 |
| Courtesy of kayak49 on flickr.com |
By Kathrin Keil Analyses, political statements and media stories about the Arctic are full of the high hopes of politicians and industry representatives concerning the economic potential of an increasingly ice-free Arctic. The common story about the changing Arctic is one of the expectation or even assuredness that the region will turn into an ‘economic bonanza,’ with “hungry eyes of economic powerhouses migrat[ing] north towards the lush prospects as the polar ice caps thaw.”[1] The concrete expectations usually stay as vague as this:
“With the ice receding […] opportunities for profit are growing. Estimates of recoverable fossil fuels north of the Arctic Circle total approximately 13 percent of the world’s undiscovered oil and 30 percent of the world’s undiscovered gas deposits, as well as vast quantities of mineral resources, including rare earth elements, iron ore, and nickel. Establishing sea routes through the Arctic also presents a huge economic boon as it effectively cuts travel time between Europe and East Asia by over a week. Other industries such as tourism and commercial fishing likewise have immeasurable potential.”[2]
The author is right by claiming that the economic potential is indeed immeasurable. It is highly uncertain if significant benefits can be reached and if they can, one must wonder exactly who will benefit and to what extent. What the article generally conveys, however, is the image of a highly lucrative Arctic with extraordinary gains to make.
A more detailed summary of the various economic expectations that many authors, researchers and decision-makers have been formulating for the last couple of years now is given in a recent Foreign Affairs article,[3] which in agreement with the presented expectations is called ‘The Coming Arctic Boom.’ While the article, like so many others, does not provide a balanced analysis concerning the opportunities, risks and problems attached to Arctic economic activities, it does augment the existing expectations for the allegedly global importance of Arctic commodities.
The article refers to the Arctic as “a region of riches”, where global warming “is turning what has traditionally been an impassible (sic!) body of water ringed by remote wilderness into something dramatically different: an emerging epicenter of industry and trade akin to the Mediterranean Sea” (p. 2, 4). After outlining the many areas where Arctic benefits could be made – ranging from hydrocarbons, shipping, fishing, mining, wood, and water to telecommunications, satellites, hydropower, geothermal energy, and data storage – the author concludes that we witness an “Arctic awakening” (p. 9). The Arctic is thus “open for business” and even China has already started “bounty hunting” in the Arctic (p. 3, 7).
These mentioned articles are just two examples of the never-ending glut of stories about the Arctic ‘treasure chamber.’ Interestingly, these many analyses are somehow at odds with Arctic reality given that we still have not seen the tremendous economic Arctic coming-of-age that so many have been forecasting over the last few years. Rather, when looking at the recent developments concerning Arctic energy development, usage of Arctic shipping routes and prospects for fishing in the high Arctic Ocean, there is little reason to expect huge short- to mid-term benefits with impacts on global oil and gas supply, international maritime trading routes and traditional fishing regions. While perhaps some benefits can be expected locally and nationally, the picture of an Arctic as ‘prime real estate’ of global significance is exaggerated.
Oil and Gas
Oil and gas is usually perceived as “the main reason the [Arctic] region is so economically promising.”[4] However, we need to get our expectations of the actual potential especially of Arctic oil straight. Remember what Donald L. Gautier, the lead author of the 2008 USGS Circum-Arctic Resource Appraisal[5] emphasised at a conference[6] at the University of California, Irvine back in 2010. According to the USGS findings, the largest yet-to-be discovered oil field in the Arctic is expected to contain between 1.3 and 6.6 billion barrels, which is significantly smaller than the Prudhoe Bay oil field on Alaska’s North Slope, the largest of the Arctic’s oil fields. To quote Dr. Gautier, “there is not another Prudhoe Bay field anywhere in the Arctic. So there is not some bonanza sitting out on the Lomonosov Ridge, which will change the world compared to what is going on in the Middle East.”
