[Shell spent 10 years and $7 billion before withdrawing from exploring the arctic because the oil and gas reserves they found were too meager.  The company needed “a multi-billion barrel discovery” to “justify going ahead,” Shell chief executive Ben van Beurden said in an investor call last January. Instead, the Berger J well yielded reserves “not sufficient to warrant further exploration,” according to a company statement (full article here). ]

Tad Patzek. 29 Dec 2012. Oil in the Arctic. LifeItself blog.

Tad Patzek is a Professor and Chairman of the Petroleum and Geosystems Engineering Department at The University of Texas at Austin.

Here are some of the difficulties with drilling and operating offshore oil and gas wells in the Arctic, west and north of Alaska:

1. Gas vs. oil. Natural gas is not oil.  Gas price and remoteness of the Arctic make offshore gas production and transport unprofitable.
2. Long distances and no infrastructure.  Literally everything one needs to drill, complete and produce a well must be brought from Portland, Seattle, or Vancouver.  This means that dozens of extra supply and support ships and barges must be deployed in the Arctic.  Because of the long distances, weather, and lack of airport and storage infrastructure, [helicopters can’t supply offshore ships and oil platforms].
3. Fragility of supply chains. Long and complicated supply chains are costly to maintain and [vulnerable] to extreme weather. When a few elements in a long chain fail, they cannot be repaired quickly and easily.  Germans discovered this fact by 1942, when their invasion of the Soviet Union started to falter not because of lack of military superiority, but because of difficulties with supplies during the long and cold Russian winters. Americans have discovered similar problems with military supplies in Afghanistan.
4. Ice at water surface and on seafloor. The Arctic wells will be drilled in relatively shallow water, 150 ft or so.  Sea water can freeze all the way to the bottom through the sinking of very salty, cold brine that forms the downward racing “brinicles.” This BBC documentary shows sea water freezing rather nicely.  Therefore, wellheads, BOPs, pipes and other seafloor infrastructure must all be dug into the seafloor and hidden from ice scraping it from above. They still may be enveloped in ice generated by the cold brine raining down from the surface ice cover. Wellheads and BOPs in pits may make it difficult or impossible to access them with ROVs and capping stacks if something goes wrong.
5. Oil transport. [If] the offshore wells are successfully completed and produce [oil] through the sufficiently sturdy production platforms that can withstand waves, wind, and ice floes year around:  How will this oil be exported year-around?  Transport by tanker will be difficult, and probably impossible through winter, late fall, and early spring.  Laying 150 miles of pipeline beneath the sea bottom, followed by another 200 plus miles of pipeline onshore to attach to the trans-Alaska pipeline will be exceedingly costly and difficult.
6. Cost and time. Since 2008, Shell has spent nearly US $3.5 billion dollars on plans to explore for oil in the Beaufort and Chukchi Seas on three drill sites, yet in the four years that ensued, no wells were drilled and no permanent infrastructure was built.  Shell probably pays 250 million dollars per year to maintain its ability to operate in the Arctic. Some 30 offshore wells were drilled in the U.S. part of the Beaufort Sea in the 1980s and early ’90s, and five in the Chukchi.  None of the wells previously drilled far from the coast produced oil or gas, because there was no cheap way to maintain and export their production.
7. Environmental risks. The Arctic Ocean is no Gulf of Mexico with its strong loop current dispersing spills and lots of active bacteria eating hydrocarbons year-around.  The delicate Arctic Ocean is home to about 240 species of fish, 12 marine mammals (4 kinds of whales, polar bears, the walrus, and 6 species of ice-associated seals). Several additional species (e.g. Sperm Whales, Blue Whales, Fin Whales, Humpback Whales, Killer Whales, and Harbor Porpoise) are spotted either occasionally or regularly. There are 64 species of seabirds that breed in the Arctic. About 50 million seabirds nest on Alaska’s coast each summer, nesting in more than 1600 seabird colonies along the coast.
8. Accidents. If a serious accident occurs in September, oil may continue spilling into the ocean for another 8 months, endangering most of the sea life within the spill domain. In bad weather and rough seas, ships can break down, collide, sink, or run ashore.  The more support ships that are involved, the higher the risk.  Probability of a serious ship mishap is much higher than that of a drilling accident. Please remember that historically most of the largest marine spills have been caused by ship accidents, not by drilling.
9. Repairs and spare parts. The Arctic supply chains will have to make provisions for all key spare parts to be stored on support barges next to drill sites. Otherwise, these parts would be unavailable for prolonged periods of time, stopping all work. One could introduce multiple redundancies of all important systems.  For example, one could have “two of each,” thus doubling or tripling operational costs and increasing risks of ship breakdowns and collisions. “Two of each” would require 2 times more people for 24/7 operations in 12-hour shifts. If, because of exposure, shifts are shorter, the number of personnel will increase correspondingly.  Locals do not work shifts longer than 8 hours.
10. Lack of appropriate people.  There are about 4700 native inhabitants of the North Slope Borough, including women, children, and elders. They cannot all work on offshore drilling and production. New workers, imported from the south,  are likely to be unprepared for the severe conditions in the Arctic. Even such routine operations as crew rotations will be risky and costly during the Arctic winter night.

In summary, drilling for oil, and producing and transporting oil in the Arctic requires a complex system with compounding fragilities of many elements of the system. Such compounded fragility makes this system unstable to disturbances. Some of the disturbances can be relatively small, but still can cause large disruptions. For example, an electrical system failure on just one support barge can cause all drilling work to stop.

We, engineers, have dealt with complex, fragile systems for decades, but – I submit – the Arctic drilling/production/transportation system presents qualitatively new challenges, because of its finely interlocked elements. At best, most small failures of parts of this complex system will grind the whole operation to a halt. At worst, corners will be cut and accidents will happen.

As Mr. Taleb has taught us, a small disturbance in a fragile, complex system may result in a catastrophic loss of integrity of that system.  Such catastrophic events will have frequencies that are much higher than those predicted with standard risk management tools.  We used to call these events “Black Swans,” but today we know better.  The highly disruptive catastrophic events are one of the basic features of every fragile complex system.