An Arctic resource war

Revelations that the Arctic is home to untapped quantities of petroleum have prompted speculation that the region could be the setting for a future resource war waged for control of its oil. As fears mount that the world is starting to run dry (the theory goes), governments will be more tempted than ever to rely on military force to seize areas deemed to be rich in petroleum. Fortunately, however, this gloomy scenario is likely to paint too pessimistic a picture.

The location of the resources

The most important reason why the Arctic is unlikely to be the setting for a new 'oil resource war' is that most of the region's reserves are thought to lie not in disputed territory but within established borders. The 2008 USGS survey located most of the region's oil deposits in Alaska, Greenland, Siberia, the East Barents Sea and the Amerasian

Basin, areas where the question of territorial sovereignty either does not arise at all or only exists between close allies.20 Although the survey did find evidence of oil in the disputed waters around Svalbard, there are many other petroleum-rich areas over which the 'Arctic Five' do not have to compete.

In the areas that are disputed, the rival claimants are generally governments with amicable relations that are too strong to be undermined by disagreements over one particular issue. One such disputed region is the Beaufort Sea, where the line of demarcation between Canada and the United States has been a subject of considerable controversy for some years.21 This is an area that geologists feel sure has enormous promise, since it is an extension of the proven reserves in the nearby Mackenzie River and North Slope. Although the first major efforts to find black gold here were made in the late 1960s and the first platform of the Amauligak Project started to pump out oil in 1986, it is only recently, as the ice has receded, that extensive operations have really got underway. Canada's National Energy Board has now discovered a considerable amount of recoverable oil - somewhere between 585 million and 1.44 billion barrels - in this area.

In 2003, when the United States government auctioned oil and gas leases in the disputed region, Ottawa filed a diplomatic protest, raising the spectre of long-term legal wrangling that scared off international energy companies. The prospect of a military clash between the two NATO members is of course unthinkable as the ties between Canada and the United States are simply too strong to be severed by a single issue. The same is true of the dispute between Denmark and Canada over the ownership of Hans Island, whose surrounding waters geologists have long regarded as an area of great potential. It is highly unlikely that anything more serious than heated words would ever be exchanged between these two governments.22

Much more plausible is speculation of a possible clash between Russia and Norway over disputed parts of the Barents Sea. To date, there have been few significant discoveries in the area, despite considerable efforts to find new reserves there. The sheer size of these wells, such as the massive Russian gas complex at Shtokman first unearthed in 1988 and Norway's vast Goliath oil field discovered in 2000, compensates for their paucity of number. Such discoveries dramatically raise the stakes in the dispute over the three large areas of the Barents Sea that the two countries have long contested: the 'Grey Zone', the 'Loophole' and the waters surrounding the Svalbard archipelago, where the Russians claim they have fishing and mining rights.23

Many experts feel sure that some, and perhaps all, of these disputed areas have considerable oil-bearing potential. In 2007 the Russian research vessel, Professor Kyrentsov, undertook several studies of the underwater geology around Svalbard and its findings prompted experts in Moscow to deliver an upbeat assessment. These findings reiterated the estimates made by the Norwegian Petroleum Directorate, which commissioned some exploratory drilling in September 2005 and found the northern regions of the Svalbard waters to be full of potential. In a press release issued in May that year, the oil minister, Thorhild Widvey, commented that 'I believe the north will develop into one of Europe's most important petroleum-producing regions. Here Norway has great opportunities'. The Grey Zone is also thought to be particularly promising, and Professor Jan Inge Faleide of Oslo University, for example, has described it as a 'hot' region where there are 'large geological structures in the area that may contain oil and gas'.24

This has sometimes come close to causing trouble. In 2002 Oslo gave permission for a Russian company, Marine Arctic Geological Expedition, to undertake seismic surveys of the Svalbard continental shelf, but did so only on the strict condition that they were done for 'scientific research' rather than 'petroleum exploration'. But the Russians effectively ignored this and instead used a seismic vessel to look for oil, prompting Norway to take a harsher line and more vigorously enforce its ban on petroleum exploration.

