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Arctic Infrastructure Needed for Resource Development and Delivery

Gazprom reported that the Ob River liquefied natural gas carrier chartered by Gazprom Group successfully completed the world’s first LNG supply via the Northern Sea Route Dec. 5, 2012, making it possible to supply Russian LNG to Asia-Pacific and the European market via the Northern Sea Route. The Russian Federation owns controlling interest in Gazprom, a global energy company headquartered in Moscow.

Gazprom reported that the Ob River liquefied natural gas carrier chartered by Gazprom Group successfully completed the world’s first LNG supply via the Northern Sea Route Dec. 5, 2012, making it possible to supply Russian LNG to Asia-Pacific and the European market via the Northern Sea Route. The Russian Federation owns controlling interest in Gazprom, a global energy company headquartered in Moscow.

©Gazprom

Offshore drilling in Alaska’s Outer Continental Shelf became a reality when Royal Dutch Shell began drilling exploratory wells in the Chukchi and Beaufort seas in summer 2012.

In 2009, the National Energy Technology Laboratory of the U.S. Department of Energy released an addendum to “Alaska North Slope Oil and Gas: A Promising Future or an Area in Decline?” that was released in 2007. The addendum was prepared for NETL/DOE by Charles P. Thomas and Walter B. North of RDS LLC/SAIC and consultants Tom C. Doughty and David M. Hite.

In the abstract it was noted that “The future for Alaska North Slope (ANS) oil and gas ranges from very promising to limited depending on how many of the following assumptions apply: (1) the 1002 Area of ANWR is opened for exploration and development, (2) exploration is allowed in the most prospective areas of NPR-A, (3) the Beaufort Sea OCS and Chukchi Sea OCS are available for exploration and development without major restrictions on area or timing, (4) an ANS natural gas pipeline for major gas sales (referred to as a gas pipeline in the remainder of the abstract) is operational by 2018 to 2020, (5) oil and gas prices recover to favorable high values in the near future, and (6) State of Alaska and federal fiscal policies remain stable and supportive of the huge investments that will be required. The future prospects become progressively less promising as these assumptions are removed.”

Oil and gas reserve estimates were given—with a caveat.

“In the long term, 2018/2020 to 2050, exploration success and development is expected to involve activities in all five sub-provinces under the optimistic assumptions and is estimated to total 28 billion barrels of economically recoverable oil and 125 trillion cubic feet of economically recoverable gas. The expected oil and gas reserve additions are widely distributed in all the geographic areas.”

The five sub-provinces referred to are ANWR, the Central Arctic (area between the Colville and Canning rivers), NPR-A, the Beaufort Sea OCS and the Chukchi Sea OCS. Although many of the assumptions have not yet occurred, many are expecting oil and gas development in Alaska’s Arctic region to provide an economic boom to Alaska, along with enough oil to keep the trans-Alaska oil pipeline operational. Extracting OCS resources comes with the need for Arctic infrastructure.

 

Biggest Challenge

According to Robert Dillon, communications director for the United States Senate Energy and Natural Resources Committee, the biggest challenge to developing Arctic infrastructure is paying for it.

“The cost will be substantial and the federal government is not exactly awash in cash. It will be an uphill slog to get Congress to fund infrastructure in the Arctic without a new revenue source to pay for it,” Dillon says. “If oil companies can prove-up the oil reserve estimates in the Arctic, it will provide both justification and the revenue to invest in infrastructure that will be needed not just for energy production, but also shipping and other future activities.”

Some of the infrastructure needed is the construction of offshore/onshore pipeline—680 miles from the Chukchi Sea, 235 from the Beaufort Sea—to bring OCS oil to the Trans-Alaska Pipeline System, according to Northern Economics Inc. and Institute of Social and Economic Research in “Potential National-Level Benefits of Alaska OCS Development,” prepared for Shell Exploration & Production, February 2011.

Key findings from the executive summary of the report include revenues: “Commercialization of oil and gas resources in the Beaufort OCS and the Chukchi OCS could generate $97 billion and $96 billion (in 2010$), respectively, in revenues to federal, state and local governments, over a 50-year period;” and jobs: “Economic activity resulting from OCS development in the Beaufort Sea and Chukchi Sea could generate an annual average of 54,700 jobs nationwide, with an estimated cumulative payroll amounting to $145 billion (in 2010$) over the next 50 years. It is estimated that about 30,100 jobs would be generated from the Beaufort OCS development and 24,600 jobs from development of the Chukchi Sea OCS.”

