The Melting Arctic: A Fragile Frontier of Riches and Risk Opens for Business

'The burning of fossil fuels is creating opportunity to find more fossil fuels to burn' is how Sen. Al Franken framed the painful paradox.

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The Arctic is estimated to have nearly one-quarter of the world's remaining untapped oil-and-gas reserves, and everyone wants a piece. Shell's dangerous failed attempt in 2012 to tap Arctic oil and plummeting oil prices have not stopped the company from declaring that it would return to the Arctic in 2015. Credit: Royal Dutch Shell's grounded drilling unit Kulluk in 2012/U.S. Coast Guard

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In the summer of 2014, Crystal Cruises announced the latest in its opulent adventures: a 32-day voyage from Alaska to New York, via the Northwest Passage––the world’s first luxury-liner cruise through the icy North.

Never mind that the passage across the top of the Earth is encased in ice much of the year, and that the 1,070-passenger cruise wouldn’t take place until 2016. And never mind that the least expensive ticket would cost $21,000 a person.

It sold out in three weeks.

With the Arctic warming at twice the rate of the rest of the globe, its disappearing sea ice is opening up more than cruise ship lanes. The melt is igniting a debate over how much development and commercial shipping should be allowed, what it means for the ecosystems involved, and whether the huge stores of oil and natural gas once locked underneath that ice should be extracted or left alone.

These are big questions, along with the biggest one: What does this all mean for the future climate?

The Arctic is estimated to have nearly one-quarter of the world’s remaining untapped oil-and-gas reserves; while Russia and Norway are the only countries making significant strides in developing their resources so far, everyone wants a piece. The shipping routes that are becoming accessible—the Northwest Passage, where the Crystal Serenity will cruise, and the Northern Sea Route—offer unprecedented access for China and other eastern nations to bring their goods to the rest of the world. Those routes also provide a seasonal supplement to the Panama and Suez canals, which require ships to travel farther.

But the potential development in the Arctic is possible only because of global climate change; if those resources are developed, the further impact on the climate could be devastating. It’s not just about the polar bears, the iconic kings of the Arctic, whose threats from climate change are well documented. A recent study in the journal Nature found that to keep global warming within the 2-degrees Celsius safe limit for all species, the Arctic’s estimated 100 billion barrels of oil and 35 trillion cubic meters of gas “should be classified as unburnable.” In other words, off limits.

It’s a paradox that Sen. Al Franken (D-Minn.) pointed out during a March 5 hearing on economic and strategic opportunities in the Arctic. “So we have a bit of an ironic situation here, do we not?” he asked. “Where the burning of fossil fuels is creating opportunity to find more fossil fuels to burn.”

The environmental implications of oil-and-gas development of the Arctic go beyond carbon emissions. Should a spill occur, it’s not known how fast or how widely the oil would spread under the ice. An additional complication: The remote location and lack of infrastructure would hinder a speedy recovery. On the shipping side, the intergovernmental Arctic Council has identified the release of oil—either by accident, or through illegal discharge—as the greatest threat to the Arctic’s fragile marine environment.

READ: Meltdown: Terror at the Top of the World

Meanwhile, in the background yearning to be heard, are the four million inhabitants of the Arctic who live in remote communities where food and jobs can be scarce. In many cases, these native communities have maintained a subsistence lifestyle. As they dream of prosperity, many in these communities are stressing a compromise of sorts: development, yes, but in a way that will protect the environment they depend on to survive.

The eight Arctic nations—Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the United States—serve as arbiters for the region. They say they are aware of the fragility of the ecosystem that they are prospecting, and have pledged to create sustainable development that takes climate change and people’s lives into account. But it’s unclear how much that awareness will temper the pace of development.

Obama’s Alaska—and Russia—Hurdle

Though there is some oil-and-gas development underway (primarily by Russia) and the northern shipping routes are seeing a slight uptick in traffic, the debate about the Arctic isn’t really about what’s going on now. It’s about what’s just around the corner.

