Working Document of the NPC North American Resource Development Study Made Available September 15, 2011 Paper #1-4 ARCTIC OIL AND GAS Prepared by the Arctic Subgroup of the Resource & Supply Task Group On September 15, 2011, The National Petroleum Council (NPC) in approving its report, Prudent Development: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources, also approved the making available of certain materials used in the study process, including detailed, specific subject matter papers prepared or used by the study’s Task Groups and/or Subgroups. These Topic and White Papers were working documents that were part of the analyses that led to development of the summary results presented in the report’s Executive Summary and Chapters. These Topic and White Papers represent the views and conclusions of the authors. The National Petroleum Council has not endorsed or approved the statements and conclusions contained in these documents, but approved the publication of these materials as part of the study process. The NPC believes that these papers will be of interest to the readers of the report and will help them better understand the results. These materials are being made available in the interest of transparency. The attached paper is one of 57 such working documents used in the study analyses. Also included is a roster of the Subgroup that developed or submitted this paper. Appendix C of the final NPC report provides a complete list of the 57 Topic and White Papers and an abstract for each. The full papers can be viewed and downloaded from the report section of the NPC website (www.npc.org). Page 1 of 113 Working Document of the NPC North American Resource Development Study Made Available September 15, 2011 Arctic Subgroup Chair Gerry A. Worthington* U.S. & Argentina Joint Interest ExxonMobil Production Company Robert C. Scheidemann, Geological Advisor Shell Upstream Americas Jr. Assistant Chair Carl R. Mazzo Geologic Advisor ExxonMobil Production Company Members Tim F. Fleming Alaska Asset Manager Anadarko Petroleum Corporation Darryl Jordan GBS Public Sector IBM Global Business Services – US Federal Team Bill Scott General Manager, Chevron Chevron Canada Arctic Center Brent J. Sheets** Regional Manager, Strategic U.S. Department of Center for Natural Gas and Oil, Energy National Energy Technology Laboratory Daniel D. Smallwood Chief Operating Officer Marine Well Containment Company, LLC Geir Utskot Arctic Manager Schlumberger Canada Limited Jennifer Wyatt Environment/Regulatory, Chevron Canada Chevron Arctic Center * Replaced by Robert C. Scheidemann, Jr., in April 2011. ** Individual has since changed organizations but was employed by the specified company while participating in the study. Page 2 of 113 Working Document of the NPC North American Resource Development Study Made Available September 15, 2011 Abstract The North American Arctic contains significant oil and natural gas volumes and is believed to contain substantial unproven reserves in Alaska, Canada and Greenland. This topic paper describes: 1) the onshore and offshore exploration and development history of this region; 2) the significant volumes discovered and produced to date; 3) the mean, risked, undiscovered oil and gas resource potential of each prospective basin; 4) the challenges facing future oil and gas exploration and development in this cold and remote region; 5) an attempt to describe a range of future production forecast scenarios; and 6) Findings and Recommendations that attempt to frame the issues and stimulate a rational approach to enabling the safe and timely evaluation of Arctic oil and gas resources (with a focus on Alaska). This last item takes on an even greater significance, as dwindling oil input into the Trans Alaska Pipeline System is providing operational challenges and may limit the lifespan of this important delivery option. Page 3 of 113 Working Document of the NPC North American Resource Development Study Made Available September 15, 2011 Table of Contents I. Introduction………………………………………………………….4 II. Executive Summary…………………………………………………12 III. Findings and Recommendations……………………………………18 IV. Exploration History and Resource Potential………………………21 V. Alaska Development………………………………………………...45 VI. Canada Development……………………………………………….55 VII. Greenland Development………………………………………….63 VIII. Offshore Challenges and Enablers……………………………....67 IX. Findings Discussion…………………………………………………78 X. Production Forecast Scenarios Summary………………………....105 XI. Summary and Conclusions…………………………………………117 I. INTRODUCTION I.A. Objectives Page 4 of 113 Working Document of the NPC North American Resource Development Study Made Available September 15, 2011 Because this Topic Paper may sometimes be read separately from the main Study report, the drivers and objectives outlined by the Department of Energy (DOE) and the mission definitions provided by the Resource & Supply Task Group (RSTG) Chair are outlined below for context. In September 2009 Energy Secretary Chu requested the National Petroleum Council (NPC) to undertake a study of “Prudent Development of North American Natural Gas and Oil Resources” that would be “…consistent with government objectives of environmental protection, economic growth, and national security.” This became known as the North American Resource Development (NARD) Study that was to contain detailed assessments through 2035 and implications through 2050.1 The NARD Study was organized with a Leadership Committee, a Coordinating Subcommittee (CSC) and three Task Groups, one of which was the RSTG. The RSTG comprised 9 Subgroups (SGs), one of which was the Arctic Subgroup (ASG), whose work is described in this Topic Paper. The RSTG proposed the following Mission Definition for the ASG: Describe the resource, production history and development status • Describe recent studies of the potential supply outlook • Refer to regulatory, access, infrastructure or environmental challenges • Analyze the main drivers that would facilitate or constrain development • Produce a Topic Paper • It was emphasized that the NARD Study would be a “study of studies”, i.e. it should be