Because the Norwegian authorities have continued to deny Russia permission to conduct any more surveys around Svalbard, EU defence chiefs have warned that 'a serious conflict could emerge between Russia and Norway' over 'the large deposits of gas and oil that are currently locked under a continental shelf' in the waters that surround the archipelago.25 For a number of reasons such disagreements are much more likely to create tensions and controversy rather than confrontation. This is partly because the two countries have a strong interest in cooperating, rather than working against each other, and cannot afford to forfeit the other's trust or lose its goodwill. As Chapter 9 points out, Russia is reliant on Western expertise to develop its offshore oil and gas fields just as Norwegian energy companies, which are world leaders in this technically highly demanding area, regard Russia's fields as a huge commercial opportunity.26 It is significant in this regard that some Russian officials confess to sabre-rattling: Mikhail Margelov, head of the international affairs committee of Russia's Federation Council, has admitted that 'the real reason for the arguments' between Moscow and Oslo 'is the oil rather than fish', but added that 'Russia has no intention to monopolize the hydrocarbon market', and is ready to cooperate with Norway in the development of offshore fields.27

This is one reason why, in 2005, representatives of the two countries signed a broad agreement to work together to search for Arctic oil and gas, prompting commentators to make upbeat statements about what the deal signalled. Vladimir Ryashin, a Moscow-based representative for a Norwegian oil organization, felt that Russia's position was 'a reflection of an attitude that their general intention is positive, and an invitation to be very active. It's a hint that Russia is ready for compromises, and they expect the Norwegians to take the same position'.28

Russian fishermen have long been highly dependent on the Svalbard waters, and some estimates reckon that as much as one quarter of the national catch comes from here. But Russia has no clear legal right to fish outside Svalbard and has not wanted to risk sacrificing its current freedoms by challenging Norway's rights before the judges of the ICJ. As one researcher has written:

In a broader perspective, there is little to suggest that the Russian authorities have an interest in provoking a judicial chaos in the fisheries protection zone. This would lead to increased pressure from third states with no tradition of fishing.19

The Russians do not wish to provoke a legal fight over such an important issue that they might well lose. Nor for that matter can Russia, Norway or any other country just assume that there are any oil reserves in the Arctic that are worth fighting for; even estimates that use the latest, most up-to-date methods can be highly misleading.

Statistical reliability

Something that plagues the entire oil industry is the sheer unreliability of statistics. What this means is that no government can be quite sure that the Arctic has reserves that could justify entering a fight. Instead it is equally likely that a small and misleading number of big discoveries, such as Goliath and Shtokman, have created a false impression about what the rest of the region offers and hugely inflated many people's expectations.

Oil and gas companies base their estimates on the results of various types of exploration activities, including regional geological studies, seismic surveys, drilling, sampling, pressure testing and reservoir modelling. These findings are combined with feasibility studies and a commercial evaluation based on economic considerations. No matter how sophisticated the methods, such estimates are always going to be imprecise. Oil is seldom located in underground lakes or reservoirs, but is often absorbed into porous underground rocks in a way that makes it almost impossible to measure accurately. Many of these deposits run so deep that even in the early stages of exploitation it is still impossible to guess about their size and location. This is why the story of oil exploration is one of massive misjudgements.

Until the 1920s almost every expert thought that the Middle East had no oil and urged Western governments to search Central America or the Far East to find new supplies.30 More recently, some of the 'predictions' about the growth of future oil demand have become almost notorious for their unreliability. These figures are often revised by huge degrees and are nearly always treated with scepticism by many in the trade. 'Oil market data is generally a black art like using a set of chicken bones', in the words of one analyst. 'If Columbus had thought he'd hit India when in fact he was in the Caribbean, that's about the level of oil market data. It is like paint thrown across a canvas. You get the broad outline of the situation but even then . . . the paint moves of its own accord.'31

Trying to make even a rough estimate of oil reserves is difficult, but there is good reason to suppose that any assessment of the Arctic region will be particularly challenging. This is not because the region's geology is unusually complex or because much of the Arctic Ocean is unusually deep. It is simply because the Arctic's thick pack ice seriously obstructs the scientific equipment that is used to estimate how much petroleum lies buried deep below the surface.

