The Macondo blowout in the Gulf of Mexico has reminded everyone of the risks of drilling in new and more challenging environments. And it has led to a suspension of plans to allow companies to begin drilling in both Alaskan and Canadian Arctic waters.
Greenland, however, is not deterred; drilling in its Arctic waters commenced last week, by a small UK oil company called Cairn Energy, which began the first of four planned exploration wells. Greenland, the FT reports, is expected to hand out more drilling licences in August.
We looked at Greenland’s potential to become a big new oil play last year, and noted that Cairn was able to sell a 10 per cent stake in its holdings there to Petronas of Malaysia - a relatively small sale, but one that indicates a wider interest in the oil fields west of Greenland.
While Cairn’s Greenland fields aren’t at the depth of Macondo (900 - 1,500ft compared to 5,000ft), they are still deep. And some warn that the conditions make the prospect of fixing and cleaning up any accidents extremely daunting.
Marilyn Heiman of Pew Environmental Group’s Arctic Program, who was on the Exxon Valdez commission, has been vocal about the risks of North American Arctic drilling, warning:
“Unlike the Gulf, the proposed drilling sites in the Arctic Ocean, the Chukchi and Beaufort Seas are in some of the most remote areas on earth. They are thousands of miles away from spill response infrastructure equipment and personnel. Eight foot seas in the Gulf sidelined initial cleanup efforts. Arctic waters have extreme weather conditions where 20 foot seas and moving sea ice are the norm.”
And so how about safety in Cairn’s operation? From the FT:
Sir Bill Gammell, Cairn’s chief executive, said the company had been subject to intense regulatory scrutiny, based on the practices of the jurisdictions with the highest standards, such as the UK and Norway.
The group had also been investing in developing an oil spill response capability for Greenland. There are now 14 vessels in the area with relevant equipment, Sir Bill said.
Cairn had moved two floating rigs to the area, so if one well had a blow-out, the second
rig could drill a relief well to allow it to be plugged. “We have taken the view that we have to be belt-and-braces up front,” Sir Bill said. “We have got specific Arctic drilling experience in-house, and we seek to manage all the risks very clearly and in a focused way.”
As my colleague Ed Crooks points out, the response to BP’s spill has involved 6,500 vessels and two relief wells are being drilled. And last year’s Timor Sea blowout took three months to fix in much shallower waters - that did however include a three-week delay while a rig to drill the relief well was transported.
Interest in Arctic oil is not going away though. Not with melting ice making it more accessible to drilling, and reserve estimates of up to 90bn barrels of oil . Shell, for example, has been trying for several years to gain permission to drill in the Chukchi and Beaufort seas - something it has now been thwarted in for another year (BP, meanwhile, looks set to go ahead with its plan to drill in Beaufort).
And then there is the geopolitical element to the Arctic. The five big countries with Arctic borders - Norway, Russia, the US, Canada and Denmark - are keen to keep the reserves to themselves. China, however, is showing a strong interest in the region, both for oil and shipping, and appears to be courting Iceland with a view to building its access there.