Arctic Oil and Gas        

Arctic Oil and Gas

(by Arnfinn Jørgensen-Dahl)


Oil and Gas Reserves in the Arctic

How much of world oil and gas reserves can be found within the Arctic? And how much remains to be found? The answer depends on how the Arctic is defined. None of the states that until now have been referred to as Arctic states are wholly “Arctic”. With the exception of Russia, which has most of her sea territory in the Arctic, the largest parts of the national territory of the four countries on which we have focused until now are located in the climatically temperate zone of the world.

The problem is that the most diligent search for a generally accepted definition of what constitutes the Arctic will fail. Several definitions may exist within a single country, and this state of affairs is not made clearer when the term Arctic is used interchangeably with other terms such as the North, High North, High Arctic, the Northern Areas, and the like. “The delimitation of the Arctic …varies depending upon the perspective from which one approaches it”1 . We shall, however, try to follow as closely as possible the definition of the Arctic adopted in the Introduction to this study.

Oil and gas are produced in four of the states that possess land or sea territories defined as being parts of the Arctic. These are Russia, Alaska, the Northwest Territories of Canada, and Norway. Large discoveries of oil and gas in the Arctic began with the Tazovskoye Field in Russia in 1962 and the Prudhoe Bay Field in Alaska in 1967. About 61 large oil and gas fields have been discovered inside the Arctic Circle territories of these four countries. Of these, fifteen fields have yet to go into production; 11 are in Canada’s Northwest Territories, 2 in Russia, and 2 in Alaska. Of the 61 large fields 42 are located in Russia. Thirty-five of these large Russian fields (33 natural gas and 2 oil) are located in the West Siberian Basin. Of the remaining eight large Russian fields, five are in the Timan-Pechora Basin, two in the South Barents Basin, and one is in the Ludlov Saddle. Of the 18 large fields outside Russia, 6 are in Alaska, 11 are in Canada’s Northwest Territories, and 1 is in Norway2 .

Table 3.13 and Table 3.14 show how Arctic states’ oil and gas reserves have developed over the last twenty years. As far as the Arctic states are concerned, the absence of data for 1987 from Soviet times (and Russian data for 1997), and the addition of oil sands to Canadian reserves in later years, make it difficult to identify a trend in proved reserves. There  

is a decline in Norwegian reserves since the peak year of 1997, and a substantial decline in US reserves of 17% during the last twenty years or so. As both tables suggest, any depletion of total oil and natural gas reserves of the Arctic states due to production and consumption are replaced by new proved reserves. Table 3.14 also clearly demonstrates the overwhelming position of Russia in regard to natural gas reserves. In 2007 Russian reserves made up about 81% of the total reserves of the Arctic states and 25% of the world total reserves.

Figure 3.6: The Russian oil and gas industry


Source: US Energy Information Administration 

Table 3.13: Proved Reserves of Oil 1987 – 2007 


End of 1987

Billion barrels

End of 1997

Billion barrels

End of 2006

Billion barrels

End of 2007

Billion barrels

United States




















Arctic states total





World total





Source: BP Statistical Review…June 2008, p. 6.

Russia and the United States are the second and third largest producers of oil. Together with Canada and Norway, they contribute about 28% of total world production. They are also the four top producers of gas contributing no less than about 49% of total world output, as the Middle East is a much larger producer in the oil sector than in the natural gas sector.

Table 3.14: Proved Reserves of Natural Gas of Arctic States and the World over Time 


End 1987 trillion cubic metres

End 1997 trillion cubic metres

End 2006 trillion cubic metres

End 2007 trillion cubic metres

United States




















Total Arctic states





Total World





Source: BP Statistical Review, June 2008, p. 22.

Table 3.15 shows the share of the Arctic of world proved oil and gas reserves. About 5.3% of the oil and about 21.7% of the gas are found in the Arctic. Today, the Arctic produces about 10% of the world’s oil and about 25% of its natural gas.

Table 3.15:  Arctic Regions Share of Proved Reserves of Oil and Gas


Arctic region of


At end 2007 billion barrels of oil


% Share of total reserves of oil


At end 2007 tcm natural gas


% Share of total reserves of natural gas

United States




















Total Arctic regions





Source: BP Statistical Review, June 2008 and Arctic Oil and Gas 2007, p. 32

Compared to other parts of the world, the level of exploration in the Arctic has, by all accounts, been modest but more than sufficient to indicate rich deposits of various resources, including oil and gas. Much has been found and exploited but much more remains to be exploited.

