High Gas Prices Are Here to Stay: Why 21st Century Oil Will Break the Bank -- and the Planet

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From any perspective, the Arctic is  the last place you want to go to drill for oil. Storms are frequent, and winter temperatures plunge far below freezing. Most ordinary equipment will not operate under these conditions. Specialized (and costly) replacements are necessary. Working crews cannot live in the region for long. Most basic supplies -- food, fuel, construction materials -- must be brought in from thousands of miles away at phenomenal cost.

But the Arctic has its attractions: billions of barrels of untapped oil, to be exact. According to the U.S. Geological Survey (USGS), the area north of the Arctic Circle, with just 6% of the planet’s surface, contains an  estimated 13% of its remaining oil (and an even larger share of its undeveloped natural gas) -- numbers no other region can match.

With few other places left to go, the major energy firms are now gearing up for an energy rush to exploit the Arctic’s riches. This summer, Royal Dutch Shell is expected to  begin test drilling in portions of the Beaufort and Chukchi Seas adjacent to northern Alaska. (The Obama administration must still award final operating permits for these activities, but approval is expected.) At the same time, Statoil and other firms are planning  extended drilling in the Barents Sea, north of Norway.

As with all such extreme energy scenarios, increased production in the Arctic will significantly boost oil company operating costs. Shell, for example, has  already spent $4 billion alone on preparations for test drilling in offshore Alaska, without producing a single barrel of oil. Full-scale development in this ecologically fragile region, fiercely opposed by environmentalists and local Native peoples, will multiply this figure many times over.

Tar Sands and Heavy Oil

Another significant share of the world’s future petroleum supply is expected to come from Canadian tar sands (also called “oil sands”) and the extra-heavy oil of Venezuela.  Neither of these is oil as normally understood.  Not being liquid in their natural state, they cannot be extracted by traditional drilling materials, but they do exist in great abundance.  According to the USGS, Canada’s tar sands contain the equivalent of 1.7 trillion barrels of conventional (liquid) oil, while Venezuela’s heavy oil deposits are said to harbor another trillion barrels of oil equivalent -- although not all of this material is considered “recoverable” with existing technology.

Those who  claim that the Petroleum Age is far from over often point to these reserves as evidence that the world can still draw on immense supplies of untapped fossil fuels. And it is certainly conceivable that, with the application of advanced technologies and a total indifference to environmental consequences, these resources will indeed be harvested. But easy oil this is not.

Until now, Canada’s tar sands have been  obtained through a process akin to strip mining, utilizing monster shovels to pry a mixture of sand and bitumen out of the ground. But most of the near-surface bitumen in the tar-sands-rich province of Alberta has now been exhausted, which means all future extraction will require a far more complex and costly process.  Steam will have to be injected into deeper concentrations to melt the bitumen and allow its recovery by massive pumps. This requires a colossal investment of infrastructure and energy, as well as the construction of treatment facilities for all the resulting toxic wastes. According to the Canadian Energy Research Institute, the full development of Alberta’s oil sands would require a  minimum investment of $218 billion over the next 25 years, not including the cost of building pipelines to the United States (such as the proposed  Keystone XL) for processing in U.S. refineries.