Arctic exploration moves at glacial pace Royal Dutch Shell's campaign to explore for oil in the Arctic is looking increasingly under threat. Last month, its drilling rig ran aground on an island off the south coast of Alaska, the latest in a string of setbacks. The US interior department has now launched a review of Shell's whole Arctic programme. Yet at least it has started drilling. The same cannot be said for oil companies with licences in other parts of the Arctic, such as Canada's Beaufort Sea. There, despite spending billions of dollars on deepwater licences, not a single operator has so far gained permission to drill. The reason, industry insiders say, is the tough rules imposed by Canada's federal regulator, the National Energy Board. The NEB says this is the price companies must pay for working in such an environmentally sensitive area. Oil industry figures argue the rules are so onerous that at this rate, the Beaufort's oil will never see the light of day. "Most of the operators have said they don't make sense," says one oil company executive of the regulations. The Arctic contains just over a fifth of the world's undiscovered, recoverable oil and gas resources, according to the US Geological Survey. But a hostile climate and impenetrable sea ice have long placed it out of the oil majors" reach. Now global warming and the melting of the polar ice cap are removing some of the obstacles to exploration, prompting a new gold rush as companies snap up licences from Greenland to the Chukchi Sea. The Canadian Beaufort Sea, which could contain as much as 5bn barrels of oil equivalent, according to energy consultancy Wood Mackenzie, was initially one of the region's biggest draws. In 2008, BP spent $1.2bn to acquire around 6,000 square kilometres there. But the age of such eye-watering bids is over. In the latest auction, last September, the winner was Franklin Petroleum, a tiny outfit based in a village near Oxford that secured rights to more than 9,000 sq km for just C$7.5m. Missed promise So far, Arctic oil has failed to live up to its initial promise, writes Guy Chazan. Some parts have proved highly prospective. Norway's Statoil and its partners have made a string of big oil discoveries in the Barents Sea. Hopes of finding oil in Russia's Kara Sea, which many believe to have the most hydrocarbon potential in the region, soared last year when Rosneft signed a big exploration deal with US supermajor ExxonMobil. But there have been setbacks too. UK-listed Cairn Energy has so far failed to find commercial volumes of oil off Greenland, despite spending $1bn on its efforts. In the US, Royal Dutch Shell has invested more than $4.5bn in preparations to drill for oil offshore Alaska, but has been beset by technical problems, as well as objections from environmentalists, politicians and regulators. That has led to a scaling-back of expectations. Oil consultancy Wood Mackenzie sees the offshore Arctic region producing just 1m barrels a day by the end of this decade - less than one per cent of current global oil supply. "In terms of potential new sources of supply, there are areas that will grow much more quickly," says Andrew Latham, Wood Mackenzie's vice-president of exploration research, citing North America's "tight" oil reserves, Brazil's vast "pre-salt" oilfields and the huge gas discoveries off the coast of east Africa. "And they have potentially much larger reserves than the Arctic fields," he says. However, looking out beyond 2030, Wood Mac is more optimistic. It speaks of the region containing well over 100 billion barrels of oil equivalent, though three-quarters of that could be natural gas rather than oil. But how it will be extracted - amid rising environmental opposition and toughening regulation - remains unclear. That paltry sum speaks volumes about the Beaufort's declining appeal, amid a tough approach by regulators and a new realism about the technological challenges and exorbitant costs facing oil explorers in its freezing waters. "Progress with getting sanction for exploration drilling is slow," says Andrew Latham of Wood Mackenzie. Everyone's being very careful. The slow pace is partly due to a major review of Arctic offshore drilling carried out by the NEB, which was expanded in the wake of BP's 2010 Deepwater Horizon disaster and led to a hiatus in new approvals. The review reaffirmed a key requirement on oil companies known as the "same season relief well" or SSRW policy. Relief wells are drilled deep underground to intersect with wells that have suffered a blowout. It was this technique which finally subdued BP's out-of-control Macondo well in the Gulf of Mexico in 2010. The NEB's policy, which was first adopted in the 1970s, requires assurances that relief wells can be completed during the same work season as any blowouts. The rule was easy to adhere to in northern Canada's 1970s oil boom when drilling was limited to shallow coastal areas. But now oil companies are venturing into the much deeper waters of Beaufort's "Slope," where drifting floes of thick ice formed over multiple winters are a constant hazard. Such obstacles can cut the drilling season to just 100 days, meaning a typical well can take three summers to complete. Company officials say that if a blowout were to occur in the middle of such a short drilling window, they would not have time to drill a relief well before the sea ice returned. "So you would effectively have to start drilling your relief well at the same time as your primary well," says the oil company executive. That doubles your risk. During the review, companies argued the old requirement be replaced by a "goal-oriented" approach that sets a target of zero oil spills and lets the operators work out how they will hit it. Chevron has proposed a new kind of safety package, known as the Alternative Well Kill System, or AWKS, which is based on an enhanced blowout preventer - a stack of valves that sits on the seabed and is the last line of defence when a well blows out. Environmentalists reject the oil companies" arguments. "The SSRW capability is a key fundamental safeguard," says Louie Porta, policy director of the Pew Environment Group's Oceans North Canada programme. If oil companies say they can't do it, I'd tell them to come up with another idea that would also kill a well in a single season. The NEB did provide one potential way-out. Applicants could depart from the relief well requirement if they could "demonstrate how they would meet or exceed the intended outcome of our policy." It would be up to the NEB to determine which tools being offered were appropriate, "on a case-by-case basis." But that loophole has not provided the comfort companies were hoping for, and none of them has so far stepped forward to start work in the Beaufort. Regulators say there are "currently no applications for offshore drilling before the NEB." The stand-off makes Shell's progress in Alaska look a lot less glacial.