A whole new way of looking at the world
By Michael Moore – This article first appeared in the August edition of Totem Ocean News, the official publication of Totem Ocean Trailer Express.
For the last fifty years, low-orbit satellites have passed over the North Pole every 90 minutes, photographing the earth as it spins on its axis – creating a time-lapse record of the changes taking place below.
The most dramatic and visual images of those changes is the year-after-year shrinking of the Arctic summer sea ice. That progressively smaller extent of the Arctic ice cap means the Age of the Arctic has arrived – and one of the world’s greatest rushes for oil, gas and mineral riches has begun.
“The changes we see in the Arctic are not just about exploration and economic development, they are going to require a whole new way of looking at the globe,” said John Parrott, President of Totem Ocean Trailer Express. “We are used to thinking of the Arctic as up there, a sliver of white at the top of Alaska. Now we have to shift our perspective and look at the Arctic as one whole, interconnected region.”
EXPANDING OPPORTUNITIES
“The region above the Arctic Circle accounts for only about 6 percent of the Earth’s surface area, but it could account for as much as 20 percent of the world’s undiscovered but recoverable oil and natural gas resources,” according to a recent report by Ernst & Young. “The existence of hydrocarbon resources in the Arctic has been known for decades, but only in recent years has the opening to full-scale resource development and navigation — such as the fabled Northwest Passage that would connect the Atlantic and Pacific Oceans, or the Northern Sea Route that will connect Europe and western Russia with eastern Russia and Asian markets — become technically and economically feasible.”
“Only about one-third of the Arctic is covered by land; another third consists of the offshore continental shelf, with waters generally less than 500 meters deep and the remaining third comprises ocean waters, typically deeper than 500 meters,” said the report.
“The Arctic is not the pristine, uninhabited region that many people in lower latitudes like to think it is,” said John Higginbotham, a Senior Fellow of the Arctic program at the Centre for International Governance Innovation in Waterloo, Ontario. “There are established communities, people live and work throughout the Arctic, seasonal shipping takes place, and mining and petroleum related activities have been going on for decades.”
A World Economic Forum (WEF) report on the Arctic states that the top of the world has “a population of 4 million people and an annual economy of roughly US$ 230 billion.” – The region is under the jurisdiction of eight countries (the Russian Federation, Finland, Norway, Sweden, Iceland, Greenland/Denmark, Canada and the U.S.), with few territorial border disputes among them.
Alaska is part of the Arctic community and Alaskans are already feeling the impacts of the opening of the Arctic. The receding sea ice affects wildlife, fishing and ocean conditions, rainfall and other environmental and quality of life conditions. At the same time the opening of sea lanes means increased access to offshore oil deposits and new fishing grounds – economic activities that benefit the natives of the far north as well as all Alaskans.
Alaskans have a complex relationship with their incredibly rich and beautiful land. They have deep love for the natural beauty and diversity of the state’s 663,268 square miles, an area the size of one fifth of the lower 48. At the same time, Alaskans know their ability to survive and prosper in this rugged land depends on their ability to harvest Alaska’s bountiful natural resources, from salmon to minerals to the on and offshore oil deposits that become more accessible as the ice retreats.
Oil is Alaska’s economic powerhouse – and a lot of that oil is offshore and has been inaccessible until recently. The progressive recession of the summer sea ice has opened up opportunities for exploratory drilling in the Beaufort and Chuckchi Seas. Though regulatory, environmental and legal challenges must be overcome, the oil from those areas could become a new and powerful driver for Alaska’s economy.
The economic importance of increased access to oil and gas deposits deep under Alaska’s Outer Continental Shelf (OCS) cannot be overstated. The extensive Arctic continental shelves may constitute the geographically largest unexplored prospective area for petroleum remaining on Earth, according to the U.S. Geological Survey (USGS).
The USGS estimates that 13 percent of the world’s undiscovered oil reserves (90 billion barrels) and 30 percent of the undiscovered gas reserves (1,700 trillion cubic feet of natural gas, and 44 billion barrels of natural gas liquids) are in the Arctic. Of the 33 Arctic sedimentary “provinces” that the USGS evaluated, 25 were found to have a greater than 10 percent probability of having oil or gas deposits larger than 50 million barrels of oil equivalent (boe). Of the total 412 billion boe, approximately 84 percent is expected to be found offshore, and about two-thirds (67 percent) of the total is natural gas.
