As the Arctic melts, global competition among the regional powers continues to heat up.
Even China has tried to get into increase its capabilities and presence in the region through the construction of icebreakers and the deployment of military vessels off the coast of Alaska for the first time last month.
At stake in the Arctic is an estimated 15% of the world’s remaining oil, up to 30% of its natural gas deposits, and about 20% of its liquefied natural gas are stored in the Arctic seabed. Additionally, a global shipping route through the Arctic should the ice clear would be significantly faster than current routes through the Suez Canal.
However, the promises of ample resources and faster shipping lanes may prove to be nothing more than a pipe dream as the difficulties of operating in the Arctic come into focus and the cost of energy stays low. Oil prices have slid due, in large part, to a glut of oil on the world market.
“From an economic point of view, I’m not sure going offshore Arctic is very rational,” Patrick Pouyanné, the chief executive and president of French oil company Total, told The New York Times.
Pouyanné’s scepticism is largely due to the incredible technical difficulties that oil companies must tackle while operating in the Arctic. Even though the ice is melting, there is still an abundance of icebergs as well as incredibly powerful Arctic storms all of which could severely damage rigs and ships. Shoals have also not been adequately marked in the Arctic.
Additionally, the Arctic lacks the basic infrastructure needed for development. Roads, pipelines, and in some cases entire populations of staff and support staff will need to be placed in Arctic regions around potential oil sites, substantially raising the price of doing business in the region.
“The entire cost structure up there is three to five times more expensive than onshore lower 48,” Scott D. Sheffield, the chief executive of Texas oil company Pioneer Natural Resources, told the Times.
“One-hundred-million-barrel-type discoveries will not be economical in a $US100-a-barrel oil environment, and they certainly won’t be economical today.”
Just as oil extraction faces multiple problems in the Arctic, so too does the idea of using the Arctic as an alternative shipping route to the Suez Canal. A potential route, running through the Arctic from Northern Europe to China, would cut shipping time by as much as 22%.
However, the Northern Sea Route, known in Russia as Sevmorput, is also hampered by the dangers of the Arctic and the lack of infrastructure needed to rescue ships should something go awry.
“Many politicians in Moscow expected that climate change would shrink the Arctic ice, increase the commercial viability of a shorter connection between China and Europe, and provide useful employment for Russian icebreakers,” Pavel K. Baev writes for Brookings.
“The problem is that the old Soviet infrastructure along the Sevmorput is so rotten that navigation in the difficult northern waters remains too risky. Egypt, in the meantime, has swiftly constructed the New Suez Canal, which offers a far more reliable route for tanker and container traffic.”
With the continued difficulties of shipping through the Arctic and the questionable economics of drilling the region, the Arctic may prove it is not all that it was cracked up to be, at least not in the short term.
“Alaska is a long-term play,” Ben van Beurden, CEO of Shell, which is drilling in the Arctic, said in a conference call last month.
“That is the way you have to look at it. We can’t be driven by today’s, tomorrow’s, or next year’s, or last year’s oil price.”
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