The decline in global oil prices that began in the summer of 2014 carries with it a number of risks in assembling a whole range of major oil and gas projects, including shale gas extraction projects, deep-water offshore projects and projects in the Arctic Shelf.

In these conditions, despite the ongoing surplus of global oil production in relation to consumption, the question nevertheless arises: how can we maintain current production levels in the medium and long term and ensure growth in order to meet world demand?

According to OPEC (Organization of the Petroleum Exporting Countries) and IEA (International Energy Agency) estimates, by 2040 energy demand will be 40–60 per cent greater than in 2010. Oil will continue to play a leading role in the global energy balance, accounting for 25–27 per cent of the total supply, with gas making up 24–26 per cent (compared to 35 per cent and 26 per cent, respectively, today). A large proportion of oil and gas production by 2040 will take place at deposits that have not yet been explored.

Under these circumstances, taking the projected volume of the Arctic Shelf's undiscovered oil and gas reserves into account, the estimated 90 billion barrels and 47 trillion cubic metres of natural gas, offshore oil and gas resources in the Arctic could, in the medium and long term, play significant role both in maintaining current oil and gas production levels and in ensuring growth in the future.

Let us take a look at how the Arctic states are developing offshore oil and gas projects in the region.

The Soviet Union started actively developing its Arctic shelf in the early 1980s. The most promising areas of the Arctic shelf were in the Pechora and Kara seas, which are aquatic extensions of the Timan-Pechora and Western Siberian oil and gas provinces. In the period following the collapse of the Soviet Union, from 1991 to 1998, Russia's drilling fleet operated almost exclusively on the shelf of Western Europe, Asia, Africa and South America.

The termination of geological exploration work in the Arctic after 1991, coupled with the loss of the Arctic drilling fleet, mean that the Russian Arctic shelf remains largely unexplored: only 20 per cent of the Barents Sea and 15 per cent of the Kara Sea have been explored, while the East Siberian, Laptev and Chukchi seas have not been explored at all.

A total of 25 deposits have been discovered on the Russian continental shelf, all of which are located in the Barents and Kara seas (including the Gulf of Ob and the Taz Estuary). Recoverable commercial reserves in the deposits amount to over 430 million tonnes of oil and 8.5 trillion cubic metres of natural gas.

The first and thus far only oil and gas project to be carried out on the Russian Arctic shelf is the development of the Prirazlomnoye field, which was discovered in the Pechora Sea in 1989. The field has estimated reserves of 72 million tonnes of oil. Gazprom Neft Shelf holds the license for its development. In August 2011, the Prirazlomnaya offshore ice-resistant stationary platform was delivered to the oil field. It has a design capacity of 6.5 million tonnes per year. Industrial development of the field commenced in December 2013. In 2014, the platform delivered around 2.2 million barrels of oil to the Port of Rotterdam. The oil produced at the deposit is called ARCO (Arctic Oil). The company plans to double its production and shipment of oil in 2015.

Gazprom continues preparations for rolling out another project in the Pechora Sea, namely, the Dolginskoye oil field. Four exploratory wells have already been drilled. Recoverable reserves are estimated to be in excess of 200 million tonnes of oil equivalent (1.7 billion barrels). Gazprom wants to attract Vietnamese company PetroVietnam to the project. Production is expected to start in 2020, with peak levels of 4.8 million tonnes of oil per year to be achieved by 2026.

As relevant as ever is the Shtokman field, which was discovered in 1988. It boasts reserves of 3.9 trillion cubic metres of gas and 56.1 million tonnes of gas condensate.

In total, Gazprom owns seven licensed areas in the Barents Sea, three in the Pechora Sea, thirteen in the Kara Sea, eight in the Gulf of Ob and one in the East Siberian Sea.

The other Russian company, Rosneft, owns six licensed areas in the Barents Sea, eight in the Pechora Sea, four in the Kara Sea, four in the Laptev Sea, one in the East Siberian Sea and three in the Chukchi Sea. In order to fulfil its existing license obligations, Rosneft signed strategic cooperation agreements in 2011 and 2012 with Exxon Mobil, Statoil and Eni that envisage, among other things, joint geological exploration and development of hydrocarbon deposits in the Arctic shelf.

In August 2014, exploratory drilling work carried out by the Rosneft–Exxon Mobile joint venture Karmorneftegaz in the East-Prinovozemelsky field 1 licensed area in the Kara Sea resulted in the discovery of an oil field with recoverable reserves of 130 million tonnes of oil and 500 billion cubic metres of natural gas. In order to fulfil its existing license obligations, Rosneft signed a long-term agreement in 2014 with the Norwegian company North Atlantic Drilling for the use of six offshore drilling rigs in its shelf projects, including its Arctic shelf projects, until 2022. To increase access to its drilling fleet, Rosneft also signed a framework agreement in 2014 with Seadrill Limited and North Atlantic Drilling Limited on the exchange of assets and investments.