The USGS report in 2008 admitted its limited scope, pointing out that:

Because of the sparse seismic and drilling data in much of the Arctic, the usual tools and techniques used in USGS resource assessments, such as discovery process modeling, prospect delineation, and deposit simulation, were not generally applicable. Therefore, the Circum-Arctic Research Assessment relied on a probabilistic methodology of geological analysis and analog modeling.32

The authors of the 2008 report did not define what they meant by 'geographic analysis and analog modeling' but since the report was published some of the researchers have emphasized just how speculative their conclusions were. Donald Gautier, a leading geologist in the appraisal assessment team, has cautioned that with little drilling or seismic surveying in many of the Arctic basins the new resource estimates are highly tentative. 'I would emphasize that this is a very uncertain area and these are probabilistic estimates with a great deal of uncertainty associated with them', as Gautier told one newspaper.33 Just as many question marks hung over an earlier report published the previous year on oil prospects in Greenland. This had noted that any effort to survey its north-east regions was bound to be imprecise because it 'shares important characteristics with many Arctic basins, including sparse data, significant resource potential (and) great geological uncertainty'.34

Critics of the 2008 report argue that the USGS has a track record that perfectly illustrates just how unreliable such 'estimates' can be. In particular, its 'World Petroleum Assessment', published in 2000, produced figures that were wildly at variance with those the organization had made a few years later. In 2000, it estimated the offshore reserves in eastern Greenland at around 46 billion barrels, but 8 years later was forced to massively downgrade this figure.

The findings of other respected engineering firms and consultancies have been more cautious than those of the USGS. In 2006, a British organization, Wood Mackenzie, and Fugro Robertson, a leading petroleum engineering company, published their own assessment of the Arctic region as a source of long-term energy supply. Although it has a lot of natural gas, the authors of The Future of the Arctic argued, the region may not have nearly as much oil-bearing potential as some people hope. Instead their findings were 'disappointing from a world oil resource base perspective' because they showed that key basins of North America and Greenland had only about one-quarter of the oil volumes other assessments claimed. And given that only the North Slope in Alaska and the Pechora Sea in Russia seemed to be particularly promising, the researchers argued that 'this assessment basically calls into question the long-considered view that the Arctic represents one of the last great oil and gas frontiers and a strategic energy supply cache for the US'. Instead the United States would need to 'look elsewhere to meet rising demand', and recognize that OPEC member states 'such as Venezuela', and Russia, are more

promising.35

It is significant that many of the assessments of the Barents Sea have been proved wrong. In the 1980s it was regarded by some people as promising oil territory until a number of exploration wells yielded disappointing results. In May 1985 a United States Congress Report entitled 'Oil and Gas Technologies for the Arctic and Deepwater' was revised just before publication, and the region's potential oil resources were downgraded by a massive 73 per cent and gas by even more. Geologists thought they knew the reason: 'The Barents Sea rose and fell during the last ice ages. Sediments several kilometres thick were scraped off. Gas deposits underneath expanded and the oil was forced out of the reservoirs', as a leading expert, Professor Jan Inge Faleide, has pointed out. 'The drilling should have been done

10 million years ago.'36

The root of the issue, Dr Rob Mandley of Fugro Robertson emphasizes, is the sheer paucity of reliable information on the Arctic's reserves. 'For example, there are hardly any offshore Russian oil fields east of the Kara Sea, which means a huge area is almost completely untouched by modern, up-to-date methods of exploration and surveillance.'37

How does this affect a government as it weighs up the case for using military force to seize territory where oilfields are said to exist? If any estimate is as uncertain as the survey carried out in 2008 by the USGS, a government might draw two possible conclusions. It may take the view that the likelihood of finding fewer resources than predicted is heavily outweighed by the inevitably high cost of war (as Chapter 9 shows, even a brief conflict, such as Russia's clash with Georgia in the summer of 2008, can still have a very heavy political and economic impact).38 On the other hand, the uncertainty of scientific opinion is no guarantee against a 'resource war' in the Arctic because a government might conceivably underestimate the costs of war but argue that the underground oil reserves may be far larger than the experts say.

However, there is a more important reason why governments are unlikely to risk war fighting over the Arctic's oil reserves, no matter how extensive they prove to be. This concerns not the location or size of these deposits but their recoverability: vast quantities of untapped

011 are of little significance if they are simply too difficult or expensive to get out of the ground.

Recoverability

Although it is used extensively in the world of oil, the issue of recoverability is often an uncertain one. Everyone agrees that oil is recoverable if the technology has already been developed to exploit it, but this begs other questions. Above all, potential investors need to judge if the output of a new oilfield will yield revenues that justify the sheer cost of extracting the oil with know-how that is often extremely expensive to develop and operate. For energy companies, the price of making the wrong decision is likely to be huge - by the end of 2008

Shell had poured more than $2 billion into the exploration of the Alaskan coast but had nothing to show for it, and the future of its involvement there currently seems uncertain.

