TENSIONED BALLET OF INTERESTS FOR THE ARCTIC OCEAN RESERVES
- Written by Victor Lupu
It may be about climate change, which could lead to ice melting and to the opening of new transport routes in the north. After all, many scientists predict that the current generation will live to see an all open ocean at the North Pole. It is said that the Arctic ice is melting at a rate of 13% per decade, but no one knows if this pace will go on and for how long. For the time being, competition is heating up regarding the riches below the water: oil, gas, minerals – and we’re talking big. The U.S. Geological Survey has estimated that up to 30% of the world’s undiscovered gas and 13 percent of oil are inside the Arctic Circle along with minerals such as lithium and cobalt.
The interest in the Arctic resources is not restricted to the states having continental shelf, it seems more actors intend to play games in terms of search for resources. Of course, first are the states with continental shelf – Russia, Norway, Greenland (Denmark), Canada and United States; then come the states without coastal claims, such as Iceland, Finland and Sweden; in the third row are the non-Arctic states showing interest lately, such as China.
The Arctic states - through the Arctic Council - may continue to try and find areas of mutual collaboration in line with environmental principles. As experts say, the negotiation of an Arctic Treaty may not be realistic, but cooperation is essential. Nevertheless, the players’ interests could prove decisive in the battle for resources.
In 2007, a Russian submarine planted a flag on the seabed beneath the North Pole. Widely reported in the media but dismissed by legal specialists and many world leaders, it was a symbolic gesture in terms of military strength and clear intention about the Arctic reserves. Since then, efforts are being made, weighted by domestic problems such as inadequate funding (central bank’s interest rate stands at 9% and the commercial loans have higher interest rates), dependence on foreign know-how and the relatively small number of companies able to perform in such tough climate areas.
Russian PM Dmitry Medvedev summoned a government sitting late this summer to discuss issues related to the development of the territories in the Arctic. Thus, the Russian government has promised to invest more than USD 2.75 billion by 2025 in the development of the Arctic shelf and for the needs in the local areas. On the other hand, Russian Deputy Minister of Energy Kirill Molodtsov has released plans aiming at increasing the Arctic oil production by 10% in 2017, up to 730-774 million barrels.
It is to be said that the companies operating in the Arctic region, the ‘chosen’ ones are Rosneft and Gazprom Neft. The Russian government, under the pressure of international sanctions and domestic hurdles, is pressing in its turn these companies to provide concrete results about the progress in finding resources. If Urals oil breaks even below USD 50 per barrel, the Arctic oil becomes efficient above the USD 70 per barrel threshold, hence it may be rather difficult for Rosneft and Gazprom Neft to find the right path.
In order to stimulate exploration in the Arctic regions, the Russian Ministry of Natural Resources is proposing changes to the current legal framework, asserting that a zero percent taxation rate would be instrumental in consolidating geological test sites as springboard for new technologies to be used when studying subsurface resources. Nevertheless, tight oil projects, including the Bazhenov, Abalak, Khadum, Domanik regions among others, are exempted for 15 years from paying the mineral extraction tax.
In another development, as Rosneft continues the mapping of the Arctic energy reserves, it already has 28 offshore Arctic licenses and major exploration and development commitments.
In 2013, Rosneft struck a deal with federal Russian authorities over the take-over of shipyard No 82 in Roslyakovo, the town located only few kilometres north of Murmansk. Now the area is open to regular traffic, but before it was part of the Severomorsk, Russia’s Northern Fleet headquarter city. In this very place a joint venture has been set up between Rosneft and the Finnish company Lamor for the manufacturing of equipment for oil spill preparedness, response and recovery, a deal announced during the recent Eastern Economic Forum in Vladivostok. Rosneft says the production of domestic equipment will increase by 70% by 2025 following this agreement, in view of increasing the oil output.
NORWAY – OPPOSITION AND RELUCTANCE
Norway is also interested in Arctic reserves; however, the huge potential is hindered by political and civic opposition. Two-thirds of the country’s undiscovered oil lies off its northern coast in the Arctic’s Barents Sea, and for Norway’s petroleum industry access to these new fields is essential. Oil companies are assessing which of a record 93 exploration blocks in the Barents they want to bid for, and a record number of wells are due to be drilled there this year. But the outcome of recent general elections has showed that the ruling Conservative Party is ready to abstain from exploring energy reserves in the Arctic region for four years, if it receives parliamentary support for its minority government, as tabloid VG reported.
