The collapse of oil prices has slowed efforts to tap vast crude oil and natural gas supplies that lie under the Arctic Ocean but countries like Russia, Canada and Norway are still vying for a potential bounty of energy riches trapped there. The potential payoff is huge -- the US Geological Survey estimates that a quarter of the world's undiscovered oil and natural gas lies in the Arctic.
But the price tag for drilling wells and sustaining energy extraction in a desolate, uninhabitable winterland is also huge. And with crude oil prices down over $ 100 a barrel from July's record highs, some experts are wondering if even giant international oil companies can foot the bill.

Oil prices would have to hit $ 100/bbl versus recent levels near $ 35/bbl to justify multibillion-dollar investments, said Timothy Krysiek, an energy expert at Cambridge Energy Research Associates.
"The trouble is in a low price oil and gas environment, can we get out there and extract that at a profit?" Krysiek said, speaking at the CERAWeek conference.

So far, the only companies that have waded into the Arctic's frozen waters are those from Norway and Russia, and both have significant state backing. In the eastern Barents Sea, a group led by Russian gas export monopoly Gazprom aims to develop the giant Shtokman gas field, with a key decision expected by the first quarter of 2010 on a project that could cost upward of $ 40 bn (EUR 30.7 bn).
Also in the Barents Sea, Norway's StatoilHydro is drilling for oil and natural gas north of the Arctic Circle at a field called Snoehvit -- or "Snow White." But the costs for the project's initial stage have risen by $ 2.6 bn (EUR 1.99 bn), to $ 7.7 bn (EUR 5.9 bn), due to equipment problems like a balky sea water heat exchanger and other complications.

In all, five nations -- Russia, Norway, Canada, the United States and Denmark, through its territory of Greenland -- border the polar region and are vying for a share of the resources. Off the northern coast of Alaska, oil companies like Royal Dutch Shell are pursuing drilling opportunities in the frigid waters of the Beaufort and Chukchi seas. The United Nations is working to sort out territorial claims of the five nations bordering the Arctic, but Russia may be in the strongest position to assert itself, analysts said. Russia laid claim to about half the Arctic Ocean in 2001 and in 2007 sent a submarine to plant a symbolic flag on the North Pole sea bottom.
"The real spike in the Arctic story would be if the Russians are very upset with the findings of the UN and if they decide to pursue some sort of unilateral action," Krysiek said.

In January, just before he departed office, former US President George W. Bush issued formal US policy for Arctic energy exploration that calls on Congress to ratify the UN Law of the Sea Treaty.
During her confirmation hearings, Secretary of State Hillary Clinton said the treaty, which sets clearer rules on deciding ownership of undersea energy deposits, should be ratified. But some US lawmakers oppose it, saying it hands over too much US sovereignty to other nations.

Source: http://www.rigzone.com / AFX News Limited