Infrastructure to Support the Growth

“Arctic development is going to require ports and infrastructure statewide,” says Sen. Mark Begich. “Development on this scale will have substantial impacts on Arctic communities and the whole state.”

This infrastructure—airports, roads, ports, pipelines and facilities—presents some unique challenges in the Arctic. “There is a lot of shallow water along the Arctic coastline,” says Henry Huntington, Arctic science director of Pew Environment Group, a nonprofit organization that works to establish science-based policies. “This presents some serious limitations on what kind of vessels can be used.”

Deepwater ports, while clearly a necessity, aren’t ideally suited for the soft shorelines in the Arctic, he says. “There are no areas along the Arctic Coast that are suitable for a real harbor or port,” says Huntington. “Everything is exposed and shallow.”

The Alaska Deep Draft Arctic Ports Study by the U.S. Army Corps of Engineers, the Alaska Department of Transportation and Public Facilities, and RISE Alaska/ARCADIS is expected to be published this month and is an evaluation of potential port locations along Alaska’s western and northern coasts. Among its several components, the study includes establishing siting criteria and identifying potential sites.

One possibility is the Chukchi Sea Port Site being used by the Red Dog mine.

Aviation Upgrades Needed Now

To support increased Arctic development, aviation infrastructure as well as marine infrastructure is needed. While Beaufort Sea OCS development is reasonably close to facilities at Deadhorse, infrastructure is needed for operations in the Chukchi Sea. The Wainwright airport is a strategic aviation logistics hub for Chukchi Sea OCS staging and operations because of its proximal location. Owned by the North Slope Borough, the Wainwright airport has a 4,494-foot-long by 90-foot-wide gravel runway.

“To be effective, the existing runway would have to be upgraded or a new runway would have to be built to accommodate more traffic and a cargo jet,” says Huntington. “Right now the closest bigger airports would be Kotzebue or Barrow.”

 

Financing through Revenue Sharing

“Public infrastructure to support the development—like roads, airports, housing, public schools and community facilities—would have to be paid for by the state, and meanwhile, under current law, Alaska gets zero share of offshore development,” Begich says. “Revenue sharing is crucial to making sure we’re not continuing the colonial legacy of Alaska development, where outside firms make money in our state and leave with it shortly thereafter.”

Many agree and feel revenue sharing is the logical answer to fund the infrastructure necessary to support Arctic resource development. Because offshore drilling operations are taking place in federal waters, the federal government would be the recipient of most of the money from successful operations. Revenue sharing would allow Alaska to receive a percentage of these proceeds.

“Right now, the five states that border the Gulf of Mexico receive 37.5 percent of the federal revenue from energy development off their shores,” says Dillon. “Sen. Murkowski is proposing that we expand that to all coastal states, including Alaska, with production directly off their coastlines.

“The state will need to make huge investments in infrastructure and response capabilities in the Arctic. Ensuring the state receives a fair share of the federal revenue—royalties, bonus bids and rents—from energy developing in federal waters off our coastline will help pay for those costs,” Dillon continues. “It’s not just roads and docks either: Offshore development also increases the need for schools, recreational facilities, hospitals, police and all types of other services supplied by state and local municipalities.”

According to Begich, it’s time for the state to invest. “We’ve always been a state that dreams big and it’s time to dream big once again,” he says. “We want the boom that’s coming—and there is a boom coming—to benefit Alaskans. We need Alaskans doing these jobs and reaping the benefits. All of this will take money and our state leaders need to stop playing regional politics and start seeing the big picture of Alaska’s future.”

That big picture encompasses not just Alaska, but the entire Arctic region.

 

Increased Marine Traffic in the Arctic

In the last two years, the Northern Sea Route has seen a tenfold increase in traffic, according to the Barents Observer, which reported four vessels made the journey in 2010, 34 in 2011 and 46 as of Nov. 23, 2012, with two Finnish ice breakers en route from Alaska to Denmark expected to be the last two vessels of the season. Barents Observer reported that the main cargo being transported across the Northern Sea Route is natural resources, led by petroleum products and followed by iron ore and coal.

