Regional Report – The Arctic: Activity ramps up
Gordon Feller, Contributing Editor
Arctic oil and gas investments are shaped by a dynamic interplay of regulatory approvals, geopolitical factors, and stringent environmental safeguards, with future developments contingent on political outcomes and market adaptations to environmental and energy transition pressures.
In the ongoing climate crisis, scientists say the Arctic is warming at a pace nearly four times the global average. Consequently, sea ice is melting rapidly and retreating, prompting scientists to warn of severe environmental risks, as water and air temperatures continue to rise. There is a special concern about the ecosystem impacts that will result from species invasions that, in turn, further threaten Arctic biodiversity.
REGIONAL OVERVIEW
Despite these climatic facts of Arctic life, oil and gas development during the last year has been ramping up, Fig. 1.
During the past 12 months, the Arctic region has witnessed a significant rise in oil and gas development. This increase in both commercial and governmental activity reflects both the area’s strategic importance and the ongoing debate over environmental impact. Multiple companies and nation-states have announced initiatives across various sectors, including exploration, production, processing and transport. The net result is that these new moves are actively re-shaping the Arctic’s geopolitical and environmental landscape.
The last year has seen a mix of aggressive development and significant opposition towards Arctic oil and gas activity. While large-scale projects push forward in countries like Russia, Norway and the U.S., the environmental and legal challenges highlight the ongoing tension between economic interests and environmental protection. As the Arctic continues to be a critical area for fossil fuel resources, the debate over its future remains heated.
Challenges facing Arctic hydrocarbon projects illustrate the complex balance between economic development and environmental protection in the Arctic region. Each project's developers have to implement various technological and operational measures to address these issues, but concerns about the long-term environmental impact of Arctic oil extraction remain.
Exploration efforts have been particularly notable, with several companies expanding their search for untapped hydrocarbon reserves. Exploration activities have been concentrated in regions like the Barents Sea and the Kara Sea, where companies are leveraging advanced drilling technologies to reach previously inaccessible depths. This renewed interest in exploration has been driven by technological advancements that allow for more efficient extraction and the potential for substantial reserves beneath Arctic waters.
Production also has seen greater efforts, with existing projects expanding and new ones being initiated. Companies, such as Gazprom and Rosneft, have continued to ramp up production in the Russian Arctic, tapping into vast offshore and onshore reserves. Similarly, Norway has seen increased production in its Arctic waters, bolstering its position as a significant European energy supplier.
Processing facilities have been upgraded to handle the increasing volume of production, with investments in infrastructure aimed at improving efficiency and environmental standards. This includes the development of advanced processing technologies designed to minimize the ecological footprint of oil and gas operations in sensitive Arctic ecosystems.
Transportation remains a critical aspect of Arctic oil and gas development, with new infrastructure projects aiming to enhance logistical capabilities. The Northern Sea Route, a potential alternative to traditional shipping lanes, has garnered significant attention, as companies seek shorter transit times between Europe and Asia. Investments in icebreaker fleets and port facilities have been made to support this burgeoning transportation corridor, although concerns persist regarding the environmental impact of increased vessel traffic and the potential for oil spills in remote Arctic waters.
Environmental aspects. In response to these developments, environmental groups and indigenous communities have voiced concerns about the ecological consequences of Arctic oil and gas activities. They say that the fragile Arctic ecosystem, already under pressure from climate change, faces additional risks from potential oil spills and habitat disruption. Indigenous populations, reliant on traditional subsistence practices, fear a long-term impact on their way of life and have called for greater consultation and environmental safeguards in decision-making processes.
The Arctic's harsh conditions and remoteness pose challenges for oil spill response and clean-up, as highlighted by numerous reports issued by the U.S. Marine Mammal Commission (https://www.mmc.gov/about-the-commission/our-mission/ ). Not surprisingly, in every country except Russia, there has been considerable pushback against Arctic oil and gas development from environmental groups, indigenous communities, and local governments.
Geopolitically, the Arctic continues to be a contested arena, with countries like Russia, the U.S., Canada and Norway asserting their territorial claims and strategic interests. The region's vast energy resources represent not only economic opportunities but also potential sources of conflict, as nations vie for control over resource-rich areas.
COUNTRY-BY-COUNTRY
This next section features a summary of oil and gas initiatives underway in each of the key countries, including some details about the past year of activity.
