The Arctic is often referred to as one of the final frontiers for oil and gas exploration, which presents significant technological and commercial challenges to the industry. During our recent study “Future of the Arctic – A New Dawn for Exploration” we quickly discovered that the Arctic is far from homogenous, and the challenges vary greatly from basin to basin. This ranges from the developed areas of the North Slope in Alaska and the Yamal Peninsula in Russia to the remote and untested basins around Greenland.
Arctic basins are mostly gas-prone except for niches for oil production. High costs will delay production. (Graphic courtesy of Wood Mackenzie)
In this article we consider the least developed basins in the Arctic and examine which of these has the most to offer explorers.

Of the 19 basins in the Arctic, 10 have no discovered resources and have seen only minimal exploration in the past. These can be considered as the true Arctic frontiers.

Of these 10 basins, North Greenland can be excluded as a viable play. Current technology cannot address the extreme weather conditions and thick pack ice which is present in this basin. East-central Greenland and the Hope Basin can be excluded due to low prospectivity. The North Chukchi Sea can be excluded as this basin appears to be gas-prone with insufficient reserves to support a pipeline to Alaska or an LNG solution which can be deployed in the ice conditions.

The six remaining frontier basins are found around Greenland and to the north of East Siberia.

The basins north of East Siberia include the North Kara Sea, the Laptev Sea and the East Siberian Sea. The most obvious challenge in exploiting these basins is the extreme remoteness from population centers and markets. The Laptev Sea, for example, is 2,484 miles (4,000 km) from both Moscow and Beijing and 1,863 miles (3,000 km) from ice-free water on the Pacific Coast.

These basins are also affected by year-round pack ice over much of their area, and in the winter there is no ice-free water in which to operate. Operations under the permanent ice would require a subsea development that could link the field to facilities on the shore or in the seasonal ice areas.

Yet these factors may not be the greatest challenge. The killer issue for these basins could be that they appear to be largely gas-prone, and the only markets which they could reasonably reach in the current environments are in North Russian industrial cities such as Yakutsk and Norilsk. Gas prices in these parts of the world are well below the US $6/Mcf to $8/Mcf that would be required to make a 10% return on gas field developments for delivery to these markets. In order to reach more lucrative markets elsewhere in the world,
a price of more than $10/Mcf would be required.

Of these east Siberian Arctic basins, only the Laptev Sea has the potential to provide a return for explorers. This is due to the presence of some material oil prospects which are large enough to be developed and exported economically in spite of the remoteness and
ice challenge involved. Assuming that efforts were focussed on the oil-prone prospects, exploration of the Laptev Sea could exceed a 15% hurdle rate under a $40/bbl oil price.
The three remaining frontier basins are found around Greenland. These are the Southwest Greenland Basin, Baffin Bay between Greenland and Baffin Island in Canada and the Kronprins Christian Basin along the northeast coast of Greenland.

Of these, the Kronprins Christian Basin is by far the most prospective, although it is almost entirely unexplored. In the early 1990s a consortium of major oil companies shot an extensive program of seismic data in this area, and the basin has been consistently assessed to have substantial yet-to-find resources.

Unlocking the high prospectivity of the Kronprins Christian Basin will be far from easy. It is one of the most difficult environments in the Arctic, with permanent ice lining the entire coastline and extreme remoteness, with the nearest large settlements being more than 621 miles (1,000 km) away in northern Norway and Iceland. Neither of these areas represents a major hydrocarbon market.

This is of particular relevance as the majority of the resources in Kronprins Christian are gas. In order to monetize these, a liquefied natural gas plant would have to be constructed somewhere on the coastline adjacent to the basin, all of which is part of the Northeast Greenland National Park.

In contrast to the challenges presented by the Kronprins Christian basin, southwest Greenland is far more favorable for developing oil and gas fields. The pack ice in this basin is seasonal, and there are a number of ice-free months in which to carry out exploration activities. There is also ice-free access to the southwest Greenland coast which could be used for shore-based facilities. Icebergs are an issue in this basin, for which iceberg management systems which have been applied farther south off the east coast of Canada could be used to protect facilities installed in southwest Greenland.

Southwest Greenland is also rather less remote than Kronprins Christian. Most of the population of Greenland is in the southwest of the island. There is an ice-free shipping route to the gas markets in the eastern United States, which is nearly 1,242 miles (2,000 km) shorter than the heavily ice bound route from Kronprins Christian to these markets.
However, southwest Greenland is considerably less prospective than Kronprins Christian, having around half of the yet-to-find resources, and it is even more gas-prone and hence tied to the accessible gas markets.

The final difference between southwest Greenland and Kronprins Christian is that some wells have already been drilled in southwest Greenland and it is being actively promoted by the Greenland Bureau of Mines and Petroleum. This factor means that it is almost certain that southwest Greenland will be the first of these basins to be explored.

Both of these basins are more geared to gas prices than oil prices. Assuming that production from both is exported to the eastern US gas markets, it would require US gas prices in excess of $7/Mcf in order to deliver returns in excess of a 15% hurdle rate. Of the two basins the breakeven gas price is likely to be higher in southwest Greenland as the economics in Kronprins Christian will be boosted by the higher liquids production which could be achieved in this basin.

Baffin Bay is split between Canada and Greenland and is much less prospective than the Kronprins Christian and southwest Greenland basins. Baffin Bay faces significant challenges from significant seasonal ice cover and the glaciers on the Greenland coast, which are one of the major sources of icebergs in the world.

However, Baffin Bay is one of the most oil-prone basins in the Arctic and offers profitable niche opportunities for companies willing to pursue future exploration opportunities in this basin.

The Arctic presents many different frontiers to the oil and gas industry. Amongst these are some of the highest risk opportunities in the world. Of the truly frontier basins of the Arctic the most attractive are the Kronprins Christian basin because of the scale of its yet-to-find resources; the southwest Greenland basin because of its relative proximity to markets; and the Laptev Sea and Baffin Bay, which present the niche opportunities for discovering profitable oil fields.

As the Arctic is studied and explored further we will learn more about these opportunities, and time will tell if any of them will fulfill their potential to become significant sources of oil and gas production.