Also, despite the expectations that the USGS raised, there has been an increasing emphasis on the fact that Arctic oil resources will only have a local effect in terms of revenues, employment and export opportunities, and supply. Additionally, the benefits that the local population could enjoy are certainly not given. Considering the often highly dispersed population, lacking specific skill sets, the temporary nature of many exploitation projects, and highly mobile workforces elsewhere, these benefits are indeed rather doubtful. Internationally, Arctic oil will not be able to compete with that found in the Middle East. As Lindholt and Glomsrød clarified in numbers, the Arctic’s future share of global petroleum production will only be 8–10%, thus the Arctic will be ‘no big bonanza for the global petroleum industry.’[7]
On the implementation side, Royal Dutch Shell’s exploration and drilling achievements during the summer season of 2012 in the Chukchi Sea – the Arctic area where the USGS sees the highest likelihood for a large oil discovery – remained far behind the company’s plans and expectations.[8] The whole endeavour was plagued with delays due to missing permits, unfit equipment, failed resilience tests, and culminated in the grounding of the drilling rig Kulluk in inclement weather on Sitkalidak Island in the Gulf of Alaska in December 2012. In the face of all these difficulties, Shell called off its offshore drilling programme for summer 2013.[9]
Shell is not the only company having trouble realising expected hydrocarbon benefits. Despite Scottish Cairn Energy’s high investments and multiple exploratory wells drilled since 2010 in the waters off Greenland’s coast, no commercial discovery has been made yet in Greenland’s offshore areas.[10]
Although the Arctic is expected to be very rich in undiscovered natural gas resources (the USGS expects a mean amount of 1670 trillion cubic feet, or 30% of the world’s undiscovered gas[11]), which are most likely concentrated in just a few specific areas, actual production increases beyond the current production levels also face great difficulties. The biggest natural gas field discovered so far in the Arctic, the Shtokman field in the Barents Sea, has lost its key market due to the shale gas boom in the US. In combination with the difficult operation environment in the Barents Sea and the uncertainties about returns on huge necessary investments, the development of the field was postponed until at least 2025.[12]
Shipping
Concerning Arctic shipping, many expect the number of ships transiting the Northern Sea Route (NSR), which was 46 in the summer of 2012, to be outpaced by a multitude of that in summer 2013. Although 476 permits[13] (as of 29 August 2013) have already been granted for sailing in the waters of the NSR during the 2013 shipping season, these will by far not all be actual full transits of the route. Rather they will predominantly be destinational shipping on the well-developed western part of the route between Murmansk and Salekhard on the Ob River and Dudinka on the Yenisei River where shipping has already been happening for a long time already. This is also why the (English-translated) homepage reads ‘permits for sailing in the waters of the NSR’, and not for ‘transiting’ the route. Further, Russian flagged ships carry out most of these shipments (out of the 476 permits, only 100 are non-Russian flagged, or about one-fifth), indicating a higher amount of local and destinational shipping in comparison to transit. As of late July 2013, only 18% of the permits granted were for full transits and 45% for shipping limited to the southwestern Kara Sea.[14] The Northern Sea Route Information Office expects “some growth in the total number of vessels pass[ing] the NSR in transit [this year, but this] does not necessarily mean an increase in total cargo volume”.[15]
Also surprisingly, although the main driver of Chinese interest in the Arctic region is said to be the possibility of using northern sea routes, as of August 13th 2013 only one Chinese ship has received a permit to sail the NSR this summer. Three ships under Hong Kong flags have received a total of six permits.
Assuming all permits given so far to non-Russian flagged ships would transit the full route, this would mean that transits have doubled in comparison to 2012. While this may sound impressive, on a global scale NSR transits are nowhere near competing with established routes, given that the Suez Canal has around 18,000 transits per year and the Panama Canal 13,000.[16]
Generally, one also has to keep in mind the multitude of problems and hindrances to Arctic routes becoming major maritime routes, ranging from still difficult weather and ice conditions, the seasonality of the route, and reliability problems, to the broader development of global trade patterns.[17]
Fishing
Concerning the prospect of new fishing opportunities in now ice-free waters in the Arctic Ocean, recent developments dampen hopes for any significant short-term gains. In a meeting in Washington in April 2013, government representatives of the five Arctic coastal states comprised of Canada, Denmark, Norway, Russia and the US renewed a debate about the possibility of a new agreement for regulating commercial fishing activities in the high Arctic Ocean, including the possibility of installing a moratorium on commercial fishing activities.[18]
This, together with the 2009 US moratorium on commercial fishing in US federal waters off the Chukchi and Beaufort Seas,[19] is sensible long-term policy. But this also means that in the short- to medium-term the call is for more investments in research to find out if fishing in these so far inaccessible areas can be conducted sustainably, long before (if ever) anyone can hope to make any long-term profits. This example exemplifies most vividly the significant level of uncertainty as to how much there is to gain from the changing Arctic.
