* Failures, grounded Shell drillship reducing interest
* More conventional resources rapidly becoming available
* Shale oil becomes more competitive
By Balazs Koranyi
NY-AALESUND, Norway, May 31 (Reuters) - The high Arctic,once the irresistible frontier for oil and gas exploration, isquickly losing its appeal as energy firms grow fearful of thefinancial and public relations risk of working in the pristineicy wilderness.
The Arctic may hold 13 percent of the world's undiscoveredoil and 30 percent of its gas, but a series of blunders andfailures there are making executives fight shy of such asensitive area and turn their attention back to moreconventional resources and the shale revolution.
The turning point likely came on New Year's eve, when RoyalDutch Shell's drillship ran aground in rough waters offAlaska, setting off a public relations storm that inflicted muchpain on the firm, made more acute by how little it had to showfor the $4.5 billion it has spent on the Arctic since 2005.
Shell promptly cancelled plans to drill off Alaska in 2013,and signals about its going back in 2014 are fading.
"The whole Arctic, especially the American Arctic, was setback because of Shell's issue," Choo Chiau Beng, the ChiefExecutive of Keppel, the world's biggest rig maker,told Reuters in the world's northernmost settlement.
The accident caused little damage and no spill, but it was abig lesson for firms looking for Arctic resources.
"The interest to develop oil and gas is very high, butnevertheless there is more and more concern about theenvironment and the risk part of it," said Harald Norvik, aboard member at ConocoPhillips and a former CEO ofStatoil, a pioneer in the Arctic.
"We have been focusing on areas in the Arctic. Now we putour priorities into other areas, like Tanzania, Argentina andTexas. That is the logical development," he said.
And companies simply cannot ignore the public debate aboutthe potential environmental cost of work in the Arctic.
"The reality is that going forward, the obviousdemonstration of climate change in the Arctic will affectpolicymakers and boardrooms for years to come, and I see thatmore clearly now than five years ago or three years ago," Norviksaid.
Glaciers near the world's northernmost settlement,Ny-Aalesund, on Norway's Svalbard islands, have been meltingfast as the impact of climate change is amplified in the Arctic.
Shell is not alone in its difficulties. Cairn Energy has spent $1.2 billion drilling off Greenland and found nothing,while Gazprom has called off its huge Shtokman naturalgas project because high costs made the project unviable.
And ConocoPhillips, which was working with Keppel to developa landmark ice-class Arctic rig, has put the project on hold,and has shelved plans to drill in the Chukchi Sea next year.
SHALE
"Nobody's coming for ice-class rigs," Keppel's Choo said."Shale oil productivity is still being pushed ... and there's alot of areas that are underexplored, like Mexico, which probablyhas as much oil and gas as the U.S. Gulf."
"These are relatively low-cost areas that can be tapped."
Shale oil is still relatively expensive but competes well oncost with deepwater projects, while shale gas, which has madethe United States gas independent in just a few years, willlikely conquer other countries as well.
"There are cheaper resources elsewhere with a higherprobability of success; shale is taking market share awaybecause it's lower risk and lower cost," said James Rogers, theCEO of Duke Energy, the biggest electricity distributorin the United States.
Norvik agrees: "It's not very low price, but it'scompetitive with deepwater and less risky," he said. "It will bedeveloped at a much higher speed than we're talking about rightnow. It will come into play in Russia, China, South Africa,Argentina and all over."
Shale oil, and to a greater extent gas, has made energy inthe United States relatively cheap, reducing Washington's needand appetite for supporting exploration off Alaska.
For all that, Arctic oil and gas is not dead.
Russia is still moving ahead, with Novatek andTotal, on a 16.5 million tonne per year Yamal LNGfacility on Siberia's northern coast. It is considered amoderately challenging project where the real difficulty will beall-year-round transportation on an ice-heavy sea route.
And ExxonMobil recently agreed with Rosneft to jointly explore 150 million acres off Russia'snorthern coast.
"I think Russia can move faster than any other countrybecause Russia has a vested interest to develop its northernparts," Keppel's Choo said.
Norway is also working in the Arctic, though its relativelywarm and ice-free Barents Sea makes it less difficult.
"There are many Arctics, with many characteristics; it's notjust a single region," Runi Hansen, Statoil's Arctic chief said."For Statoil, the priorities haven't changed, but elsewherethere have been setbacks, and some expectations were very high."
Given the size of the resource in the area oil firms arebound eventually to come back.
"If it can be developed safely, then there is no reason itshould not be developed," Duke's Rogers said.
