Arctic Oil: The Good News and the Bad News

9 September 2010

Arctic Oil: The Good News and the Bad News

By Gwynne Dyer

First, the good news. On 15 September, Russian foreign minister Sergei Lavrov and Norwegian foreign minister Jonas Gahr Stre will sign an agreement in Murmansk that resolves the long dispute between the two countries over their Arctic seabed. So there will be no military confrontation in the Barents Sea between Russia and Norway, a NATO member, over who owns which part of the seabed, even if oil is discovered there.

Now for the bad news. On 15 September Russian foreign minister Sergei Lavrov and Norway foreign minister Jonas Gahr Stre will sign an agreement that resolves the long dispute between the two countries over their Arctic seabed rights. That means that drilling for oil can get underway in the Barents Sea, in waters that are deeper than the BP well that blew out in the Gulf of Mexico – colder waters in which an oil spill would linger for many years

Two years ago, the military and the think tanks in Moscow were obsessed with the prospect of a military confrontation with NATO over Arctic seabed rights. Mention climate change to them, and you would immediately get a lecture about Russia’s right to seabed oil and gas in the Barents Sea and American plots to steal those resources.

About 175,000 sq. km. (67,000 sq. mi.) were at stake. Geologists believe that there may be large oil and gas reserves in the area, but there has been no drilling because for forty years the two neighbours were unable to reach a deal on their seabed frontier.

During the Cold War the area was tense, with NATO maritime patrol planes regularly overflying the area claimed by Russia. Even after the collapse of the Soviet Union the tension continued, leading Norway to carry out a recently completed modernisation of its navy that effectively doubled its capacity to operate in Arctic waters.

Russia and Norway have now resolved the disagreement by dividing the disputed seabed evenly between them. The deal was announced in principle when Russia’s president, Dmitri Medvedev, visited Oslo in April, and now it is ready for signature. It will still have to be ratified by the Norwegian and Russian parliaments, but that is a foregone conclusion.

Now that the confrontation is over, the two countries will probably work together to develop the region’s resources, since Russia needs Norway’s more advanced technology for deepwater drilling in Arctic waters. The returns may be huge, as the Arctic basin is thought to hold up to 20 percent of all the world’s remaining undiscovered oil.

But the downside of this development is that drilling, long stalled by the geopolitical uncertainties of the region, can now begin. It will take place in an environment where storms are fierce and frequent, and sea-ice is a regular seasonal phenomenon. The polar ice-cap is retreating as global warming proceeds, but there will still be ice in the area in winter for several decades to come.

The risk of a major oil spill is hard to calculate, but it certainly exists. Norway has a good reputation for minimising environmental damage when drilling in Arctic waters: Russia’s reputation in this area is much less impressive. But the drilling will probably go ahead anyway, because the oil price remains high and both countries need the cash flow.

This is the first part of the Arctic Ocean where large-scale exploitation of hydrocarbons is likely to happen, because the other two promising areas, in the Bering Strait between Russia and the United States and on the seabed north of Alaska and Canada’s Yukon territory, are still in dispute. Sporadic negotiations take place between the US and Canada, but the US-Russian seabed boundary is not even being discussed by the two powers.

This is because back in 1990, when the old Soviet Union was stumbling towards collapse, Soviet foreign minister Eduard Shevardnadze made a deal with US secretary of state James Baker that accepted almost all of the American claims in the seabed area in dispute between Alaska and Siberia. Russia’s own claims were simply abandoned.

It was an agreement made at Russia’s moment of maximum weakness, and the Russian Duma (parliament) has never ratified it. It never will, just as the US Senate would never ratify a deal that surrendered all of America’s claims.

A compromise like the one just worked out between Norway and Russia is the only way to settle the issue, but which American politician would take the responsibility for giving up seabed territories that belong to the United States under the 1990 accord, however unjust it was? At the moment, the two countries are not even talking about it.
So we may get the worst of both worlds: deepwater drilling in the environmentally vulnerable region of the Barents Sea (which is also home to major fish stocks), and a new cold war over rival American and Russian claims to the seabed in the Bering Strait.

There is also the possibility, of course, that the global response to the threat of runaway warming will be so rapid and effective that the demand for oil and gas will fall faster than existing reserves are depleted. In that case, it might never be economically sensible to start drilling for oil and gas on the Arctic seabed at all. But I wouldn’t bet the farm on it.
To shorten to 725 words, omit paragraphs 5, 7 and 13. (“During…waters”; “Now…oil”; and
“A compromise…it”)