Exploration for oil and natural gas is to begin as early as this summer well beyond the Arctic Circle by Canadian subsidiaries of Statoil SA and Chevron Corp.

The frontier partnership was announced earlier this month; separately at the time Chevron Canada Ltd. also said it was is teaming with a unit of Repsol YPF to explore Canada’s Orphan and Flemish Pass basins (see NGI, Jan. 16).

By North American standards, the prospecting program between Chevron and Statoil Canada Ltd. is an adventurous foray into a remote seascape that covers 825 square miles of little-known geology beneath frigid water 800-1,800 meters deep and windblown ice rafts that far-northern summers are too short to melt.

For Statoil, a business heir to Norwegian polar exploration heroes Nansen and Amundsen, venturing onto the frosty roof of the world is a familiar role and core item of corporate strategy. The Tuktoyaktuk exploration base is south of the Barents Sea coastal settlement — Hammerfest, which Statoil has transformed into an industrial town on the farthest north edge of Norway along the shipping route from the Atlantic east to the remote Russian seaport at Murmansk.

Offshore of Hammerfest, Statoil leads an eight-company consortium that since mid-2007 has tapped and exported liquefied natural gas (LNG) plus gas liquids byproducts from deposits, called Snohvit and Albatross, with a US$5.3 billion complex. The package currently produces about 540 MMcf/d with a subsea production platform, 90 miles of ocean floor pipeline, and a processing platform and tanker export terminal near Hammerfest on Melkoa Island. An environmental extra — an additional, 96-mile waste disposal pipeline — carries unwanted byproduct carbon dioxide out to a reinjection well site.

Statoil corporate presentations declare, “Half of all oil jobs could end up in the far north.” For the Norwegian national energy enterprise, a hybrid of government and investor ownership, arctic development is a natural extension of North Sea oil and gas activity that transformed the country into one of the planet’s wealthiest countries since the 1970s.

Expansion of arctic LNG and gas liquids production is being planned with eyes wide open to potential effects on global energy prices of significant supply additions, on top of the shale bounty that has affected North American markets and is spreading to Europe.

Like Canadian LNG export projects in the gentler environment of British Columbia’s Pacific coastline, the Norwegian growth program focuses on sales to Asia. Statoil said it “believes that LNG is in the process of attaining a strong position in the market. More LNG is about to reach the markets.”

Statoil suggested that skeptics are mistaken in the conventional criticism that industry will hurt itself by exporting competition along with more gas to Asia, where LNG has fetched premiums under contract index-pricing regimes that link its value to oil. “More LNG is about to reach the markets. The downward pressure on prices will have a positive long-term effect wherein more flexible and reasonable LNG opens up the major markets in China and India,” Statoil predicted.

“Instead of being seen as a supplement to local gas in these huge markets, there is now a trend toward LNG establishing a robust, independent market position.”

The Beaufort Sea partnership with Chevron, meanwhile, confirmed that industry reads the results of Canada’s arctic offshore drilling safety inquiry as creating an opening for adopting and trusting new technology. Chevron was an active participant in the case, which escalated from a brisk, technical engineering review into a prolonged, public and national debate after the 2010 Macondo well blowout in the Gulf of Mexico.

The arctic inquiry report, released last month by the National Energy Board (NEB), emphasized that northern regulation will continue to require assurances that any well blowouts can be stopped during the same summer work seasons when they occur. From the mid-1970s until 2009 the central rule, called the Same Season Relief Well Policy, required a commitment to maintaining fall-back capacity to drill a second well to siphon off a spill.

A revision three years ago added an element known in Canada as “goal-oriented” regulatory policy, which lets industry seek approval for new or evolving alternative methods for achieving objectives as opposed to “prescriptive” enforcement of rules that lay out all the details of hardware and operating procedures.

The inquiry report said the 2009 rules will stay in force, allowing companies to innovate provided they “demonstrate how they would meet or exceed the intended outcome of our policy. It would be up to us to determine, on a case-by-case basis, which tools are appropriate,” the NEB said.

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