Russia remains the dominant player in Arctic fossil fuel production, accounting for over 90% of regional output, Fig. 2. One of the most notable projects is state-owned energy giant Rosneft Oil's Vostok Oil, which includes 13 fields on the Taymyr Peninsula. This project is poised to become Russia's largest-ever fossil fuel endeavor, with estimated production of more than 8 Bbbl of oil and its equivalent by 2060. Additionally, Prirazlomnoye field in the Pechora Sea should increase its oil production to 5 MMt (36.4 MMbbl, or 99,589 bpd) by 2025, with further exploration planned in the Pechora Sea.
There have been some major Russian investments in Arctic oil and gas projects over the past 12 months. One reason for Moscow’s rising interest is the fact that, in 2022, Rosneft announced the discovery of an 82-MMt (596.1-MMbbl) oil field in the Arctic, Fig. 3. To stimulate even greater Arctic economic activity, which the Kremlin prioritizes, Russia allocated 1.4 billion rubles (approximately $16.1 million) in interest rate subsidies for five national oil and gas projects.
Russia's “Energy Strategy 2035” outlines the government’s plans for expanding Arctic oil and gas production, Fig. 4. The goal is to increase the Arctic's share of overall Russian crude and condensate production from 17.3% in 2018 to 26% by 2035. For natural gas, the strategy actually forecasts a slight decrease in the Arctic's share of national production, from 82.7% in 2018 to 79% by 2035. Russia also has focused on expanding its LNG capabilities in the Arctic.
Russian President Vladimir Putin has made no secret of his ambitious and aggressive plans to dominate the Arctic region and its resources. In fact, NATO’s inattention to his advances could pose a long-term strategic threat to global security.
Russia’s view is that the resource race of the 21st century requires seeking resources from every corner of the globe to meet growing demand. The frigid seas of the North are no exception. The Kremlin has decided to do what it can to exclude other players from the region. Russia made a bold move in August 2007 by planting a flag on the Arctic Seacap at the North Pole in an attempt to reinforce claims it has been making since 2001 that it owns the resources on the floor of the Arctic Ocean.
The Seacap is an especially sought-after area, since it may hold billions of barrels of oil and many Bcf of natural gas—up to 25% of the world’s undiscovered reserves—and it is also rapidly melting, making it navigable for the first time. Russia’s actions have met immediate resistance from members of the international community and have sparked debate over the resources that the sea holds and who their lawful owner may be.
At a December 2023 public forum in St. Petersburg, Admiral Nikolay Yevmenov, then head of Russia’s Navy, spoke of a “full-scale development beyond the 200-mile limit” of the Russian Exclusive Economic Zone in the Arctic Ocean. What’s been translated as “development” here is the Russian word освоение, a word that bears multiple translations, extending from development to mastery to expansion, often with an economic angle. Elsewhere, it is translated as “takeover” or “expansion.” The context in which he spoke was in relation to the Arctic as a “strategic resource base” of economic development.
Norway continues to invest heavily in Arctic oil and gas projects. The Johan Castberg project (details further below) in the Barents Sea is set to begin production in late 2024. This project comprises three oil fields with an estimated recoverable oil volume of 400 MMbbl to 650 MMbbl and an operational lifespan of 30 years. Norway also maintains production in Draugen and Goliat fields, with ongoing gas production at Snøhvit field in the Norwegian Sea.
In the U.S., the Willow Project, operated by ConocoPhillips on Alaska’s North Slope, stands out as a major development, Fig. 5. With a projected production volume of 600 MMbbl and a greenfield capital expenditure of $7.8 billion, it became the world's largest fossil fuel project in 2023. This project underscores the U.S. commitment to Arctic oil and gas development despite environmental opposition and legal challenges.
The U.S. Arctic National Wildlife Refuge has been a focal point of controversy. Despite the auctioning of land leases in January 2021, legal challenges and environmental concerns have stalled significant progress. Lawsuits have been filed to revoke land leases and halt drilling operations, citing the Endangered Species Act and other environmental statutes.
In February 2020, during his first presidential campaign against then-President Donald J. Trump, then-presidential candidate Joe Biden stated as a goal, "no more drilling on federal lands, period, period, period." He added that drilling in the Arctic was a "disaster." However, contrary to this campaign stance, the Biden administration approved the Willow project in March 2023.
The approval has been met with criticism from environmental groups and some of Biden's supporters, who view it as contradicting his climate goals. To balance this decision, the administration simultaneously announced new protections for federal lands and waters in Alaska, including banning future oil and gas leasing in the entire U.S. Arctic Ocean. The administration's approval of the project appears to have been influenced by legal considerations regarding ConocoPhillips' existing leases and potential court rulings in the company's favor.
