As a result, the study said the US "must look elsewhere to meet rising demand," including member nations of the Organization of Petroleum Exporting Countries "such as Venezuela," and to Russia-areas of "broader, geopolitical concerns relating to security of supply."

This study is the first overall assessment of the Arctic's total oil and gas potential by Wood Mackenzie or anyone else, Latham said. "Nobody has done it all, not even the US Geological Survey," he said.

The cost of Arctic operations is high, driven by extreme transportation costs, with wide variation between basins. "Average field development costs of around $6/boe are comparable with many other parts of the world. High costs elevate average development breakeven prices across the Arctic to above $30/boe," said the report.

It said there are attractive niche opportunities in many basins where the breakeven price of the largest fields are much less than average, below $20/bbl in some cases. Two basins-the North Slope in Alaska and Russia's Pechora Sea-achieve exploration full-cycle returns greater than 20%. "These are both oil-prone basins with good access to markets via pipelines and ice-free seas," Latham said.

I thought it a worth putting the additional emphasis on this to remind us all that not all the rosy estimates relating to the development of future reserves will actually turn out to be there, or will be developed in the immediate future (note that the report anticipates the major gas not being produced until perhaps 2050 due to export and technological constraints).

And, to give further support to Westexas comments about drilling more and producing less, let me also stick in here the information from the API from their third quarter well completion report.

a 21-year high estimated 37,261 oil wells, natural gas wells and dry holes were completed in the first three quarters of 2006. In the third quarter alone, there were an estimated 12,687 completions. This figure is the highest single quarter estimate since the first quarter of 1986 and the twelfth consecutive quarter of increases in estimated U.S. drilling activity.

(quoting Frederick Lawrence of the Independent Petroleum Association) While EIA estimated in September that an average 264 rigs drilled for oil in the US during 2006's first 8 months-66% more than the average of 159 in the same 2004 period-US oil production fell more than 7% to an average 5.098 million b/d from 5.5 million b/d, he said.

"Although the well completion totals are very impressive, production isn't keeping up. Producers need access to more supplies and have to pay increasing costs for equipment and personnel. The cost per well is increasing, which diminishes some of the value of the increased commodity prices," Lawrence said.

As you may note from the line about the US, the current decline is production may only be temporary (though I am not holding my breath). On the other hand the OGJ review does anticipate a decline in the production of natural gas, failing "a much more aggressive leasing policy, both on and offshore, especially for unconventional natural gas resources."