoil.

The massive gas field was discovered 25 years ago.