Will Arctic Oil Ever Make It To Market?

No analysis of the potential impact of the Arctic on geopolitics would be complete without discussing the region’s natural resources. With the indisputable evidence that Arctic glaciers are melting at a record pace, it’s clear new opportunities to tap these resources are opening up. A 2008 U.S. Geological Survey report on the state of untapped natural resources in the Arctic is enough to make every oil company CEO salivate in anticipation of huge new revenue streams. That report suggests that the region holds about 10% of the world’s existing conventional resources – 240 billion proven barrels of oil and oil equivalent natural gas. What’s more, it estimates the Arctic could hold 90 billion barrels of undiscovered oil, 17 trillion cubic feet of undiscovered gas and 44 billion barrels of natural gas liquids.

If the above estimates are accurate, that means the Arctic holds 13 percent, 30 percent and 20 percent of the world’s undiscovered hydrocarbon resources, respectively.

However, all those energy resources are too expensive to recover right now.

Even though NYMEX oil has risen to about $68 a barrel in the last 10 months, that’s still far too low a price for any large-scale Arctic drilling operation to commence.

The Arctic Institute reports that the break-even point for oil projects in the Arctic region is about $100 a barrel.

Of course this situation could change, especially if oil prices climb to over $100 a barrel (and stay there), or if new technology significantly lowers production costs in the Arctic.

Until either (or both) of these things happen, energy company CEOs will have to curb their enthusiasm over the region’s rich reserves of hydrocarbons.

However, all those energy resources are uneconomical to recover right now.

Even though NYMEX oil has risen to about $68 a barrel in the last 10 months, that's still far too low a price foro any large-scale Arctic drilling operation to commence.

The Arctic Institute reports that the break-even point for oil projects in the Arctic region is about $100 a barrel.

Of course this situation could change, especially if oil prices climb to over $100 a barrel (and stay there), or if new technology significantly lowers production costs in the Arctic.

Until either (or both) of these things happen, energy company CEOs will have to curb their enthusiasm over the region’s rich reserves of hydrocarbons.