Meanwhile, U.S.-based environmental NGOs have worked hard to pressure the Biden administration. Accordingly, Biden announced new “protections” for “biodiverse landscapes” in the western Arctic (NPR-A) that will supposedly limit threats to an expansive and thriving natural landscapes. These protections are for a record 13-million-plus acres of America's western Arctic. It’s no surprise that oil companies were not especially pleased when Biden took this action.
Greenland and Iceland in past years made a few strides in Arctic oil and gas exploration. Greenland is thought to hold nearly one-sixth of the Arctic's undiscovered petroleum reserves, and licenses for exploration were granted. However, Greenland has imposed a ban on all new oil and gas development. Iceland's northern and northeastern areas, Gammur and Dreki, are believed to have commercially viable reserves, but again, the government has leaned toward no new hydrocarbon exploration.
For most countries, the trajectory of future Arctic oil and gas development will be shaped by a complex interplay of forces: technological advancements, environmental stewardship, regulatory frameworks and geopolitical dynamics. Those who advocate for a “go slow” approach to hydrocarbon development (in contrast to those arguing for a complete halt) claim that a balance is possible between economic development and environmental sustainability. They argue that such a balance will be crucial in determining the long-term viability of Arctic hydrocarbon extraction, as stakeholders navigate some very large challenges that lay ahead
Surveying the field. The highest-profile and largest-scale oil project developed in the Arctic is Equinor's Johan Castberg field in the Barents Sea. Delayed by the Covid pandemic, it is set to commence production in fourth-quarter 2024. In the U.S., major initiatives on Alaska's North Slope include the Willow Project, which received FID in December 2023. The project is owned by ConocoPhillips and ExxonMobil and targets substantial oil output despite regulatory challenges.
On the natural gas front, Russia's Yamal LNG and Arctic LNG 2 projects, led by Novatek, continue to be pivotal, though Arctic LNG 2 faces operational disruptions, due to U.S. sanctions. Jakub Zasada, director at Fitch Ratings, has been pondering some of the ways in which regulatory, economic and environmental factors have influenced these investments' “success probabilities.” He thinks that the Biden administration's approval of Willow in March 2023 “contrasts with restrictions limiting future drilling in Alaska announced in April 2024, reflecting a complex regulatory landscape.
He says that Norway granted eight exploration permits in the Barents Sea during January 2024, up from two in the previous year, highlighting its positive attitude towards Arctic O&G activities. Russian LNG projects continue to face headwinds due to expanding U.S. sanctions.
Predictions for the next 12 months indicate that the U.S. presidential election could significantly impact Arctic exploration policies, especially with potential shifts in regulatory stances linked to the candidates' positions. Norway's openness to further drilling in the Barents Sea suggests continued investment interest. However, the medium-to-long-term viability of Arctic projects could be constrained by environmental opposition and a global energy transition focus, which might drive companies toward smaller, quicker-to-market projects.
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DETAILS ON THE HIGH-PROFILE JOHAN CASTBERG PROJECT
Norway’s Johan Castberg project, located in the Barents Sea, stands out as one of the most significant oil developments in the Arctic. Operated by Equinor, with partners Vår Energi and Petoro, this project is notable for its scale, technological complexity, and strategic importance. When comparing Johan Castberg to other Arctic oil projects, several factors highlight its unique position.
Johan Castberg is one of the largest industrial undertakings in the Norwegian Arctic, comprising three oil fields: Skrugard, Havis and Drivis. The project is expected to produce between 400 MMbbl and 650 MMbbl of oil over its 30-year operational life, with a daily production capacity of approximately 190,000 boed. This scale is comparable to other major Arctic projects, such as Russia's Vostok Oil, but Johan Castberg's focus on subsea infrastructure and FPSO technology sets it apart.
Johan Castberg employs advanced subsea technology, including 30 wells distributed across 10 templates and two satellite structures, all tied back to an FPSO vessel, Fig. X. This approach minimizes the environmental footprint and enhances operational efficiency in the harsh Arctic conditions. The FPSO vessel, equipped with gas turbine generators and capable of accommodating 140 workers, represents a significant technological investment, aimed at ensuring reliable production and safety.
The Johan Castberg project is strategically significant for Norway, as it opens up new areas for exploration and development in the Barents Sea. It provides critical infrastructure that could facilitate further Arctic oil and gas projects, thereby reinforcing Norway's position as a leading Arctic oil producer. The project's development also has created substantial employment opportunities, with an estimated 4,800 jobs during the construction phase and 1,700 person-years of work during operations, particularly benefiting northern Norway.
