Appetite for extracting potential resources locked under the Arctic Ocean is hotting up
Out in the Pechora Sea, surrounded by ice up to half a metre thick, sits a drilling rig. It’s owned by a Gazprom subsidiary, GazpromNeftShelf. Beneath the surface is thought to lie up to 72m tonnes of oil. And the Russian oil firm wants it out.
GazpromNeftShelf is not the first to think of exploiting the Arctic’s natural resources. Edinburgh-based Cairn Energy has already been exploring for oil off the west coast of Greenland. Shell is due to follow in its footsteps during 2012.
The Arctic’s hostile conditions (it’s only possible to drill for about three months of the year) have so far kept less intrepid investors at bay. In these resource-hungry times, however, investment dollars are shifting to the pristine polar region.
And they’re potentially shifting fast. According to a recent report by thinktank Chatham House and insurance market Lloyd’s, Arctic investment could reach as much as $100bn over the next decade. Most will be channelled into the oil and gas sectors. But mining, shipping, fisheries and tourism are in line for rapid growth too.
The Arctic rush is not just demand-driven. Climate change is playing its part too. Weather patterns and temperatures are altering faster here than anywhere else on the planet. Sea ice is retreating. The productivity of aquaculture is increasing. Access to coastal areas is set to improve.
Don’t be fooled, though. The Arctic is still very much a “frontier operating environment”, as the report’s authors put it. In truth, no one really knows how climatic changes will play out. Melting ice could release trapped pollutants. Ports could be damaged. Arctic storms could become more severe.
Known unknowns
“The knowledge gaps are enormous,” admits Erik Börjesson, Nordic area manager at Lloyd’s. “We’re not sure how fast the Arctic ice will melt, for example, or what impact it might have.”
The effects of climate change are not the only unknowns. Many technical issues, such as clean-up procedures after any oil spill, remain unresolved. The regulatory future is also cloudy. The area’s leading governance institution – the eight-member, intergovernmental Arctic Council – doesn’t even have legislative powers.
Add to that the environmental critics, who are watching very closely from the sidelines. The Arctic is emblematic of businesses’ appetite for ever more “environmentally risky” and “technically challenging” operations, says Greenpeace’s Ben Ayliffe. First came the ultra deep waters of the Gulf of Mexico. Then the Canadian tar sands. Now it’s the turn of the polar north. It can’t, Ayliffe suggests, end well.
The folk at Lloyd’s are more pragmatic. So too are companies. If there are business opportunities to be had, then someone, some time will exploit them. Börjesson’s advice? Tread carefully. Very, very carefully.
Melting away
- Total Arctic ice sheet loss in 2011 was 70% greater than the average of 2003-2009.
- The number of Arctic melt days in 2011 was far above the average for 1979-2010.
Source: City College of New York