The political tensions brought about by the situation in Ukraine led to a number of governments, including those of the United States, the European Union and Norway, imposing sanctions against Russia in various sectors of the economy during the second half of 2014.

These sanctions have already led to a number of foreign oil companies, including Exxon Mobile, suspending their participation in Russian Arctic shelf projects. The level of dependence on "Western" equipment and services to carry out projects on the Arctic shelf is particularly high.
Shifting international tensions to the Arctic, and refusing to lift the sanctions, may force the Russian Federation to look at attracting other states to cooperate in the region, primarily those from Asia.If this happens, it could change the face of international cooperation in the Arctic and significantly reduce the number of orders placed with western manufacturers of equipment for the development of the Arctic shelf.

Read more: To Explore and Develop. Developing Offshore Oil and Gas Resources in the Russian Arctic Shelf: Now and Tomorrow

Oil and gas resources have been developed on the continental shelf of Greenland since the 1970s. In 1976 and 1977, U.S. and European companies drilled five exploratory wells that turned out to be "dry". Interest in continuing exploration work also dried up as a result. A number of attempts to find commercial oil and gas reserves were made in the 1990s, but they too were unsuccessful.

In 2006–2007, the Government of Greenland issued licenses for the exploration of Baffin Bay to eight companies: Dong Energy (Denmark), Exxon (United States), Husky (Canada), PA Resources (Sweden) и Cairn Energy (Scotland).

In 2012, a consortium of oil and gas companies, including Conoco Phillips (United States), GDF Suez (France), Nunaoil (Greenland), Maersk (Denmark), Statoil (Norway), Cairn Energy и Shell (Netherlands, as main operator) drilled 11 exploratory and prospecting wells in the shallow waters of Baffin Bay. Once again, commercial oil and gas reserves were not found.

The decline in oil prices had a negative impact on the plans of oil and gas companies to continue searching for oil in Greenland. A number of companies gave up on the continental shelf of Greenland completely.

Read also: Strategy for Denmark in the development of the Arctic

The falling production in major deposits in the North and Norwegian seas has led the Government of the Kingdom of Norway to step up its efforts to attract oil and gas companies to develop resources in the Barents Sea.

At present, only one deposit in the Norwegian continental shelf is in commercial operation – the Snøhvit ("Snow White") natural gas field, which was opened back in 1984 and is located 150 kilometres from the Norwegian coast. The deposit has reserves of 193 cubic metres of gas and 113 million barrels of natural-gas condensate. Gas production at the site started in 2007. A full-scale manufacturing complex has been built in order to develop the field. It consists of 19 production wells, CO2 injection wells, a 160-km subsea pipeline and the Hammerfest LNG plant, which produces 4.3 million tonnes of liquefied natural gas per year. The project is being operated by Statoil, which holds a 35.53 per cent stake.

The Goliat ("Goliath") field opened in 2000 is now in the final stages of commissioning, with reserves of 174 million barrels of oil and 8 billion cubic metres of natural gas. The Sevan FPSO 1000 floating platform was delivered to the oil field in spring 2015. It will double up as a storage facility for one million barrels of oil and a floating terminal for its shipment.

The Barents Sea has a number of other deposits with commercial oil reserves: the Johan Castberg, Gohta, Alta and Wisting Central fields. However, investment decisions with regard to developing these deposits have not yet been made. This is due in part to falling oil prices around the world and the subsequent need to review the financial, economic and technical parameters of projects. It should be noted that Russia's Rosneft and Lukoil are involved in several projects in the region.

In February 2014, the Norwegian government started working on compiling a preliminary list of licensed sites to be distributed as part of the 23rd licensing round in early 2016. The list contains 61 sites, of which: 34 are located in the southeast Barents Sea; 20 are located in other sections of the southern Barents Sea; and only 7 are located in the Norwegian Sea. Separate sites lie to the north – from 75 degrees, which is further north than any of the sites that have been distributed – within the boundaries of the polar ice caps. The decision of the Norwegian government attracted fierce criticism, both from political parties and from public organizations, which insist that licenses should not be distributed for exploratory work in areas where ice is present either partially or all of the time, as there is little in the way of proven technologies to address the effects of oil spills in icy conditions.

Read also: Norwegian research in the Arctic: strategy, priorities, organization.

The first offshore well on the Canadian continental shelf was drilled in the Beaufort Sea by Imperial Oil in 1973. A total of 141 wells were drilled between 1973 and 1989. This was followed by a lengthy break before the most recent well – the 142nd – was drilled in 2005 by U.S. company Devton.