The decisions being made now in the political, regulatory and diplomatic spheres will lay the groundwork for the Arctic’s future and will have a permanent impact far beyond the shrinking perimeter of the icy North.

WATCH: Documentary video of Meltdown: Terror at the Top of the World

In late January, U.S. policymakers, environmentalists and representatives from industry met at the Arctic Encounters Symposium in Seattle. They spent two days debating the path forward for the United States in the Arctic. The meeting came in the immediate wake of a few blockbuster announcements from the White House that signaled a slowdown of Arctic development in the face of climate change. Many in the crowd, which included strong Alaskan representation, were unhappy.

Sen. Lisa Murkowski (R-Alaska), who had referred to herself as “a big resource development kind of gal” earlier in the symposium, described the actions as an “assault,” reiterating the strong language she had used soon after the announcements.

“Let’s not forget about those that live and work and raise their families there and have been doing so for thousands of years,” she said as she argued that Alaska’s resources must be developed—and soon. The state faces a $3.6 billion budget deficit currently, largely thanks to rock-bottom oil prices in late 2014.

In early March, Murkowski and Sen. Angus King (I-Maine) announced the creation of an Arctic Caucus in the Senate.

“As the climate changes and [the] Arctic continues to open, the strategic significance of the region will only grow more important,” King said in a press release. “That presents us with an extraordinary opportunity to work collaboratively with other nations, but it’s going to take leadership and preparation on the part of the United States.”

Beyond the halls of the Senate, the United States is stepping into a bigger role internationally.

This spring, the United States will take over leadership of the Arctic Council, the intergovernmental body that consists of the eight Arctic states and a number of observer nations. The council can’t make law, but it uses high-level negotiations and studies to create policies that are often adopted by member nations. Every two years, a different country assumes the chairmanship. When the U.S. claims that role, it will signal a significant shift in priorities from the most recent leader, Canada, which focused primarily on development of the North’s economy, infrastructure and natural resources.

The incoming delegate for the U.S. (as named by Secretary of State John Kerry), retired Coast Guard Adm. Robert Papp, has retained development as one of the three goals for the U.S. chairmanship. Papp named climate change preparedness and stewardship of the Arctic Ocean as the other priorities.

The U.S. has a rigorous plan for its tenure: to further reduce short-lived but potent greenhouse gas emissions like black carbon and methane; and to advance research into ocean acidification; among other objectives. One of the challenges facing the Arctic is that the science is being conducted in disparate regions, with little communication or coordination. One of the U.S.’s goals will be to coordinate science and resources across all of the council’s nations, in order to enhance climate science Arctic-wide.

Domestically, Papp has acknowledged that he faces a challenge in explaining the Arctic’s importance American policymakers and the American public.

“We’re hopeful that we can bring the most senior levels of our government to Alaska for events and draw the attention of the American people to the needs that exist in the United States portion of the Arctic,” Papp recently testified before the Senate.

Alaskans in particular—including state and federal legislators, and some members of native communities—are concerned that the focus on climate change will undercut the plans to further develop the oil-and-gas industry in the U.S. Arctic.

In her testimony at the Arctic Opportunities hearing before the Senate Committee on Energy and Natural Resources, Charlotte Brower, mayor of Alaska’s North Slope Borough, said she is concerned about the impact that recent decisions will have on the people she governs, whose livelihoods rely on oil-and-gas development and infrastructure in the area.

“Policies aimed at blocking resource development across America’s Arctic will usher in the end of this era of prosperity,” she said. “And when these decisions are made without meaningful local input, they are at best paternalistic, and at worst exploitative.”

As officials navigate that storm at home, there’s another one already in full force on the council: Russia. Though the council has been a good example of functional diplomacy, sanctions against Russia in its ongoing war against Ukraine have filtered into the council’s work. As international leaders—including those from the Arctic Council nations—have vocally condemned Russia’s actions in Ukraine and raised eyebrows over its show-of-force military buildup in the Arctic, the tensions have resulted in problems like difficulty getting visas for Russian delegates to reach the far-flung meeting locations.

