Is the Arctic the new El Dorado of black gold?

Translated by Marine El Hajji

With global warming, new opportunities seem to be arising in the Arctic whether in terms of transportation – with the new sea routes opening ‘thanks to’ the ice melting, for example – or in terms of energy exploitation.

In our economies that are extremely focused on productivism, oil is naturally the key resource. And as it is becoming increasingly scarce through exploitation, the discovery of new oil fields is a crucial issue. With the Arctic climate becoming mellower, oil fields are now more easily accessible.

But should we really consider the polar area as the new world oil well?

An expensive – maybe too expensive – exploitation?

The exploitation of polar resources is quite a complex matter. First of all, three quarters of the Arctic deposits consist of offshore oil deposits which entails more expensive infrastructures and higher risks due to isolation and the fact that these exploitations are offshore. Temperature may be rising but the climate conditions remain extreme. It is therefore necessary to have some equipment designed to resist low temperatures. At sea, global warming causes more ice blocks to drift, and they create a hazard for offshore platforms and ships.

As for the onshore deposits, new constraints arise due to global warming, such as sink holes caused by melting permafrost. Some transnational firms have thus been forced to postpone or give up on projects altogether, like the company Shell in 2015 in Alaska.

So, the exploitation costs of a deposit in the Arctic are very high. According to Loïc Simonet, Doctor in Law and specialist in energy geopolitics and international law, it could vary from 1 to 10 billion dollars. The production of a single oil barrel can cost from 35 to 100 dollars, while it may only be 5 dollars in Middle East, and that is not even including the cost of transportation. Indeed, Arctic sea routes, more practicable as they may be, remain nonetheless restrictive and require ice-breaking ships as well as oil and gas pipelines able to withstand the Arctic climate.

An Exploitation Dependent on Oil Price

It seems therefore that hydrocarbon exploitation in the Arctic is not very profitable, all the more so because the profitability of the exploitation depends on the price per barrel of oil. So as long as the price per barrel is low, Arctic’s oil remains unprofitable compared to the Middle East’s oil.

Furthermore, the price needs to be structurally durable for a new resource to start being exploited. Which is not the case, as the various economic crises can very well result in a rapid reduction of prices. The health crisis we are currently experiencing does not provide a favourable ground for the profitability of oil and gas exploitation in the Arctic.

An Overly Enthusiastic Representation

It also seems that profitability is even more limited as three quarters of the hydrocarbons in the Arctic consist of gas instead of oil. Gas does not hold the strategic value of oil, and the American shale gas is a formidable competitor.

The depiction of huge oil reserves in the Arctic is very questionable as well. Camille Escudé-Joffres, an associate professor of geography, reminds us that these numbers are but an estimation. The presence of hydrocarbons in some areas is not even always certain. The study conducted by the American Geosciences Institute in 2008 claims that the Arctic hosts 29% of the world gas reserves and 13% of the oil reserves. However drill programmes carried out proved to be disappointing ventures.

Obvious Environmental Damages

Lastly, the exploitation of hydrocarbons in the Arctic has dramatic environmental consequences. Be it leaks in oil pipelines or accidents, it is undeniable that these enterprises carry exceptionally negative implications on the polar region. A Greenpeace report published in 2014 estimates that every year more than 30 million barrels of oil were leaked in Russia alone.

Therefore, many non-governmental organizations, associations of Aboriginal people and States have joined forces to fight against the exploitation of the Arctic. Even though many of them – including some Aboriginal peoples – view these new activities favourably, as it could be a source of new economic growth and revenue streams, the countries bordering the Arctic hesitate and often teeter between protection and exploitation. Some of them have declared their territory a sanctuary for fear of environmental disasters. It is exactly this case for Norway, primarily for touristic reasons, as a polluted area is not very attractive.

Conclusion

Despite the increasingly mellower temperatures in the Arctic, the region seems far from being the new El Dorado of oil exploitation. Constraints are far too numerous for its profitability and ability to stand a chance against the Middle East.

However, technological innovations and rising oil prices could stir up appetites for someone. The Arctic is already being exploited for its hydrocarbons and as a result serious environmental damages have been identified. Further exploitation of this area would put at risk an already fragile environment.

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