CHALLENGES OF THE ARCTIC
“The Alaska economy and population are anticipated to continue to grow in the next 50 years given the development of the natural gas pipeline, new development in the mining sector, and modest growth in tourism, fisheries, and military and civilian federal operations,” said a study done for Shell by Northern Economics.
“However, declining oil production from existing onshore fields is expected to pose long-term challenges to Alaska’s economic and fiscal well-being. OCS development, if it were to occur, could be a significant driver of the next generation of economic activity by extending the duration of the petroleum industry in the state.”
According to the study there are three principal OCS areas for oil and gas exploration and development: (1) Beaufort Sea; (2) Chukchi Sea; and (3) North Aleutian Basin.
The road to riches in the newly opened Arctic is challenging – obstacles include the region’s harsh climate, limited existing infrastructure, spill containment and recovery, exceptionally long project lead times, overlapping and competing sovereignty claims, and environmental/legal complications.
Royal Dutch Shell PLC found itself confronting the obstacles of the Arctic and having to retreat and regroup in 2012 after investing $2.1 billion on leases in the U.S. side of the Chukchi Sea. Shell’s problems compounded after spending billions more to begin drilling – problems that included lingering sea ice, a damaged oil spill containment dome, and permit challenges.
Shell sent its drilling vessels to shipyards in Asia, decided to sit out the 2013 season, and prepare for a comeback in 2014. However a federal court sided with environmentalist plaintiffs in a lawsuit and halted all Chuckchi drilling, a decision that affected not only Shell, but Conoco Philips and Statoil.
The Washington Post reports that Shell spokesman Curtis Smith blamed “uncertainty raised by the recent 9th Circuit Court of Appeals’ decision that requires the [Bureau of Ocean Energy Management] to gather and synthesize additional data related to Chukchi Lease Sale 193.” He said “the lack of a clear path forward and an associated timeline makes it impossible to commit the resources needed to explore safely in 2014.”
Shell says it remains committed to going forward with its Chuckchi and other Arctic exploration and drilling programs, but it will probably be at least two years before the company returns to the far northern environs.
While the oil majors may be biding their time until the legal storms pass and they are ready to begin drilling with renewed vigor, many Alaska businesses are preparing to be up and running when the billions of dollars begin to flow into development of the Chuckchi and other Alaska OCS areas.
Exploration drilling could re-start as early as 2015 or as late as 2018, depending on Bureau of Ocean Energy Management (BOEM) regulations and oversight as well as permitting requirements which can have lead times of as much as 18 months.
DEEP WATER PORTS
Deep water ports are being studied as a way of meeting emerging challenges and taking advantage of the opportunities from the opening of the Arctic. The Alaska Deep-Draft Arctic Port System Study – conducted by the U.S. Army Corps of Engineers and the Alaska State Department of Transportation and Public Facilities – underscores the long-term need for a U.S. Arctic port that would be linked to natural resource export in a new era of demand for Arctic resources by global markets.
Public-private partnerships to finance the construction of an Arctic port and associated infrastructure are being considered. Port Clarence on the northwest Alaska coast was the subject of a recent feasibility study by Northern Economics for the Bering Straits Native Corporation. The study concludes that the most probable scenario would call for Port Clarence to be a support base for Chuckchi Sea oil and gas industry.
Such a port would also support a range of federal agencies, especially the Coast Guard, and strategically place emergency response capacities within the U.S. maritime Arctic.
Preliminary capital costs for an initial dock, camp, and support activity at Port Clarence range from $34 million to $72 million with a mid-point of approximately $50 million.
There are also calls for the federal government to increase funding to the National Oceanic and Atmospheric Administration (NOAA) for hydrographic and bathymetric surveys, and increase budgets for navigational tools to support Arctic infrastructure developments.