“Obviously the tensions spill over in some ways in terms of who comes to meetings, who is comfortable,” said Fran Ulmer, the chair of the U.S. Arctic Research Commission. “And in some instances there has been a slowdown of the flow of information that one would hope for.”

A Shell Game With the Highest Stakes

On a conference call with shareholders in late January, Royal Dutch Shell made a bold announcement. Despite shockingly low oil prices, and despite a 2012 attempt that had resulted in utter failure, Shell would be returning to the Arctic in 2015.

“This year, we’re planning on drilling in Alaska subject to getting the permits and the legal clearance,” chief financial officer Simon Henry said on the call.

Clearing the obstacles that Henry mentioned—the permits and legal clearance—may be easier said than done. Before Shell can head northward, Interior Secretary Sally Jewell has to issue a final decision on a court-ordered study of the environmental impacts of oil-and-gas leasing in the Chukchi Sea. That decision will uphold existing leases—including Shell’s—vacate the leases, or modify them. She is expected to rule on that by the end of the month.

Afterwards, provided the leases are upheld, Shell will need approval from the Bureau of Ocean Energy Management (BOEM) for its revised exploration plan.

Provided those things happen, Shell plans to have two drilling rigs in the Chukchi Sea to complete two exploration wells.

There’s a narrow window to drill there. “The open water season is July 15 to October 15, sea ice permitting,” said Curtis Smith, a spokesman for Shell. “Mother Nature is in charge.”

In 30 years of drilling in the Arctic, six exploration wells have been drilled in the Chukchi Sea, as well as 31 in the Beaufort Sea, according to Jim Kendall, BOEM’s Alaska Region director.

The Chukchi and Beaufort seas are home to five areas that President Barack Obama recently made off limits for drilling, which angered some Republican lawmakers. Four of the areas—two in each sea—had previously been designated temporarily off limits, but the new order added the Hanna Shoal, an ecologically rich area in the Chukchi Sea where marine mammals migrate; and the president’s order protected all five areas permanently.

Obama issued a similar order in mid-December, when he declared the Bristol Bay off limits to oil-and-gas leasing.

At the same time, the Interior Department released its draft five-year program for oil-and-gas leasing on the U.S. Outer Continental Shelf. That program includes three possible lease sales off the coast of Alaska.

In late February, the Interior Department also released its proposal for the first-ever Arctic-specific drilling rules. The rules would require companies to have contingency plans for responding to and containing oil spills in the Arctic environment.

There are a few chilling factors currently at play—like the low price of oil and the Western sanctions against Russia, which recently caused Exxon to suspend its Arctic exploration work with Russian company Rosneft—but most companies are playing the long game. Just before Christmas 2014, Denmark argued to the United Nations that it has a claim to some of the resources in the High North, thanks to Greenland’s continental shelf.

About a month later, Norway opened up new areas for leasing for the first time since 1994. In announcing its decision to advance its drilling program in the Arctic, the Norwegian government credited the cause for this opportunity for development: the retreat of the ice edge as a result of climate change.

Potential for a Spill ‘Very Real’

In early March, the National Snow and Ice Data Center announced that February had seen the third-lowest Arctic sea-ice extent since the beginning of the satellite record—nearly a million square miles below the historical average from 1981-2010. When the sea ice reaches its maximum level for the year later this month, it could be the lowest ever, according to the NSIDC’s projection, based on current trends.

Many scientists project that the Arctic could see its first ice-free September by the end of the century. Some say it could happen as soon as 2020. Either way, with the channels opening up, experts say it’s just a matter of time before the northern shipping lanes start seeing significantly more traffic in the ice-free summer months.

As a home for shipping, the Arctic has a number of unique conditions. In addition to the unpredictable ice and periods of 24-hour darkness, the Arctic Ocean is also the globe’s shallowest––and large swaths of it are unmapped. It’s also home to marine mammals like polar bears, walrus, bowhead whales and others whose migratory routes crisscross the region––and upon which many Arctic communities depend for their subsistence lifestyle.

