A new ocean has begun pooling around the North Pole, and the world has taken notice. The Arctic is warming twice as fast as the rest of the globe, melting sea ice and opening access to natural resources long stuck in deep freeze. The opportunities are great: fossil and renewable energy, metals and minerals, fisheries, shipping routes, subsea telecom cables, ports, pipelines and power grids. So are the risks in what remains a harsh environment. The stakes go beyond money and include the well-being of indigenous communities, a clean environment and regional peace.
The most immediate focus has been on unlocking oil and gas. The U.S. Congress lifted decades-old restrictions on oil and gas drilling in the Arctic National Wildlife Refuge in December. Earlier, the administration of President Donald Trump reversed its predecessor’s ban on new operations in Alaska’s Chukchi and Beaufort seas. On Dec. 29, Italy’s Eni SpA started boring the first exploration well in the American Arctic since Royal Dutch Shell Plc spent $7 billion on a well and pulled out in 2015 after weak results. Across the Arctic Circle, Norway’s drillers have also faced under-producing fields. The national oil company, Statoil ASA, continues exploration, however, even as Norway’s sovereign wealth fund — fueled by oil profits for decades — considers pulling its hydrocarbon investments. Russia is the most aggressive exploiter of Arctic energy. In December, President Vladimir Putin officially opened a $27 billion liquefied natural gas plant in northwestern Siberia. At the same time, the melting of Arctic ice, which has happened faster than many scientists projected, has begun to open shortcuts for trade. Late-summer ice now covers about 40 percent less of the Arctic Ocean than in the late 1970s. The Northern Sea Route, used so far by only about two dozen ships a year, makes the trip from northern Europe to Japan 40 percent shorter than going through the Suez Canal. Tourism is reviving local economies and making new investment demands, particularly in Scandinavia. Increasingly, technology enterprises are opening up in or near the Arctic, including Norway’s Kolos data center, which is expected to be the world’s largest, and Sweden’s NorthVolt battery plant. Low temperatures mean less energy spent on cooling servers, and Arctic nations typically have highly educated, motivated workforces.
Drilling, mining and fishing have gone on in the Arctic for decades. But large-scale development of the region — which is thought to hold about a fifth of the world’s undiscovered oil and gas reserves, mostly offshore — looked far-fetched until recently. The worst fears that geopolitical tension would turn hot over potential Arctic riches have not come to pass. Only Denmark, Canada and Russia are making territorial claims. Other Arctic countries have watched cautiously as Russia has expanded its Northern Fleet, demonstrating that it will protect a region that provides about a fifth of its economic output. The Arctic Council — which includes Russia, Denmark, the U.S., Canada, Iceland, Sweden, Norway and Finland — has met for 20 years to forestall commercial and geopolitical conflict. The Arctic’s 4 million residents, many of them indigenous, are represented, and a dozen countries have observer status. Though China's northernmost point is 900 miles (1,448 kilometers) south of the Arctic Circle, its ambitions in the area may turn out to be supreme. It has begun an Arctic-wide campaign to win friends and influence people — including pledging to Trump in November that it will help finance a $43 billion Alaskan LNG project.
Environmentalists oppose developing the Arctic and point to the irony of climate change facilitating the production of fossil fuels that promote climate change. They say the region should be protected from catastrophes such as the 1989 Exxon Valdez and 2010 Deepwater Horizon oil spills. Cleaning up mishaps in remote Arctic locales would be particularly difficult. Many northern communities embrace Arctic investment and the jobs and ties — through broadband, highways, shipping and trade — it brings. Those who advocate exploiting the Arctic’s riches say it can be done responsibly. A committee of the World Economic Forum published a protocol recommending that investors take a long-term view, consult local authorities, weigh economic benefits against environmental goals and develop common standards across Arctic nations. Wiring the Arctic into the global economy might require as much as $1 trillion for ports, rail, roads, aviation, telecommunications, energy facilities and industry, according to Guggenheim Partners.
The Reference Shelf
- A Bloomberg series on how quickly change has come to the Arctic.
- A Congressional Research Service report on changes in the Arctic.
- The World Economic Forum’s protocol for Arctic investment.
- A Center for Strategic and International Studies report on Arctic economics.
- An interactive multimedia guide to economic and political issues in the Arctic, by the Council on Foreign Relations.
First published April 17, 2014
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Lisa Beyer at email@example.com