On Dec. 5, 2012, Gazprom announced that the “Ob River, a liquefied natural gas carrier chartered by Gazprom Group, successfully completed the world’s first LNG supply via the Northern Sea Route when it arrived at the regasification terminal in the Port of Tobata in Japan, delivering a Gazprom Group-owned LNG cargo to Japanese consumers.” The carrier, operated by the Greek shipping company Dynagas, left the Port of Hammerfest in Norway Nov. 7, 2012, and was escorted by three Russian icebreakers, according to Gazprom.

OCS exploration and development and increased shipping across the top of the world underscore the need for cohesive Arctic policies and strategies.

 

Arctic Policy

There are state and federal agencies as well as nongovernmental organizations focused on developing Arctic policy and strategy. The U.S. Arctic Research Commission is one. An independent federal agency chaired by Fran Ulmer, the USARC recommends Arctic research that needs to be conducted to the president and Congress. In late November 2012, Inupiat leader and former North Slope Borough mayor Edward Saggan Itta was appointed to the USARC.

“It is certainly an honor and a privilege to be part of the commission and to be appointed by President Obama,” Itta said in a telephone interview from Barrow in early December 2012, days after his appointment. “Having been born and raised here in the Arctic, I’m humbled and intend to do my best to represent the north and Alaska.”

Itta not only takes his responsibilities seriously, he sees his seat on the commission a necessity for Alaska. “It’s critical for Alaska to be part of the dialogue because we are the only state that’s in the Arctic,” Itta says. “The information we provide to the president is important in making sure we have a say about what happens to our local communities.”

Those local communities—Barrow, Wainwright, Point Lay, Kaktovik, Point Hope and others—have strived to adapt to the growing changes in the Arctic. Itta is an Inupiat whaler and hunter from Barrow and was also responsible for keeping a remote area of Alaska thriving as the mayor of the North Slope Borough.

He brings thousands of years of Arctic knowledge to the table.

For Itta, his recent appointment was not a complete surprise. He says he was first approached by Begich’s office about his interest in the position more than a year-and-a-half ago. “I was immediately interested,” Itta says. “I think it’s important to have a seat for the indigenous people. I think it gives an opportunity for local input and insight to the USARC.”

The Institute of the North is another organization involved in Arctic policy, education and research. The Anchorage-based think tank, founded by former Governor Wally Hickel, collaborates at local, national and international levels. One of its programs is the Arctic Maritime and Aviation Transportation Infrastructure Initiative, a platform for addressing Arctic marine and air transportation infrastructure challenges and opportunities.

The Arctic Council’s Sustainable Development Working Group met in Reykjavik, Iceland Dec. 3-6, 2012, for a workshop addressing transportation challenges in an increasingly busy Arctic region. The workshop “Arctic Transportation Infrastructure: Response Capacity and Sustainable Development” was one of three components of AMATII.

The Arctic Council is a high level intergovernmental forum established to promote cooperation, coordination and interaction among the Arctic countries on common issues such as sustainable development and environmental protection in the Arctic, according to its website. The eight member states of the Arctic Council are Canada, Denmark (including Greenland and the Faroe Islands), Finland, Iceland, Norway, Russian Federation, Sweden and the United States.

The consensus is that Arctic ports and airports are critical for acting as a gateway to support search and rescue, resource extraction and development activities, pollution prevention, environmental safety, and community health and security.

To assess the capabilities of existing air transportation and marine infrastructure in the Arctic countries, another component of AMATII is the Arctic Maritime and Aviation Infrastructure Database, which was previewed by the Arctic Council at the Iceland workshop. The database has the capability to show infrastructure, connectivity, weather patterns, navigational aids, communications data and traffic in an online searchable map, according to the Institute of the North.

This information database is meant to be a tool to assist the Arctic countries in responding to any emergency that might arise in the remote region by sharing information about current resources. Additionally, the database will serve as a baseline for future growth opportunities among the countries, independently and internationally.

 

Alaska Business Monthly staff contributed research to this article.

 

This article originally appeared in the Alaska Business Monthly January 2013 print edition.

 

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