It is one of the keenest ironies of global warming. As the ice recedes in the Arctic, vast reserves of the very oil and gas that helped to cause the melting will become far more accessible. International oil and gas companies will rush in, eager to grab the hitherto hidden riches.
But, in Canada’s section of the Arctic, two recent developments suggest the balance between risk and reward when seeking hydrocarbons in the area is likely to remain a delicate one. When the country’s most recent round of bidding for Arctic exploration licences closed in September, all those on offer went, for just $7.5m, to Franklin Petroleum, a privately held UK company.
Meanwhile Fednav, the Montreal-based shipping company that serves all the mining operations in the Canadian Arctic and northern Alaska, says that, despite this year’s record sea ice shrinkage, persistently dangerous conditions meant it began operations in some areas this year later than ever before.
John Dunn, lead analyst for Canada and Alaska at Wood Mackenzie, the natural resources consultancy, says working in the Canadian Arctic is “undoubtedly challenging”.
“There is certainly potential,” he says. “You have players chasing something here. We will know more as we start to see some wells drilled once again.”
At the heart of energy companies’ calculations about efforts to extract hydrocarbons from the Canadian Arctic lies the region’s extreme remoteness – even by the standards of other parts of the fast-developing region. The waters of the Beaufort Sea, one of the main exploration areas, are treacherous, poorly charted and far further from potential help than other Arctic exploration areas such as the Greenland coast, northern Alaska and Russia’s far north.
Tom Paterson, vice-president of Arctic operations at Fednav, which serves three mines in or near the Arctic Circle, describes the region as a “very, very hostile environment”.
“Getting to and from the Arctic is very demanding,” he says. “You need specially built ships, constructed properly, with a very, very high degree of reliability – there is nobody up there to fix it.”
The concerns about remoteness mean, according to Mr Dunn, that those drilling for hydrocarbons in the region are seeking oil in significant quantities. Smaller oilfields or gas, the price of which has been depressed by the US shale gas boom, are unlikely to cover the high costs and risks of operating in the area.
“It is in the realms of the bigger players – with experience but also with the financial firepower to exploit it,” Mr Dunn says. “It is cold and it is a harsh operating environment.”
Yet the question of whether to invest up to C$500m, which a single well offshore in the Canadian Arctic can cost, remains finely balanced, to judge by the most recent round of offshore leases in the region.
Franklin Petroleum, founded by Paul Barrett, a geologist, snapped up all the licences on offer in September after oil majors, many of which have exploration projects pending in the region, declined to take part. It remains unclear how easily Franklin will be able to fund exploration work.
Mr Dunn says there has been a “hiatus” in drilling in the region as a result of a Canadian government review of oil drilling safety in the wake of BP’s Gulf of Mexico oil spill in 2010. Many observers expect the review to raise the costs of operating in the Canadian Arctic still further.
“There has not been a lot of drilling activity there just yet,” Mr Dunn says.
The region also has a long history of disappointing results from exploration. Drilling there in the 1970s and 1980s encountered significant geological difficulties and discovered large quantities of gas rather than the oil the majors were seeking.
Nor, according to Fednav’s Mr Paterson, is global warming so far making it significantly easier to operate in the area.
A complete melting of Arctic sea ice in summer – a phenomenon some experts expect within a few years – would make navigation easier by destroying long-lived ice, which poses a far greater danger than ice from the most recent winter. But the shallow waters and densely packed islands of the Canadian Arctic continue to be ideal environments for creating large quantities of ice.
“This year was supposed to have the least ice ever and yet we had the latest start ever at Red Dog [a zinc mine in Alaska],” Mr Paterson says. Exports from the mine could not begin until June.
“Yes, the ice is melting and [then] it is gone,” he says. “But it is only gone for a six-week period and then it is back again.”
Those continuing challenges are likely to make the decisions facing exploration companies more difficult if they do find quantities of oil worth exploiting, Mr Dunn says.
The choice is likely to be between a very expensive option – building a fixed pipeline – and the more flexible but riskier one of loading the oil on to ice-class shuttle tankers.
“If a field is developed after a discovery, the question is, how do you get a discovery to market?” Mr Dunn says. “That is one of the key things the players will be struggling with.”