Like other Arctic oil projects, Johan Castberg faces environmental scrutiny. The project has been subject to legal challenges from environmental groups concerned about its impact on the fragile Arctic ecosystem. However, the Norwegian government has supported the project, emphasizing its economic benefits and strategic importance. The project's break-even price of around $35/bbl underscores its economic viability, even amid fluctuating oil prices.
When compared to other Arctic oil projects, Johan Castberg's comprehensive subsea infrastructure and reliance on FPSO technology distinguish it from more traditional offshore platforms. For instance, Russia's Vostok Oil project, while larger in scale, involves extensive onshore infrastructure and faces different logistical and environmental challenges. Similarly, the Willow Project on Alaska’s North Slope focuses on onshore drilling and transportation, presenting a different set of operational dynamics.
Johan Castberg exemplifies the advanced technological capabilities and strategic foresight required for successful Arctic oil development. Its significant production capacity, innovative subsea infrastructure, and strategic importance to Norway make it a standout project in the Arctic. While it shares common challenges with other Arctic oil endeavors, Johan Castberg's approach and execution highlight the potential for sustainable and economically viable Arctic oil production.
Harsh Arctic conditions. The Johan Castberg project faces numerous unique environmental challenges, due to its location in the harsh Arctic environment of the Barents Sea. Included on any list of this project’s key environmental challenges would be these:
• Fragile Arctic ecosystem
• Potential for oil spills
• Climate impact
• Snow and ice accumulation
• Sea ice considerations
• Legal challenges
• Interaction with fisheries
• Long-term environmental impacts.
Equinor also has expressed renewed interest in developing Wisting oil field, which would become the world's northernmost oil field, if approved. Aker BP, Norway's largest private oil company, made a new discovery near Wisting field in 2024.
Norway also updated the definition of the marginal ice edge zone in 2024. The previous definition from 2020 faced heavy criticism for aligning with oil interests rather than the physical location identified by the government's own scientific institutions. This controversial, anti-science definition was upheld in the 2024 revision, keeping bigger areas accessible for the oil and gas industry.
According to Øyvind Ravna, Professor at UiT: The Arctic University of Norway, “Norway is bound by the Paris Agreement (2015). This has resulted in Norway adopting the 2017 Climate Change Act. However, Arctic offshore exploration investments could increase emissions and thus conflict with Norway's climate obligations.
Ravna and a growing coalition of organizations now argue that, instead of using Russia’s full-scale invasion of Ukraine as a justification for continuing Arctic oil pursuits, “Norway should recognize Arctic oil drilling as a geopolitical threat and impose a ban on all new oil and gas exploration in the Arctic.”
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U.S. FEDERAL GOVERNMENT ACTIONS RELATED TO THE ARCTIC
The Arctic National Wildlife Refuge is the focus of the US Arctic oil and gas debate. It consists of more than 19 million acres of wilderness in northeastern Alaska. The refuge includes some of the most pristine, untouched lands and waters within the U.S.
Under a 1980 law passed by Congress, 1.5 million acres of an area within the refuge called the Coastal Plain were opened to oil and gas development, but no lease sales were conducted until the Trump administration. In 2017, Congress passed the Tax Cuts and Jobs Act, which authorized oil and gas leasing, exploration, development, and production on the Coastal Plain, and ordered the Secretary of the Interior to conduct at least two lease sales within 10 years. On Jan. 6, 2021, BLM held the first lease sale, and issued nine of the 11 leases, totaling 437,804 acres, on the last day of the Trump administration.
Under Trump, BLM also sought to expand oil and gas development in the National Petroleum Reserve, which covers 22.1 million acres of land in northwestern Alaska.
On his first day in office, President Joe Biden issued an Executive Order placing a temporary moratorium on all activities relating to BLM’s Coastal Plain Oil and Gas Leasing Program, citing deficiencies in the underlying environmental review.
On June 1, 2021, Interior Secretary Deb Haaland suspended all activities relating to the issued leases while BLM evaluated the Trump administration’s environmental impact statement (EIS) and record of decision (ROD) underlying the program.
The District Court for the District of Alaska upheld the moratorium on Aug. 7, 2023. On Sep. 6, Haaland canceled the seven remaining leases in the Coastal Plain, and BLM and FWS issued a draft supplemental environmental impact statement for the program. Litigation is ongoing.
The administration is still required by law to conduct a second lease sale in the Coastal Plain by December 2024, unless Congress is able to pass legislation undoing that provision of the Tax Cuts and Jobs Act.