Although USGS geologists have claimed that the Arctic's oil is 'recoverable' in both technical and commercial terms, this assertion needs to be clarified. One staff member, Brenda Pierce, later commented that the assessment did not take into account the technical difficulties of operating in extreme conditions. 'We assumed these resources are recoverable in sea ice and despite water depth', as Pierce later commented.39 The report itself points this out:

The study included only those resources believed to be recoverable using existing technology, but with the important assumptions for offshore areas that the resources would be recoverable even in the presence of permanent sea ice and oceanic water depth. No economic considerations are included in these initial estimates; results are presented without reference to costs of exploration and development, which will be important in many of the assessed areas.4

There are some areas of the Arctic Ocean, it is true, where the waters are relatively shallow and any oil would be comparatively accessible. The offshore waters adjacent to East Greenland, surveyed by the USGS in 2007, generally reach less than 1,500 feet, while the average depth of the Barents Sea is just 750 feet. But other regions - like those in which Chilingarov and Sagalevich moved in August 2007 - are far more daunting and often reach depths of around 14,000 feet that would be too deep for the world's leading energy companies to work in. Some exploratory drilling projects in the Gulf of Mexico and off the coast of Brazil have been undertaken in depths of 12,000 feet, but production has not gone below 6,000 feet. The average depth of the Amerasian Basin, for example, is 12,960 feet.

Even if oil is found within this range or the technology to work in deeper waters is developed, another challenge comes from the presence of sea ice, which would seriously hamper any effort to extract it. 'Drilling on the ocean shelf is currently restricted to ice-free periods in the summer', as Dr Mandley of Fugro Robertson explains, 'and it is only if there is a significant reduction in ice cover that drilling would become much less costly and production much more economic.'41 The trouble is that no one is sure when this will happen: it could be 25, 50 or even 100 years or more before the ice has retreated enough to make drilling commercially viable.

There are some oil-rich Arctic regions that are relatively ice-free.

In the West Barents, south-west Greenland and the Labrador Sea, for example, there is often no pack ice and only limited seasonal ice. But elsewhere ice presents a formidable obstacle. The 2006 report argued that while the Kronpins Christian basin, off the coast of northeast Greenland, is one of the very few areas that has undiscovered resources exceeding 10 billion barrels of oil (the other areas being the South Kara/Yamal region of Western Siberia and the East Barents), it is nonetheless covered by extremely thick ice that constantly pushes against the shore. Icebergs also pose a serious risk in some places, notably Baffin Bay.42

Adding significantly to the costs of drilling in such a difficult environment would be the imposition of massive insurance premiums. As a later chapter points out, extracting oil in an ice-laden environment could easily lead to disaster; there is a real risk that a drifting block of ice could collide with an oil rig or pipeline, inflicting serious damage on the infrastructure and causing a spillage on a massive scale.43

Some experts have calculated that the cost of extracting Arctic oil is rarely likely to be lower than $46 per barrel, which would prove prohibitively expensive. Any country that seeks 'security of supply' could do much better than encouraging its energy companies to undertake huge commercial risks in the Arctic. There are many parts of the Middle East, Africa, Siberia and South America that are still relatively unexplored and other places that can continue to produce oil well into the twenty-first century with much lower overheads than the Arctic.

By contrast the exploitation of much of the Arctic's oil would require the building of new infrastructure - such as pipelines and storage terminals - that would be hugely expensive. True, there are some deposits that lie close to existing working fields and which could therefore be tapped using existing infrastructure. Some of these unexploited fields are in close proximity to the Trans Alaska Pipeline System that connects the North Slope to its mainland markets, or to the natural gas complex near Hammerfest that links the West Barents. And the massive Prirazlomnoye field could also help exploit the undiscovered deposits of the Pechora Sea. Known in the oil business as 'niche' opportunities, these fields make relatively low-risk but potentially high reward investments that would prove to be commercially very tempting. But there are also areas of high promise, such as northern Greenland and the Laptev Sea, that are not only very remote from markets but also wholly devoid of existing infrastructure.

The situation could change if regional ice continues to melt at a dramatic rate, making exploration and development much easier and cutting the cost of producing a barrel of oil closer to $20. This still looks unlikely for many years, and in the meantime the contrast is clear with the Middle East where a barrel can cost as little as $5 to produce.