Potential is huge. “The Barents Sea is extremely exciting and important for both us as well as the industry as a whole,” claims Arne Sigve Nylund, head of development and production at Statoil, the state-owned oil and gas producer. However, news in late September revealed that Statoil has found small amounts of gas and oil in the Korpfjell area, a high regarded block in the Barents Sea.
Exploration in the Barents Sea began in the 1980s. But the industry soon turned its back on the region, returning only a decade ago. Today, only two fields are producing in the area — Statoil’s Snohvit for gas, and Eni’s Goliat for oil. Several more middling discoveries have been made and are waiting for development but no big oil finds have been discovered so far.
On the other hand, the oil companies say costs cuts in production will support explorations. Statoil has succeeded in reducing the break-even price in a Barents Sea block from USD 80 per barrel to USD 35 per barrel, which could increase the interest to investments. But the average well in the Barents Sea costs about USD 26 million and it took 33 wells before oil was found.
But a recent opinion poll revealed this summer that more Norwegians are for protecting the climate and less oil exploitation than those saying the opposite. Furthermore, environmental organisations such as Greenpeace and Nature and Youth are preparing for a court case in November that argues that drilling in the Norwegian Arctic contravenes both the constitution and the Paris agreement on climate change.
It seems that, for now, Norway’s involvement is stalled.
DENMARK (GREENLAND) AND CANADA
Greenland claims the Lomonosov Ridge beneath the Arctic Sea, which could extend its rights to the sea bed for mining, but Russia is challenging the claim, while expanding infrastructure along its northern coast.
Canada argues that the Arctic archipelago’s waters are its internal waters, and has stepped up its presence in the region, including creating a new Arctic research centre. In this case, the United States is challenging the claim.
UNITED STATES – THE TRUMP ERA
President Donald Trump’s pledge to turn the US into the largest energy producer and exporter has stimulated the shale oil and gas exploitations, coal and gas drilling. According to Washington Post the US administration is also trying to lay the groundwork to open up the Arctic National Wildlife Refuge (ANWR) for oil and gas.
The Department of Interior is working to authorise the seismic testing, but it does not have the authority to green-light the drilling, which belongs to the Congress.
But drilling in the ANWR has always been controversial in US politics and, although Republicans have control of the Congress and the Senate, as well as the White House and the prospect of drilling is high, the issue may most certainly face lawsuits from environmental groups to keep the oil companies away.
Nevertheless, oil output in Alaska has fallen from 2 million barrels per day in the ‘80s to about 500,000 bpd now and local politicians are looking for energy sources. Old seismic studies from the ‘80s suggest ANWR holds some 7.7 billion barrels of technically recoverable oil; moreover, the Trump administration says that up to 300,000 jobs would come out from the Arctic drilling economy. Will it succeed? With oil prices around USD 50 per barrel, potentially too low to justify a significant investment in drilling, it is unclear how much interest companies would have.
In terms of strategic presence in the Arctic, although for the time being the tensions are not giving sings of increase, some analysts say the US is far from having the level of Russian presence in the region. It may have the largest military in the world, but has built only one new icebreaker in the past 40 years and currently has only two operational icebreakers, whereas Russia has invested to build its presence in the Arctic and has no less than 40 icebreakers (many of them said to be nuclear powered) and several military air and sea bases in the Arctic Ocean.
On the other hand, of the five Arctic coastal states, four are NATO members – but that would not count very much considering Russia’s impressive surface and coastal line. According to security information, Russia regards NATO’s role in the Arctic as improper, designating it as ‘the primary national security threat in the Arctic’.
Where does this leave us? With international oil prices at about USD 50 per barrel, with international challenges never encountered before such as terrorism and the North Korean crisis, the issue of Arctic reserves stands behind. Certain development and an (unexpected) energy crisis could however change the balance of interest. After all, the potential reserves there are indeed impressive.