“The U.S. is not well positioned to take advantage of the opportunities that are presenting themselves with the opening of the Arctic,” said Nils Andreassen, Executive Director of the Institute of the North. The Institute was founded by former Alaska governor and U.S. Secretary of the Interior, Walter J. Hickel, whose vision was that “we must understand the reality, the richness and the responsibility of the North”. He championed “the commons” and how to care for Alaska’s commonly-owned lands and resources.
“The federal government is starting to direct more dollars towards its ability to respond to and manage risk as well as conduct more research in the region,” said Andreassen. “But little is directed toward economic development in the region. It could be that much of the opportunity will pass us by, whether it’s shipping or offshore development, if we can’t address the infrastructure gap and regulatory uncertainty.”
BREAKING THE ICE
“The replacement of America’s polar icebreakers (the two polar class ships, Polar Star and Polar Sea) has been a long-standing issue. However, this requirement for federal polar icebreaking capacity in only large, high powered ships masks a plausible need for shallower-draft, but ice capable (smaller) Coast Guard cutters for operations in the coastal areas of northwest Alaska and the Beaufort Sea” stated Dr. Lawson W. Bigham, who is a Distinguished Professor of Geography & Arctic Policy at the University of Alaska Fairbanks and a Senior Fellow at the Institute of the North in Anchorage. Dr. Bigham retired from the Coast Guard as Captain and served at sea in command of four Coast Guard cutters, including the polar icebreaker Polar Sea sailing in Alaskan, Arctic and Antarctic waters.
Coast Guard polar icebreakers perform a variety of missions supporting U.S. interests in polar regions. The Coast Guard’s two existing heavy polar icebreakers—Polar Star and Polar Sea— have exceeded their original 30-year service lives. On June 25, 2010, the Coast Guard announced that Polar Sea had suffered an unexpected engine casualty; the ship was unavailable for operation after that. The Coast Guard placed Polar Sea on commissioned, inactive status on October 14, 2011.
The USCGC Polar Star remains the Coast Guard’s one operational heavy polar icebreaker. It was placed in caretaker status in 2006, then funded for repairs and returned to service for an additional seven to ten years. Refurbishing Polar Star remains the Coast Guard’s near-term heavy icebreaker bridging strategy.
The Coast Guard has a newer ship, the medium polar icebreaker USCGC Healy, which entered service in 2000. The Healy is primarily used for supporting Arctic scientific research.
Obtaining a new, heavy polar icebreaker that meets Coast Guard requirements will depend upon supplementary financing from other agencies whose activities also rely upon the nation possessing a robust, Arctic-capable surface fleet.
Most of today’s Arctic commercial carriers (bulk carriers, tankers, and LNG carriers) are designed as icebreaking ships capable of independent operations (without icebreaker escort). Many of the Arctic commercial carriers operating in the Canadian and Russian Arctic regions do not require icebreaker escort during a three- to four-month navigation season. The availability of capable commercial icebreakers must also be taken into account when determining the requirements for a federal icebreaking capacity.
The use of privately-owned icebreakers in the U.S. maritime Arctic in support of offshore exploration and, potentially, the escort of commercial shipping to a U.S. Arctic port is a compelling opportunity for the U.S. maritime industry.
CAPTURING OPPORTUNITY
Foss Maritime is one of those private companies that are moving to stay ahead of the future – the company is rushing to fill the need for private vessels capable of working in ice conditions as Alaska’s economy shifts into high gear with the opening of the Arctic.
“Foss is currently constructing Arctic-class ocean tugs with 7,000 horsepower engines to support ocean towing opportunities in the North,” said Gary Faber, Senior Vice-President of Marine Transportation for Foss. “As bigger and more capable ships call into the northern ports and sea lanes, we will respond with bigger and more capable tugs. We have plans for icebreakers and other ice-capable support vessels as they become needed.”
The three 132-feet long, Ice Class vessels will have strengthened hulls designed to withstand the harsh, Arctic climate conditions into which they will eventually be deployed. Work on the tugs began in July, and the first in the series will be delivered in December 2014. The Foss world fleet contains over 150 vessels, including twelve vessels in the Arctic. Eight of those are Arctic tugs.
“With all the talk about opening the Arctic, let’s not forget that exploration and production of oil has been going on north of the Arctic Circle in Alaska for almost 50 years,” said John Parrott.