Challenges vs. Problems
As the foregoing examples illustrate, the stories about grandiloquent opportunities to the benefit of Arctic residents, the Arctic states, and the whole world, are more often than not greatly exaggerated and obstruct the actual relevant questions and problems striking the region. Moreover, these stories often transfer a faulty picture of a region that has ‘awakened’ from a frozen state of nature to a potentially lively economic playground for powerful players from the West and the rising Asian East, as well as being inhabited by a generally underdeveloped and needy population.
Also, such a take on the Arctic region imposes a focus on Arctic challenges instead of actual and serious problems. ‘Challenges’ transfer the image of something that can be overcome and is more of a hurdle or hindrance towards a bigger undertaking. This promises substantial advantages (usually in form of economic profits) if we all work together to overcome and solve these ‘challenges,’ such as technological challenges to ship-design for ice-infested waters or better weather and ice forecasts for hydrocarbon and shipping activities.
But what about the actual problems? How do we solve the paradox that the digging out and combusting of Arctic hydrocarbon resources will only reinforce (as part of the global hydrocarbon extraction and combustion) the climatic changes with all its bleak and probably catastrophic consequences for the region itself and especially the low-lying parts of the globe?
How secure is our food supply if changed weather conditions due to the warming Arctic will lead to more weather extremes also in the temperate zones of Europe and North America, including changing precipitation patterns with more droughts and floods and much colder and longer winters?[20]
How do we improve the difficult lives of many northern residents, whose lives have already been difficult, and in many cases undeserving in comparison to their fellow citizens living in the temperate zone of their country, before the climate has started to warm up in the north?
What about the ‘Arctic treasure trove’ in the sense of the unique ecosystems, flora, fauna, habitats and biological diversity in the region, and not in relation to the deep pockets of multinational companies coming to invest in the region? Even without the added burden of increased economic activities on the region’s fragile ecosystems, how can we preserve this unique region in the face of the changing climatic and thus environmental conditions?
And when talking about economic benefits to be reaped from a warming Arctic, where are the debates about who exactly is to gain what and who will lose out? How are the Arctic ‘riches’, if they are really to be gained, to be distributed? Where are comparisons to other regions that came to the attention of international business interests (especially in the oil and gas business!)? What about an ‘Arctic resource curse’? Has history (and the present still does) not shown in many instances how local and regional concerns and demands are sacrificed for the sake of maximising benefits on a global, capitalist market, run by powerful multinational players?
Depicting the Arctic as an economic treasure trove of global importance is not only exaggerated given the outlooks as to which business options and scales become available in a warming Arctic, but also, it importantly sidetracks the really pressing and difficult problems and questions concerning the future of the region.
[1] Albert Troszczynski, “The Thawing Geopolitics of the Arctic,” Emory Journal of International Affairs (2013): 2, http://emoryjia.org/2013/08/08/the-thawing-geopolitics-of-the-arctic/.
[2] Ibid.
[3] Scott G. Borgerson, “The Coming Arctic Boom - As the Ice Melts, the Region Heats Up,” Foreign Affairs no. July/August 2013 (2013): 1–16, http://www.foreignaffairs.com/articles/139456/scott-g-borgerson/the-coming-arctic-boom.
On shipping potential, see e.g. also Nong Hong, “The Melting Arctic and Its Impact on China’s Maritime Transport,” Research in Transportation Economics 35, no. 1 (May 2012): 50–57.
[4] Borgerson, “The Coming Arctic Boom - As the Ice Melts, the Region Heats Up,” 4.
[5] Kenneth J. Bird et al., “Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle,” U.S. Department of the Interior, U.S. Geological Survey (Washington, DC, 2008), http://pubs.usgs.gov/fs/2008/3049/fs2008-3049.pdf.
[6] Donald. L. Gautier, “Petroleum Resource Potential of the Arctic Region”, conference presentation, conference theme: Towards a Sustainable 21st Century, Preserving the Environment of the Arctic, University of California Irvine, 2010, the presentations is available at http://www.youtube.com/watch?v=U86JYXghoVw.