The next decade will bring a 200-275 percent increase in vessels in the U.S. Arctic and the Bering Strait, according to a mid-range estimate from a recent report commissioned by the U.S. Committee on the Marine Transportation System. At the same time, the International Council on Clean Transportation projects a correlated rise of 150-600 percent in emissions.

And yet there are currently no uniform, international Arctic-specific rules for shipping. Instead, there’s a disparate hodgepodge of rules from Arctic nations—except in the United States, where there are no Arctic-specific rules at all.

Ships operating in the U.S. Arctic without environmental regulations could lead to an increasing impact on human health and the global climate, according to the ICCT report.

“In a few decades, if not sooner, the Baltic will look like the Great Lakes,” said Dr. Lawson Brigham, distinguished professor of geography and Arctic policy at the University of Alaska Fairbanks and a retired career Coast Guardsman. Brigham pointed out that stark reality at the Arctic Encounters Symposium.

He chaired the Arctic Council’s Arctic Marine Shipping Assessment, which examined the current and future realities of shipping in the Arctic. He’s been involved in developing the Polar Code for more than 20 years, and now is a member of the United States’ delegation to the International Maritime Organization (IMO), the United Nations agency responsible for international maritime issues.

With an eye toward the expected increase in shipping, the IMO is hashing out the long-awaited Polar Code. The first phase of the code, which deals with safety in shipping, was adopted in November. The IMO is expected to adopt the second phase, which focuses on the environment, in May.

“The Polar Code is a historic and important new regime or framework for the Arctic Ocean. And they don’t come around that often,” Brigham said. “It doesn’t include all issues being addressed, but it is hugely comprehensive and it’s a regime that, when you have all of the maritime states negotiating this thing, it’s what we can get today.”

In addition to the U.N. parties negotiating the code, a few organizations, including the group Pacific Environment, are present as consultants. Kevin Harun, the Arctic program director of Pacific Environment, has been active in the Polar Code negotiations. Though he points to some progress with the new code, he also points to one glaring omission: the regulation of heavy fuel oil, which is not covered in the code.

“The potential for a grounding and spill is very real,” Harun said.

One obstacle in addressing the use of heavy fuel oil is that many of the ships active in the Arctic are smaller vessels, which carry goods to remote communities that are otherwise cut off from the rest of the world. These ships run on heavy fuel oil, and forcing them to make a change presents major hurdles.

The fuel is a thick residue from the crude oil refining process, and it contains many of the contaminants that are removed from lighter fuels. It’s inexpensive and easy to get hold of—but particularly slow to break down in the event of a spill or leak.

In 2010 heavy fuel oils were outlawed in Antarctica, with a few safety and search-and-rescue exceptions. But the types of ships sailing near Antarctica represent different interests—namely, research and cruises—than the shipping-and- resource-development traffic expected in the Arctic.

The shortcomings of the code, Harun says, don’t stop with heavy fuel oil. Another problem, he said, is that much of the Arctic Ocean remains a mystery. “They really don’t know all the routes,” Harun said. “They don’t have everything charted.”

Indeed, at the Arctic Encounter Symposium, the head of the Coast Guard in Alaska, Rear Adm. Daniel Abel, pointed to blank spaces in the chart of the ocean around Alaska. Little is known about those areas, which is why since 2010, the Coast Guard has been working on a Port Access Route Study. The study identifies a few channels that are well-charted, allowing for safe passage. “We’ve finished the mapping and we can assure you that you’ve got good water in those lanes,” Abel said.

But only in those lanes. Outside of those, there are marine mammal migratory paths, unknown depths and a far-reaching continental shelf to contend with.

Right now, there are few ships travelling Arctic waters, but that won’t last, said Marilyn Heiman, director of the U.S. Arctic program for The Pew Charitable Trusts.

“The projections are for [the number of ships] to increase over time,” she said. “I think we need to look at that…We don’t have capacity to respond.”

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