based upon publicly available information. In addition, great care was taken to ensure that no anti-competitive material was shared between the participating companies. As the Study progressed, each Subgroup was tasked to produce Findings that were major conclusions derived from an analysis of constraints and challenges, which, if mitigated, would produce additional supply. Where appropriate, the CSC Policy Subgroup used these Findings as the basis for formulating policy recommendations. I.B Arctic Definition and Characterization Our Arctic definition encompasses those areas in the greater North American-Greenland region that have Arctic–like conditions (Figure 1.B.1). It is defined by ice and permafrost conditions rather than being strictly north of the Arctic Circle. Arctic areas in the U.S. and Canada are clearly within scope of the NARD Study, and we have chosen to include Greenland, since its potential for development and production, particularly on its western side, will almost certainly impact North American supply. Page 5 of 113 Working Document of the NPC North American Resource Development Study Made Available September 15, 2011 Future references to the Arctic in this Topic Paper will refer to those U.S., Canada and Greenland areas lying within the Arctic boundary defined in Figure 1.B.1. Figure 1.B.1 – Arctic Subgroup Study Area outlined with red dash. Prospective Basins within the study area highlighted by color: U.S. green, Canada yellow and Greenland blue. The North American Arctic conventional oil and gas potential can be characterized as follows: Large discovered undeveloped (stranded due to lack of infrastructure) and a very large • undiscovered conventional hydrocarbon resource potential (Figures 1.B.2 and 1.B.3, Table 1.B). o Note that possible Arctic unconventional hydrocarbon resources such as tight gas sand (oil and gas), shale gas, coal bed methane, and hydrates are not captured nor reflected in this report. Significant supply potential in the medium to long term (2025+) • Long lead times (exploration to development to production), so near-term action is required • to significantly impact future production 2025 and beyond2,3,4 Remoteness and cost of doing business in the arctic is a significant issue. • o Intrinsically high supply cost (in current climate conditions) compared to most Lower 48 States (L48) and non-Arctic Canada arenas. o Economic transport to market is a significant issue Technology challenges are not a major issue in the Arctic except advances will need to be • made in development technology for opportunities, such as o In areas where water depths exceed 100 m Page 6 of 113 Working Document of the NPC North American Resource Development Study Made Available September 15, 2011 o Iceberg management capability (due to their size) in areas such as NW Greenland Access/regulatory/environmental complexities and uncertainties discourage investment • Figure 1.B.2 – Arctic Gas Potential (in trillion cubic feet or TCF) by Basin (discovered, undeveloped “stranded” volume, plus the mean, risked, technically recoverable, RCS To Send undiscovered volume). References for volumes are cited at the conclusion of Sections IV-VII. Replacement Figure Page 7 of 113 Working Document of the NPC North American Resource Development Study Made Available September 15, 2011 Figure 1.B.3 - Arctic Oil and Natural Gas Liquids (NGL) Potential by Basin (discovered, undeveloped “stranded” volume, plus the mean, risked, technically recoverable, undiscovered volume). Oil expressed in billions of barrels (BBO) in green and natural gas liquids BBO in purple. References for volumes are cited at the conclusion of Sections IV-VII. Table 1.B –Discovered, Undeveloped “Stranded” Volumes, and Mean, Risked, Technically Recoverable, Undiscovered Volumes (Yet to be Found). References for volumes are cited at the conclusion of Sections IV-VII. The North American Arctic contains approximately 208 Billion barrels oil equivalent (BBOE) of discovered, undeveloped, plus mean, risked, technically recoverable, undiscovered, conventional hydrocarbon potential (Figure 1.B.4). To date, only about 10% of this BBOE has been discovered Page 8 of 113 Working Document of the NPC North American Resource Development Study Made Available September 15, 2011 and is remote from development and production facilities. The total is split approximately 50/50 between oil and gas. Section IV describes the undiscovered, conventional hydrocarbon potential of the North American Arctic in more detail. It should be noted that approximately ~28 Billion barrels oil equivalent resides within areas that are under moratoria or are unavailable for leasing/licensing at this time, with the U.S. Alaska region having a large portion of this restricted volume (~14 BBOE), especially in terms of oil (~11 Billion barrels oil) (Figures 1.B.5 and 1.B.6). Figure 1.B.4 – Split of Arctic Hydrocarbon Potential BBOE (discovered, undeveloped “stranded” volume, plus the mean, risked, technically recoverable, undiscovered volume). Note that this figure also includes natural gas liquids component. References for volumes are cited at the conclusion of Sections IV-VII. For perspective, the conventional hydrocarbon resource potential of the North American Arctic (~208 Billion barrels oil equivalent) compares favorably with the conventional hydrocarbon resource potential in the U.S. L48 (~270 Billion barrels oil equivalent) 5, 6 and non-Arctic Canada (~41 Billion barrels oil equivalent).7 Page 9 of 113 Working Document of the NPC North American Resource Development Study Made Available September 15, 2011 Figure 1.B.5 – Split of Arctic Gas Potential TCF (discovered, undeveloped “stranded” volume, plus the mean, risked, technically recoverable, undiscovered volume). References for volumes are cited at the conclusion of Sections IV-VII. Figure 1.B.6 – Split of Arctic Oil Potential BBO (discovered, undeveloped “stranded” volume, plus the mean, risked, technically recoverable, undiscovered volume). No natural gas liquids included. References for volumes are cited at the conclusion of Sections IV-VII. 1.C Work Methodology Page 10 of 113