[7] Lars Lindholt and Solveig Glomsrød, “The Arctic: No Big Bonanza for the Global Petroleum Industry,” Energy Economics 34, no. 5 (September 2012): 1465–1474.
[8] Steven Mufson, “Shell’s Alaska Drilling Season Falls Short,” The Washington Post, November 01, 2012, http://www.washingtonpost.com/business/economy/shells-alaska-drilling-season-falls-short/2012/10/31/db0bd9ca-2386-11e2-8448-81b1ce7d6978_story.html.
[9] Suzanne Goldenberg, “Shell to Suspend Arctic Offshore Drilling Program over Safety Fears,” The Guardian, February 27, 2013, http://www.guardian.co.uk/business/2013/feb/27/shell-oil-suspend-arctic-drilling.
RepRisk, “Special Report: Arctic Drilling” (Zürich, 2013), 3, http://www.reprisk.com/downloads/specialreports/32/Arctic Drilling Special Report.pdf.
[10] Cairn Energy, “Greenland Activity” (Edinburgh, 2012), http://www.cairnenergy.com/index.asp?pageid=80.
[11] Donald L. Gautier et al., “Assessment of Undiscovered Oil and Gas in the Arctic,” Science 324 (2009): 1178.
[12] Terry Macalister, “Russia Halts Gas Project in Arctic,” Mail&Guardian, August 31, 2012, http://mg.co.za/article/2012-08-31-00-russia-halts-gas-project-in-arctic; Barentsnova, “Sakhalin over Shtokman,” June 03, 2013, http://barentsnova.com/node/2364.
[13] See homepage of The Northern Sea Route Administration “Permissions for navigation on the water area of the Northern sea route”, http://asmp.morflot.ru/en/razresheniya/, accessed 29 August 2013.
[14] Northern Sea Route Information Office, “Brief statistical analysis on the Permissions issued by the NSR Administration as of 31 July 2013”, http://www.arctic-lio.com/node/190, accessed 29 August 2013.
[15] Ibid.
[16] See homepage of the Suez Canal Authority, “Traffic Statistics, Brief Yearly Statistics”, http://www.suezcanal.gov.eg/TRstat.aspx?reportId=4, and the Panama Canal Authority, “Transit Statistics, Panama Canal Traffic”, http://www.pancanal.com/eng/op/transit-stats/2012-Table01.pdf, accessed 13 August 2013.
[17] Stephen M. Carmel, “The Cold, Hard Realities of Arctic Shipping,” U.S. Naval Institute (USNI) 139/7/1, no. 325 (2013): 1–4, http://www.usni.org/magazines/proceedings/2013-07/cold-hard-realities-arctic-shipping.
[18] Andrew E. Kramer, “Accord Would Regulate Fishing in Arctic Waters,” The New York Times, April 16, 2013, http://www.nytimes.com/2013/04/17/world/agreement-would-regulate-fishing-in-arctic-waters.html?_r=0; Fiskeri- og Kystdepartementet, “Constructive Meeting on Fisheries Issues in the Arctic Ocean” (Oslo, 2013), http://www.regjeringen.no/nb/dep/fkd/aktuelt/nyheter/2013/konstruktivt-mote-om-fiskerisporsmal-i-p.html?id=725597.
[19] North Pacific Fishery Management Council, “Fishery Management Plan for Fish Resources of the Arctic Management Area” (Anchorage, 2009), http://www.fakr.noaa.gov/npfmc/PDFdocuments/fmp/Arctic/ArcticFMP.pdf. See map on http://www.fakr.noaa.gov/images/arctic_fmp_area.jpg, accessed 13 August 2013.
[20] Jennifer A. Francis and Stephen J. Vavrus, “Evidence Linking Arctic Amplification to Extreme Weather in Mid-latitudes,” Geophysical Research Letters 39, no. 6 (March 17, 2012): 1–6, http://www.homerdixon.com/wp-content/uploads/2012/09/Evidence-linking-Arctic-amplification-to-extreme-weather-in-mid-latitudes.pdf.
Stefan Rahmstorf, “Melting Ice and Cold Weather”, blog post dealing with recent current research about the debate if the decrease in Arctic ice is related to the 2012/13 cold winter in Germany, 29 March 2013, http://rabett.blogspot.de/2013/03/melting-ice-and-cold-weather.html.
-01.png){kind=small}
