The grounding of Shell’s Kulluk rig on New Year’s Day was an ill-timed event for a company that has invested 6 years and $5 billion to access vast undersea reserves of oil and natural gas in the Arctic Ocean. Also, it may presage a reversal in the Obama Administration’s initial support of offshore drilling in the region. Writing in Bloomberg View, Carol Browner, the former director of the White House Office of Energy and Climate Change Policy, and John Podesta of the Center for American Progress recently cautioned that, “Following a series of mishaps and errors, as well as overwhelming weather conditions, it has become clear that there is no safe and responsible way to drill for oil and gas in the Arctic ocean.”
The Kulluk mishap came on the heels of a number of reports in 2012 of an oil and gas renaissance in the Western Hemisphere. Earlier this month, BP released a forecast that the United States will surpass Russia and Saudi Arabia in 2013 as the world’s largest producer of crude oil and biofuels. Russia, meanwhile, will likely pass Saudi Arabia for the second place in 2013 and hold this position until 2023, according to the U.K.-based oil major.
As widely noted, these developments challenge long-held assumptions that the energy geopolitical landscape is squarely centered on the Middle East. One place where this shift is playing out is in the frozen Arctic, a political no-man’s land where a maelstrom of nationalism, environmental fragility, and logistical challenges is beginning to brew.
The Arctic Ocean is estimated to hold a quarter of the world’s undiscovered oil and gas reserves, beneath a body of water less than 4 times larger than the Mediterranean Sea. The region is a global commons, meaning that jurisdiction over most of the Arctic Ocean remains up for grabs.
Hydrocarbons on Ice
Estimating exactly how much oil and gas is locked up in the region is an inexact science, but an analysis led by USGS in 2008 shows that there is a 95% likelihood that 44 billion barrels (BBO) of oil and 770 trillion cubic feet (TCF) of gas are buried under the Arctic Ocean.
If estimates hold, these resources would prove significant on the world stage. The United States currently consumes around 7 BBO of oil and 25 TCF of gas per year. The Arctic alone could provide enough oil to last the United States around 6 to 7 years and enough gas to last 30 years.
Onshore areas in the region are mostly explored, with some 40 billion barrels of oil (BBO), 1,136 trillion cubic feet (TCF) of natural gas, and 8 billion barrels of natural gas liquids already developed. As recent events have shown, moving offshore presents logistical challenges and will prove to be far more expensive than oil and gas fields currently under development today, so it will likely be some time before significant resources are brought to market.
While in theory, the Arctic is held for the benefit of the “common heritage of mankind,” the potential for an oil and gas bounty is luring “the Arctic Five” – Russia, the United States, Canada, Denmark (via Greenland), and Norway – northward to assess claims.
In 2007, Russia laid claim to the North Pole – and much of the oil and gas buried beneath it – by planting a flag on the sea bed 2.5 miles undersea using two mini-submarines. Although merely symbolic in gesture, the claim raises difficult questions about sovereignty, climate change, and the future energy landscape.
Russia’s assertion that it owns much of the Arctic sea bed is based on its claims to two submerged ridges, which would secure exclusive access to extensive fossil fuel resources inside the Arctic commons and around the North Pole, under the UN Convention on the Law of the Sea (UNCLOS).
Under UNCLOS, a series of geographical zones delineate jurisdictional rights with respect to offshore resources, including oil and gas. In the Arctic Ocean, these zones form a continuous ring around a commons area and are owned in varying proportion by the five Arctic powers mentioned earlier. These areas are the target of development efforts thus far. Recent gambits make it clear that momentum is squarely behind the commercial exploitation of oil and gas resources no matter the cost.
While UNCLOS represents an important development in international resource protection and cooperation, it may prove to be an enabler of a unilateral, take-all approach to deep offshore hydrocarbon resources. The silver lining for renewables competing against oil and gas, however, is that deepwater drilling is only justified when the price of a barrel of oil is well above $100 and will face stiff opposition should environmental safety continue to be a concern.