Undiscovered Oil and Gas Resources in the Arctic

A great deal of the attention paid to Arctic resources stem from the promise of undiscovered hydrocarbon resources. In the year 2000 the US Geological Survey (USGS) assessed that 23.9% of the world’s undiscovered oil and gas resources were in the Arctic. In May 2008 the USGS completed a new assessment of the resources north of the Arctic Circle (Circum-Arctic Resource Appraisal, or CARA for short). Only those geologic areas were included which were considered

“…to have at least a 10% chance of one or more significant oil and gas accumulations. For the purposes of the study, a significant accumulation contains recoverable volumes of at least 50 million barrels of oil and/or oil-equivalent natural gas. The study included only those resources believed to be recoverable using existing technology, but with the important assumptions for offshore areas that the resources would be recoverable even in the presence of permanent sea ice and oceanic water depth…So-called nonconventional resources…were explicitly excluded from the study”3 .

The area inside the Arctic Circle make up about 6% of the Earth’s surface or about 21 million km² of which almost 8 million km² is onshore and more than 7 million km² is on the continental shelves under less than 500 m of water. “The extensive Arctic continental shelves may constitute the geographically largest unexplored prospective area for petroleum remaining on Earth”3 .

The assessment showed that the Arctic might contain 90 billion barrels of undiscovered oil, 1,669 trillion cubic feet of natural gas, and 44 billion barrels of undiscovered natural gas liquids. The Arctic is thus supposed to account for about 13% of undiscovered oil, 30% of undiscovered natural gas, and 20% of undiscovered natural gas liquids in the world. This represents about 22% of all undiscovered, technically recoverable oil and gas resources in the world and is slightly less than the year 2000 assessment which, however, included land territories south of the Arctic Circle. Expressed in oil-equivalency terms, undiscovered natural gas is thought to be three times more abundant than oil in the Arctic.

As much as 84% of these resources are expected to be offshore and to be relatively close to the shore in areas that are not subject to territorial disputes, except parts of the East Barents Sea (Basin). In the view of the USGS, most of the undiscovered resources are concentrated between the shoreline and the 500 meter contour line and within the 200 nautical mileslimit4 .

About a third of the undiscovered oil is in the province referred to by the USGS as Arctic Alaska which together with four other provinces (Amerasia Basin, East Greenland Rift Basin, East Barents Basin, and the West Greenland Basin) account for about 70% of the undiscovered oil resources. This includes substantial parts of the Chukchi Sea and parts of the Beaufort Sea.

Most of the undiscovered natural gas, about 32%, is thought to be in the northern part of the West Siberian Basin of Russia which together with the East Barents Basin and Arctic Alaska account for more than 70% of the undiscovered natural gas resources4 .

About 65% of the undiscovered oil, 26% of the natural gas and 37% of the natural gas liquids are supposed to be resting (so far) in North America whereas 34% of the oil, 73% of the natural gas and 62% of natural gas liquids are to be found in Eurasian parts of the Arctic. Of the total resources (oil equivalent) 63% are in Eurasia and 36% in North America.   

Table 3.16:  Location of Undiscovered Resources in the Arctic

Oil provinces

Million bar  of oil

Natural gas provinces

Billion cf of gas

Arctic Alaska


West Siberian Basin


Amerasia Basin


East Barents Basin


East Greenland Rift Basin


Arctic Alaska


East Barents Basin



West Greenland-East Canada



 Subtotal       (70.3%)


 Subtotal         (71.3%)


Total Arctic (100.0%)


Total Arctic    (100.0%)


Source: US Dept. of Interior, US Geological Survey, USGS Fact Sheet 2008-304

The area in the Arctic most accessible and presumably less costly from an exploration and recovery point of view may be the Barents Sea. According to the USGS the Russian and Norwegian Barents Sea shelf may contain about 11 billion barrels of undiscovered oil, 11 trillion cubic meters of undiscovered natural gas and 2 billion barrels of undiscovered natural

gas liquids. Most of this, about 68% of the oil, 85% of the natural gas and 65% of the natural gas liquids, are estimated to be in the Russian controlled East Barents Basins province. The resources of the Barents Sea shelf are assumed to be recoverable regardless of the presence of sea ice or depth of water5 .

Another interesting area is offshore West Greenland. In the summer of 2010 the Scottish oil company Cairn Energy will start the first drilling for oil in Greenland’s Western Basin6 . These are sedimentary provinces (see figure 3.7) which are three times larger than the North Sea Basin and only six oil and natural gas exploration wells have been drilled off West Greenland7 .

Figure 3.7: Cairn Energy Exploration Offshore West Greenland

Source: http://www.cairn-energy.plc.uk

Exploring for oil and gas in the Arctic is, however, financially very demanding. Statistics based on US experiences give a partial but telling picture. In 1960 the average US cost of drilling crude oil and natural gas wells, including dry holes, was $ 261,100 per well, in 1980 it was $ 680,400, and in 2006 $1,803,000 per well8 . In 2007 the cost for oil wells only was $ 4 million as compared to $ 2.2 million a year earlier. The average cost per natural gas well was $ 3.9 million in 2007 as compared to $ 1.9 million dollar in 2006.