The 2013 passage of Alaska Senate Bill 21 has reopened the economic doors for the ramping up of oil and gas exploration on the North Slope. And the timing could not more critical. –The Alaska Pipeline is running low as the production from the original Prudhoe Bay fields lessens.
The state lowered taxes on the oil companies that had been raised in 2007 by then-governor Sarah Palin. The result has been a notable increase in exploration activity on the North Slope.
One barometer of that increased activity is the number of truck drivers needed for the North Slope winter runs.
“The typical demand is for 200 drivers over the winter,” said Grace Greene, Alaska General Manager for Totem Ocean. “This last winter they needed 500 drivers. That’s a good indicator that the new oil tax reduction has resulted in more business.”
“The Saltchuk companies in Alaska have an Alaska project cargo team,” said Greene. “We look for opportunities with resource development companies to provide them with an understanding of our integrated logistics and transportation services. Think of it as a “one stop shop” for companies looking to leverage the over 40 years of experience the Saltchuk group has successfully and safely operated in Alaska.”
The federal government may not be currently making a priority of taking advantage of the economic opportunities the opening of the Arctic presents, but the State of Alaska and it tight-knit business community are.
“Responsible Arctic exploration is important to Alaska and the United States,” said Grace Greene. We need to support the continued exploration both onshore and offshore – for Alaskans, the economic impact of Arctic exploration is a game changer.”
UNDERSTANDING ANWAR
One of the challenges the Alaska business community is currently looking to overcome is the resistance to lifting the drilling ban in the Alaska National Wildlife Refuge (ANWR).
A vast majority of Alaskans support opening the ANWR to oil and gas exploration, according to a poll conducted in December 2009 by the Dittman Research Corporation.
Dittman’s poll questioning Alaskans on various topics of interest has been conducted regularly over the years and includes the basic question: “The Arctic National Wildlife Refuge, usually referred to as ANWR, is located on the northern edge of Alaska between Prudhoe Bay and the Canadian border. What is your opinion, do you feel oil and gas exploration should or should not be allowed in that area?”
The response was 78 percent in favor of exploration and 21 percent opposed. The results over the past 10 years indicate a very steady response with only minor fluctuation.
“Based on a poll we did last year, the two priorities in the Arctic for Alaskans are to protect the environment and promote economic development – Alaskans believe in that balance,” said Nils Andreassen.
Many Alaskans believe that most non-Alaskans don’t really understand where the Arctic National Wildlife Refuge is located and the relatively tiny amount of space within ANWR(the Coastal Plain) that’s been set aside for potential oil and gas development.
ANWR lies in the top northeast corner of Alaska. The entire 19.6 million acre refuge lies north of the Arctic Circle and 1,300 miles south of the North Pole.
Despite its name ANWR is NOT entirely “refuge.” The southern part of ANWR, approximately 9.16 million acres, is classified as officially “Refuge.” The central 8 million acres of ANWR is classified as “Wilderness.”
At the top of ANWR, there is a special area of 1.5 million acres on the Arctic Coastal Plain called the “10-02” Area, which Congress set aside specifically for “oil and gas exploration.”
This 10-02 Area is classified legally neither as “refuge” nor as “wilderness,” rather defined and separated by Congress for oil and gas exploration due to its well-known geological evidence of potential large hydrocarbon deposits. The 10-02 area is bordered on the north by the Beaufort Sea, on the east by ANWR “wilderness” area and the U.S. Canadian border, and on the west by the Canning River and ANWR outer border. It is completely flat and barren with no trees, hills, or mountains. Nine months of the year is covered with snow and ice and practically void of life. Three of those months are in total 24 hour darkness. In the six weeks of summer the coastal plain is dotted with thousands of lakes and is covered by boggy tundra on permafrost (permanently frozen ground).
The 10-02 Area is a further anomaly within ANWR’s border in that it contains 92,000 acres of private land owned by the Kaktovik Inupiat Corporation (KIC), ANWR’s only settlement and population. The subsurface rights of these 92,000 acres are owned by the Inupiat native organization the Arctic Slope Regional Corporation (ASRC).