The Government of Canada boosted the development of oil and gas activities on its continental shelf by offering subsidies and grants to companies wanting to explore the area. But these subsidies were discontinued in the mid-1980s which, along with declining oil prices at the time, led to drilling work on the Beaufort Sea to grind to a complete halt by 1989.

Despite extensive exploration work, large deposits of oil and gas were never uncovered in the Canadian part of the Beaufort Sea.

In 1997, the Government of Canada once again started issuing licences for carrying out geological exploration in the Beaufort Sea. In the following years, licenses were issued to such companies as Encana (Canada), Burlington Resources (United States, purchased by ConocoPhillips in 2006), Shell, BP (United Kingdom), Petro-Canada (Canada), Anadarko (United States), MGM Energy (Canada), Chevron (United States), Imperial Oil, ConocoPhillips (United States), Devon and Franklin Petroleum (United Kingdom).

Exploratory drilling carried out by Devon at the Gulf of Beluga during the winter and spring of 2005/2006 revealed deposits of recoverable hydrocarbon deposits, although not enough to start commercial development of the area.

Imperial Oil, BP and Exxon Mobile have set up joint venture to carry out exploratory works. The companies are not expected to start drilling until at least 2020.

Chevron and Statoil were also planning to start joint drilling in 2020. But in December 2014, Chevron announced that it would be suspending preparatory work indefinitely due to falling oil prices on the global markets and the resultant desire to reduce the company's operating expenses.

A report published by the National Energy Board of Canada in November 2014 pointed out that, at present, only one hydrocarbon deposit had been discovered on the islands of the Canadian Arctic Archipelago. The Hecla deposit is thought to have reserves in the amount of 75 billion cubic metres of gas and 31 million barrels of oil. Meanwhile, only 178 billion cubic metres of gas and 667 million barrels have been explored in the Beaufort Sea.

Read also: Canada's Arctic stratrgy

At present, only oil is being produced on the U.S. continental shelf. And the only place where it is being produced is in the Beaufort Sea. Extraction operations are carried out either from the mainland with the help of horizontal drills, or from artificial islands that have been erected at shallow depths (up to ten metres). There are currently no offshore platforms in operation on the Beaufort Sea.

Current production levels in the Beaufort Sea remain rather low. For example, the Endicott Oil Pool yields around 5,000 barrels of oil per day; the Point McIntyre Oilfield 18,000 barrels per day; and the Nikaitchuq oilfield 25,000 barrels per day.

All offshore oil projects in the Beaufort Sea are located within 10 miles of the coast. All offshore oil projects are connected to the Trans-Alaska Pipeline System, which delivers oil to the oil terminal in the port of Valdez in southern Alaska [The throughput capacity of the oil pipeline is 2.1 million barrels per day. In 2013, the ongoing decline in oil production in Alaska meant that only 0.53 million barrels were produced per day].

At present, Shell leases the majority of sites in the Beaufort and Chukchi seas. But other companies also lease sites in the region, including Statoil, BP, ConocoPhillips, Eni, Murphy (United States), Iona Energy (Canada), OOGC AMERICA (a subsidiary of China National Petroleum Corporation) and Repsol (Spain).

Shell carried out exploratory operations in the Beaufort Sea as early as the 1970s and 1980s, which resulted in the discovery of a number of oil and gas deposits; developing them, however, would have been unprofitable at the time.

The company returned to the Arctic in 2005, leasing a site in the Beaufort Sea. In 2008, it leased another site in the Chukchi Sea. The areas under development are located between 60 and 100 miles from shore. Despite the considerable efforts expended by Shell, significant reserves of oil have yet to be discovered.

It should be noted that, since 2007, Shell's Arctic programme has been complicated by opposition from environmental organizations in the United States, triggering a series of lawsuits against the company itself and against the Government, as well as by stricter security requirements, which were implemented following the explosion and oil spin on the Deepwater Horizon platform in the Gulf of Mexico in 2010.

Since 2005, Shell has only managed to drill two exploratory wells. These are in the Beaufort and Chukchi seas and were drilled in 2012. The Noble Discoverer drillship and the Kulluk oil platform have been the sites of numerous accidents in that time. [The Noble Discoverer was built in 1966 and was intended to transport timber. It was later turned into a drillship. The Kulluk ice-resistant stationary platform was built in 1983 by the Japanese company Mitsui Engineering & Shipbuilding. Until 1993, it was operated by the Canadian company Gulf Canada Resources in the country's Arctic waters, before being decommissioned. Shell purchased the platform in 2005. The rig was hauled to China to be recycled following an accident in December 2012.]

Shell is planning on returning to the Beaufort and Chukchi seas in spring/summer 2015. The company estimates that it has already spent a total of more than $6 billion on drilling works in the region.

Read also: Alaska. A Golden Fleece for the U.S. Establishment