Table 3.17: Cost of Drilling Onshore Wells – US Average and Alaska


Us average

Per foot

Us well depth

10,000 feet

Alaska per


Alaska well

Depth 10,000 feet


$ 111

$ 1.100.000

 $    283

$    2.830.000


$ 294

$ 2.940.000

           $ 1.880

$ 18.800.000

Source: Composed of data from the Energy Information Administration, US Dept. of Energy.

Data from Alaska will give an indication of exploration costs in the Arctic9 . As Table 3.17 shows, in 2005 the cost of drilling an onshore well in Alaska was estimated to be about 640 per cent higher than the average cost of drilling wells in the US as a whole.

These were onshore wells. The cost of drilling and exploration well offshore in Alaska’s Chukchi Sea has been put at $ 60 million. Drilling a well in the shallow waters of the eastern Gulf of Mexico costs about $ 7 million whereas a US onshore well may cost as little as $ 82,000. This is before the cost of production infrastructure and many other factors that demand financial resources are taken into account, especially as far as offshore exploration and production are concerned10 .

Drilling costs are influenced by a wide variety of factors that can and do vary greatly from place to place. Lacking detailed enough data makes it a hazardous business to argue that the case of Alaska is representative of the rest of the Arctic. But conditions in the rest of the Arctic have more in common with those in Alaska than with other regions. Remote locations, harsh weather and winter conditions, environmental requirements and many other factors combine to make the costs of finding and developing oil and gas in the Arctic a very expensive proposition indeed.

Yet, costs have to be seen in relation to demand. If found in substantial quantities, and the demand is strong enough, Arctic oil and gas resources will be exploited, as they already have been for a long time. Although it has dropped to more “normal” levels, the recent high price of oil, reaching up to $ 147 a barrel in 2008, was not caused by speculators. Beginning in 2004, rapidly increasing demand from countries like India and China that coincided with increased demand from OECD countries and the US in particular, was the principal culprit. Current and future demand will come from economic development and levels of economic growth never experienced before. Whereas the economic development and industrialization of Europe and North America in the past involved somewhere between 50 and 200 million people, economic development today involves billions of people. Over the next decade, more than half a billion people will reach the $ 5000 a year income level which is a huge leap compared to times not far back. In other words, there is nothing to suggest that the demand for energy will not continue to ceaselessly grow.

In their 2008 reference scenario, the International Energy Agency (IEA) predicts that China and India will “account for just over half of the increase in world primary energy demand between 2006 and 2030”, and fossil fuels will account for 80% of the world’s primary energy mix in 2030. Collectively, non-OECD countries will account for 87% of the increase in world primary energy. Their share of world demand will increase from 51% to 62 %. “Their energy consumption overtook that of the OECD in 2005”11 .

The reference scenario projections of the IEA for the years 2007-2030 also calls for massive investments in energy infrastructure of some $ 26 trillion (in year 2007 dollars) of which nearly half goes to oil and gas, mainly for exploration and development. “Just over half of projected global energy investment in 2007-2030 goes simply to maintain the current level of supply capacity: much of the world’s current infrastructure for supplying oil, gas, coal, and electricity will need to be replaced by 2030”.

To pay for these investments the IEA assumes that the crude oil prize will average $100 per barrel (in real 2007 dollars) in the period 2008-2015 after which it will rise above $120 in 2030. Combined with the oil-demand projections, the investment projections of the IEA points to persistently high levels of consumer spending on oil, in both the OECD and non-OECD countries11 . Put simply, consumers whether of the individual, corporate, or public variety, will have to pay more because the costs to the investors and producers will be higher - much higher.

These are but one set of factors that will influence how, where and when the Arctic will become an arena of much more intensive exploration and extraction activities of oil and gas than today. Technology, climate change and environmental regulations will also weigh heavily, not to mention a variety of political, economic, and social factors.


  •  1. For an informative discussion of the issue within a Norwegian context, see Sawhill (2008), p. 2.
  •  2. Philip Budzik, (2009)
  •  3. CARA (2008), Circum Arctic Resource Appraisal. Estimates of Undiscovered Oil and Gas North of the Arctic Circle, USGA Fact Sheet 2008-3049, July 2008, US Department of the Interior, U.S. Geological Survey.
  •  4. AAPG (2008)
  •  5. U.S.Geological Survey (USGS), Fact sheet 2009-3037, June 2009
  •  6. Lundgren, Kari (2010)
  •  7. Budzik, P. (2009), Arctic Oil and Natural Gas Potential, US Energy Information Administration, Office of Integrated Analysis and Forecsating, Oil and Gas Division, October 2009
  •  8. American Petroleum Institute, 2006 Joint Association Survey on Drilling Costs (May 2008), quoted by Energy Information Administration, US Department of Energy, http://eia.doe.gov/emeu/aer/txt
  •  9. Analysis of Crude Oil (May 2008).
  •  10. Petroleum Intelligence Weekly, 5 January 2009.
  •  11. World Energy Outlook (2008),

Arnfinn Jørgensen-Dahl, 2010, Arctic Oil and Gas, CHNL.© 


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