The Beaufort Sea provides one example of just how expensive many drilling projects in the Arctic could turn out to be. In 2005, the Oklahoma-based Devon Energy Corporation was searching for natural gas, but chanced upon a pool of oil containing around 240 million barrels. Although the price of oil was at this time soaring, leaving energy companies with far more disposable income than before, its directors decided not to make any effort to exploit their discovery. 'We have confirmed the presence of both oil and gas', as one spokesman put it, 'but at the end of the day it's beyond economic reach. We would need some critical mass going. It takes a lot of time and energy to get these things to market . . . at this juncture, the company has better places to invest its money.'44

Even if the Arctic does contain the large reserves that the USGS has claimed and these deposits are commercially recoverable, then they need to be seen from the proper perspective. At an EU summit on energy security, held in September 2008, one expert pointed out that an additional 90 billion barrels of oil is 'only' equivalent to 3 years of global production and would do nothing to address the widely anticipated 'supply crunch' in 2015-20. 'Those who think we are going to find a solution to our oil problem in the Arctic are clearly wrong', concluded Willy De Backer. He added that 'it's not the first time that the "new energy bonanza" story has come up' since, only a decade or so before, 'everyone thought the Caspian was going to provide the miracle solution'.45

The scope for dispute

A depressing conclusion could perhaps be drawn from all this. It is plausible to argue that some countries will be tempted to use military force to seize potential oil-bearing regions on the premise that, at some future point, the technology and expertise will be developed to exploit them. After all, until the mid-1960s no one would have been taken seriously if they had suggested that the North Sea harboured vast reserves of oil, or that they would be recoverable in such deep waters - just as some European governments later felt seriously aggrieved because they had divided the North Sea before much of its oil had been found. (Norway's massive Ekofisk field is in an area that Denmark or Britain could potentially have claimed for themselves.) So too could some countries calculate that it is worth their while using military force to seize Arctic ground that might eventually prove rich in natural resources.

It is certainly true that this gives every government a strong interest in staking its claim to Arctic territory peacefully, just as Russia and Canada are making considerable efforts to map their outer continental shelves and to present their findings to the United Nations. This is a long way from the deployment of military force. The costs of war are punitively high in every sense. For the moment both the presence of oil in the Arctic's disputed regions, as well as its commercial recoverability, are as seriously in doubt as the theory of 'peak oil', which has attracted considerable criticism from eminent commentators. By the time oil production does eventually peak, and the Arctic's black gold does become recoverable, it is quite possible that alternative replacement fuels will have been pioneered.

There is certainly scope not just for heated disagreements but also for episodes of brinkmanship that could perhaps spill over into confrontations that no party really wants. Some incidents might also come close to open conflict before the various contestants pull back. At Pristine airfield in Kosovo in June 1999, Russian and British soldiers came perilously close to exchanging fire, while in 1993 a single incident on the border between North and South Korea nearly caused a full-scale war that would have embroiled the entire peninsula and brought the forces of the United States and perhaps China into battle. The prospect of such exchanges justifies the establishment of new diplomatic channels comparable to the East-West telephone 'hotline' during the Cold War.

There are other ways in which oil might cause international tension and disagreement. In some parts of the world where large, underground reservoirs of oil straddle international borders, it is not uncommon for one country to accuse a neighbour of stealing its reserves of oil. It was exactly such disagreements that triggered Iraq's invasion of Kuwait in August 1990, when Saddam Hussein accused his southern neighbour of stealing the resources of the Rumeila field. The same accusations were still being made even a decade later. 'The theft of Iraqi oil by Kuwait is not new', as Saad Qassem Hammudi, a senior member of the Baath Party in the days of Saddam Hussein, alleged in September 2000, 'it is a fact established in Iraqi documents and reports since 1990.'46

When any country is buoyant with oil revenues, political tensions are likely to surface. Disagreements about how any large sums of money should be spent are of course inevitable but can have far-reaching implications if they exacerbate the cause of political separatism. Sometimes this can take the form of a strident nationalism, just as in 1951 long-running disputes about oil revenues ruptured relations between Iran and the United Kingdom. At other times, the provincial and regional governments of those places where oil is found can claim a greater share of the revenues at the expense of a central administration. Regional disputes about how Iraq's petrodollars should be spent, for example, have dogged the Baghdad government since the deposition of Saddam Hussein in 2003. As a later chapter explores in more detail, it is in just the same spirit that the prospect of an oil bonanza is now aggravating tension between Greenland and Denmark.

Although Arctic oil is unlikely to cause a future conflict, the region is also thought to be rich in other natural resources that could perhaps be a cause of rifts and rivalry.

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