In early August 2007, a group of Russian explorers and scientists in two miniature submarines descended 4km through the Arctic’s icy waters and planted the country’s tricoloured flag on the seabed directly below the North Pole.
In so doing, they set off what diplomats and environmentalists fear could become a race between nations to develop the vast oil and gas riches of a once impenetrable frontier.
The concerns are well founded. As the Russian scientists began their expedition, a crunch in the supply of oil and gas was already beginning to develop. Oil prices were well into their steady ascent to the $147 a barrel record they would reach less than a year later, as energy companies struggled to meet surging demand, especially from China.
The rate of success among oil explorers was so poor that several energy chief executives began to muse that the last huge oil field outside the Arctic had probably already been found.
Barely a week after oil prices hit their record, the US Geological Survey announced that it believed the Arctic held 13 per cent of the world’s undiscovered oil resources and one-third of its undiscovered gas resources. The 1,669,000bn cubic feet of natural gas believed to be trapped beneath the Arctic is as much as Russia, the country with the world’s largest gas reserves, is known to hold. The 90bn barrels of oil the USGS has mapped is as much as the known reserves of Algeria, one of north Africa’s two members of the Organisation of Petroleum Exporting Countries.
Rising global temperatures could eventually leave much of the Arctic ice-free in the summer, making exploration and production easier, and tankers could eventually travel along a north-west passage from the Atlantic to the Pacific.
But despite this opportunity, the rapid melting of the Arctic – which has progressed three times faster than predicted – is opening up the means to release much more greenhouse gas into the atmosphere, through the burning of its vast reserves of fossil fuels. Environmentalists warn that if these supplies are exploited, global warming will proceed at an even faster rate.
Commercial interest is already well established, with many closer parts of the Arctic well within the technical scope of being explored and developed. Norway’s StatoilHydro is already active north of the Arctic circle at its Snohvit liquefied natural gas plant in the Barents Sea. Russia’s Gazprom is in the early stages of its endeavour to tap the giant Shtokman gas field with help from Total of France and Statoil.
In a recent interview, Helge Lund, Statoil’s chief executive, told the Financial Times that the company is “working full speed ahead” towards making a final investment decision on the remote $15bn-$20bn project that will demand new technologies, some of which still have not been fully developed.
Meanwhile, Denmark has attracted the likes of ExxonMobil and Chevron, the two biggest US energy groups, along with several smaller players, to explore off the western coast of Greenland, its semi-autonomous territory. And earlier this year Royal Dutch Shell, Europe’s biggest energy group, won the right to explore the remote part of Alaska’s Arctic North Slope.
On the diplomatic side, things have been no less busy. The Arctic’s riches lie within Russia’s grasp, according to the USGS. But other countries are lodging their claims with the United Nations.
Russia, Canada, Norway and Denmark (through its control of Greenland) are all collecting evidence to show their continental shelves extend towards the Arctic. This would extend their territorial waters beyond 200 miles offshore and give them a larger potential area to exploit. The US has not signed the relevant convention, making it impossible for it to do the same.
The nations’ interests became so intense that, even before the USGS report emerged, Denmark found itself compelled to call a summit of the five Arctic powers in Ilulissat, Greenland to try to calm tempers. Most countries sent their foreign ministers – a relatively high rank given that the participants were ostensibly being asked to do little more than reiterate their joint commitment to the UN’s Convention on the Law of the Sea, that governs territorial waters.
Juan Trippe, professor in international trade and finance at the Yale School of Management, proposed an even more ambitious plan: the establishment of an Arctic authority modelled on the European Coal and Steel Community established in 1951, to which six European nations ceded sovereignty over their coal and steel resources.
Falling oil prices and the credit crisis may have shoved energy security from the forefront of politicians’ minds, but the International Energy Agency, the developed world’s energy watchdog, has warned that the current drop in demand is just temporary and that the world will have to make huge investments to ensure there will be enough energy for the next two decades.
But if the Arctic fossil fuel resources are exploited, the world may end up having to pay a much higher price than the rising cost of oil.
Carola Hoyos is chief energy correspondent