The world’s biggest oil and gas companies are competing for the enormous reserves of natural gas and oil in the Arctic, but the ecological and economic consequences of a major oil spill would be catastrophic.
The rush to explore the Arctic’s enormous oil and gas reserves is both hypocritical and absurd, says Rod Downie, Polar Policy and Programme manager at the World Wildlife Fund (WWF) UK.
“In the UK, we are committed to legal targets with big reductions in carbon emissions of 80 percent by 2050 in our Climate Change Act. Globally, at the UN climate change summit in Cancun in 2010, 194 nations committed to a less than 2°C rise in temperature…
“But to achieve those international targets, over 80 percent of all known oil and gas reserves has to stay in the ground. And if we can only take out 20 percent of what remains, going ever deeper into more remote locations will be absurd and illogical,” Downie exclaims.
Yet the risk of looking stupid has rarely ever deterred a company from trying to earn a quick buck; and with oil and gas supplies running out in more accessible places, the world’s top oil companies – aided by Arctic governments willing to supply licences – are now clamouring for their share of the reserves at the top of the world.
The energy companies are well aware of the Arctic’s energy. According to an estimate by the US Geological Survey, the Arctic may contains 30 percent of the planet’s undiscovered natural gas reserves and around 160 billion barrels, or 13 percent, of its undiscovered oil.
Most of the reserves are thought to be in less than 500 metres of water, though the oil and gas are in different locations. The three areas thought to contain the most amount of oil are Alaska, the Amerasia Basin and the East Greenland Rift Basins; while more than 70 percent of the natural gas supply is likely to be found in three provinces: The West Siberian Basin and the East Barents Basins (both of which are in Russia), and Alaska, in the US.
Drawn by this major potential, all the oil giants are now trying their luck in the North.
British multi-national energy company BP for instance is one of the biggest players in the race for cold black gold, despite its catastrophic experiences last year in the Gulf of Mexico – when the Deepwater Horizon oil spill leaked around five million barrels of crude oil into the ocean.
BP has a joint venture agreement with Russian energy firm Rosneft to exploit potentially huge deposits of oil and gas in the Arctic continental shelf; and the two firms have agreed to jointly explore three areas of Russian territory – known as EPNZ 1,2,3, and covering 125,000 square kilometres in an area of the South Kara Sea – for the coveted oil. A further US$10 billion is expected to be spent developing onshore oilfields in the autonomous Yamal-Nenets area of Russia.
Meanwhile, Scottish company Cairn Energy lost US$942 million last year in a failed attempt to find oil off the coast of Greenland. The futile pursuit was the main reason behind Cairn’s US$1.2 billion loss for 2011, though chairman, Sir Bill Gammell, has vowed to continue the quest this year.
Across the Atlantic in the United States, Shell also has plans to begin drilling up to six shallow water exploratory wells in the Chukchi Sea – 70 miles off the northwest coast of Alaska – in June. The US Bureau of Safety and Environmental Enforcement approved the firm’s oil spill response plans in February this year.
But perhaps the largest offshore Arctic energy project remains the development of the huge Shtokman gas field, which lies 350 miles into the Russian-controlled part of the Barents Sea. The consortium of three companies exploiting the site is made up of Gazprom from Russia, French energy giant Total SA, and Norwegian energy company Statoil. According to some estimates, the field could contain around 3.8 trillion cubic metres of natural gas and more than 37 million tons of gas condensate, with the expected investment into the project to reach US$50 billion.
Not surprisingly, the scramble for oil, which appears to put money before the long-term good of the planet, has angered many experts. Veteran arctic commentator Professor Oran Young, a former vice-president of the International Arctic Science Committee, said:
“They are trying to continue along the business-as-usual trajectory as long as possible. We can’t stop using oil overnight, but we should be proceeding more vigorously with the development of alternatives rather than continuing to the last gasp of the hydrocarbon economy.”
Even without the damage to the environment, the financial risks are not necessarily viable, added Professor Young.
“Arctic oil and gas will be expensive to transport to market so its attractiveness will be sensitive to fluctuations in the world market. Production and transport costs for Saudi oil, for example, will be around a quarter of the same costs for Arctic oil,” he said.
“The melting icecaps are making it easier to transport the oil, and a fully loaded oil tanker did make a passage through the Northern sea route last summer demonstrating the feasibility of doing that. But navigation in the Arctic is still a tricky proposition and there’s obviously a very black irony in going in for oil because global warming has caused the icecaps to melt.”
Lloyd’s of London, the world’s biggest insurance market, has also cast doubt on the business case for Arctic oil and gas. In a recent paper, the City firm estimated that US$100 billion of new investment was heading for the Far North over the next decade. But the report’s authors, Charles Emmerson and Glada Lahn of Chatham House said that cleaning up an oil spill, particularly in ice-covered areas, would present “multiple obstacles, which together constituted a unique and hard-to-manage risk.”
Richard Ward, Lloyd’s chief executive, urged energy companies not to “rush in [but instead to] step back and think carefully about the consequences of that action” before the right safety measures were in place.