Putin’s Russia will lead a ‘new era of Arctic industrialisation’
19th October, 2011
The isolation of the white wilderness is coming to an end. Scientists and activists are urging caution but Russia is leading an urgent rush to exploit the Arctic’s oil and gas reserves. Tom Levitt reports
Autumn is the shortest of all seasons in the Russian city of Arkhangelsk. Lying on the edge of the Arctic circle, sub-zero temperatures arrive as early as September. By deep winter they can be -40C in the short-lived daylight hours.
Such a hostile climate has, until recently, deterred many from venturing further north, despite the promise of an abundance of oil, gas and minerals like nickel, copper and uranium.
But late last month, the sun was unusually warm in the city as Russia’s power-maker and president-elect Vladmir Putin arrived at a conference on the Arctic to set out his ambitions for a new era of development in the region.
This will include offshore oil and gas exploration and drilling, new sea terminals, infrastructure and the promotion of a commercial shipping route through the increasingly ice-free Arctic Seas – nothing short of an industrialisation of the Arctic and its resources.
If there was any doubt about Russia’s intentions to industrialise one of the world’s last great wildernesses they were dispelled by Putin’s speech, in which he vowed to create a genuine rival to the Suez and Panama Canals for the lucrative shipping trade between Europe and Asia.
However, as everyone inside and outside the conference knew, the bigger immediate riches for both Putin and Russia’s state-owned energy companies lie in the Arctic’s untapped reserves of oil and gas.
The US Geological Survey estimates that 22 per cent of the world’s ‘undiscovered’ oil and gas is to be found in the Arctic. What’s more, a further 240 billion barrels of oil and oil equivalents (mostly gas) have already been found in the region. A figure almost as much as the entire proven hydrocarbon reserves of Saudi Arabia.
Russia the ‘petro state’
Many environmentalists want these reserves left alone, to protect the Arctic’s fragile wilderness and prevent yet more greenhouse gas emissions.
For Putin and Russia that is unthinkable.
One of his first acts, upon assuming the presidency in 2000, was to abolish the Department for Environment and amalgamate it into the Ministry of Natural Resources, later saying he would ‘not let environmentalists stop the development of the country’.
For Russia, more than any other Arctic nation except possibly Greenland, these new fossil fuel supplies are seen as vital for the country’s future prosperity and for the survival of its political establishment.
As a so-called ‘petro-state’, the country is heavily dependent on revenues from existing oil and gas reserves, with 40 per cent of its GDP derived from oil exports (it vies with Saudi Arabia to be the largest producer in the world). It is also the second largest exporter of natural gas, after the US. With the flow of oil from Russia’s existing oil fields declining, it desperately needs the Arctic region to maintain its current production levels.
‘In the eyes of the Kremlin, producing Russia’s Arctic resources is not a choice, it is a strategic necessity,’ concludes Charles Emmerson in his recent book, ‘The future history of the Arctic’.
At one time this may have led to fears of conflict. However, such a scenario is becoming less and less likely as western companies fall over themselves to sign exploration deals with Russia’s state-owned energy firms.
When the Russian explorer Artur Chilingarov led an expedition to put his country’s flag on the floor of the Arctic Ocean in 2007, it was seen to be the trigger for a new era of confrontation – a fight for the Arctic.
The other Arctic nations, Canada, Denmark (Greenland), Iceland, Norway, Russia and the United States (Alaska) were quick to pour scorn on Russia’s territorial claims.
But economic demands have superseded any fears of a Cold War era conflict and Chilingarov’s madcap mission is now fast becoming merely a footnote to a new era of cooperation between Arctic nations.
A new Arctic goldrush
Over the past year there have been a series of deals signed, effectively ending the Arctic’s era of isolation and heralding in an era of development and industrialisation.
In September 2010, Russia and Norway put aside long-running differences to resolve a dispute over a boundary in the Arctic Sea. The day after its parliament had approved the agreement, Norwegian companies began exploring for oil in the area. Russia says it will start exploring its share in 2012.
Since then, Russia’s state-owned Gazprom has started working with Norway’s Statoil on one of the world’s largest natural gas fields – the Shtokman field – in Russia’s part of the Arctic. More recently, US oil giant Exxon Mobil signed up to work together with Rosneft, another Russian state-owned company.
‘With large parts of the world off-limits to outsiders and the Middle East in turmoil, international oil companies increasingly see Russian assets as an indispensable part of their portfolio’, says Arctic expert and author Charles Emmerson. ‘Russia, meanwhile, needs international expertise, and money, to keep production high.’
Far from confronting each other over territorial rights, political leaders are finding themselves competing with each other to attract the investment and expertise of multinational energy giants.
Alaska’s lieutenant governor Mead Treadwell says the deal between Exxon Mobil and Russia caught them by surprise. Russia has now overtaken Alaska in terms of the amount of oil it is producing in the Arctic region.
‘There is a race for capital. All of the Arctic nations are courting the same industrial players to drill for resources,’ says Treadwell, who believes Alaska is losing out because of tougher environmental opposition and a precautionary approach from government officials in Washington.
He says the legal delays Shell has been facing in getting approval to explore for oil in Alaska’s Beaufort Sea risked persuading more energy giants to look at alternative Arctic countries.
A major reason for BP’s interest in exploring for offshore oil in the Russia Arctic was the legal challenges it faced in the US in the aftermath of the Gulf of Mexico oil spill.
At one time oil companies were keen to show a sudden passion for renewable energy. BP even went so far as to re-brand itself as ‘Beyond Petroleum’. Now the driving ambition is to secure proven oil and gas supplies to keep shareholders and market traders happy.
As well as sucking investment away from the renewables sector, this urgency from both political leaders and oil companies poses a significant ecological risk. The Arctic, with little daylight for a large portion of the year and sub-zero temperatures, is a far harder environment to work in than other oil producing regions.
Even with all the technological know-how and a favourable climate BP struggled for three months to stop the spilling of 200 million gallons of oil into the Gulf of Mexico. In the far less accessible Arctic, no such immediate help is available and experience of spills is negligible.
Russia’s conservation problems
In the case of Russia, it has both an appalling history of oil spills and a poor knowledge of the habitats and biodiversity in its Arctic territory.
‘They are not investing in monitoring stations to get data on biodiversity or mammals. They just like to imply the Arctic is just white ice with no people or biodiversity,’ says Tatiana Minayeva, Arctic advisor at Wetlands International.
According to WWF Russia, there is only really one protected marine area in Russia’s entire Arctic region, despite it being home to some of the largest continuously intact ecosystems on the planet.
Minayeva says many oil Russian oil companies have a history of using dilapidated Soviet era pipelines and infrastructure and never reporting the oil spills. Professor Rick Steiner, a long-time oil safety advisor, says it is not a question of “if” a major spill will occur in the Arctic, but “when and where”.
Some of the Arctic’s political leaders have been trying to convince a sceptical NGO community by arguing the involvement of international multinationals, with responsibilities to shareholders, will make spills less likely.
Alaska’s Treadwell points to how BP’s failings in the Gulf of Mexico led to a nationwide moratorium on offshore drilling by the US government, which impacted on development up in the Arctic. He says there is also the threat of legal action to keep companies in check.
‘International law requires that international companies work to the highest standards. For example when Amoco Cadiz oil spill hit the beaches of France in 1978, the lawsuit was in Chicago, US, where Amoco are located, not in France.’
Professor Steiner says that, even with much-improved safeguards, Arctic offshore drilling is an example of what systems theorists call “sub-optimisation”: doing in the best possible way something that should never be done at all.