New opportunities come with big risks as climate change opens up the Arctic
From creating new shipping channels, to accessing previously unreachable oil and gas wells, climate change is presenting companies with new economic opportunities in the Arctic. But the risks posed by a changing climate may make companies think twice about moving in to one of the world’s most challenging environments.
Speaking to an audience of industry specialists at The Economist’s Arctic Summit yesterday, Greenland’s prime minister Aleqa Hammond said climate change was “remapping the world”, allowing companies to explore the Arctic’s economic potential like never before. That means countries such as Greenland are now “open for business”, she said.
Industry representatives weren’t so optimistic, however. They maintained that while climate change does make it easier for companies to access the Arctic, it remains a challenging environment to operate in – with climate change creating risks as well as opportunities.
Tough conditions
Arctic sea ice is thawing at greater rates year by year, providing new opportunities for mining, fuel production and tourism. But the Arctic’s extreme cold and remoteness make it a challenging environment for companies to operate in. The rapidly changing climate makes it difficult to ensure safety, in particular.
Energy companies are obligated to plan for the worst, and that means being prepared to deal with oil spills or leaking wells. While the industry has a wealth experience of dealing with such disasters in less challenging environments, more research is needed to understand the Arctic’s specific risks, according to Tom Bolt, performance manager for insurance company Lloyd’s.
Bolt argued that companies were yet to properly understand the difficulties of dealing with unexpected events in the Arctic’s extreme conditions. With the nearest airports potentially hundreds of miles away, and changeable weather conditions making access near impossible at times, he said companies needed to work out how to ensure emergency services would be able to access sites in the event of a disaster.
So while climate change may make the Arctic more accessible, the risks once companies are there remain high.
In some cases, the region’s rate of change adds to the risk. For instance, while sea ice retreat is opening up new Arctic shipping routes, the melting of the ice sheets makes them unpredictable.
As the ice sheets melt, large chunks can separate and flow through the channels, putting ships in danger, said Frigg Jorgensen, executive director of the Association of Arctic Expedition Cruise Operators. Furthermore, researchers and companies are yet to map a lot of the new routes, making them potentially perilous.
Iceland’s minister for foreign affairs, Gunnar Bragi Sveinsson argued that such environmental risks mean companies have actually been relatively slow to exploit new opportunities in the Arctic.
Arctic bubble
Climate change also poses an economic challenge to companies wanting to exploit the Arctic’s resources. Some research suggests that if governments are going to keep their promise of constraining global warming to two degrees above pre-industrial levels, the Arctic’s fossil fuels will have to be left in the ground.
Despite a question from the audience about whether Arctic oil and gas might be a ‘carbon bubble’, Runi Hansen, vice-president of Statoil’s Arctic Unit, said he expected Arctic oil and gas production to be an important energy source in the future. Statoil expects Arctic fuels to fill a gap left when existing reserves run out, he said.
But Arctic oil production remains a long way off, according to Hans Kristian Olsen, managing director of fossil fuel company, Nunaoil. He said it could be 10 to 20 years before oil is produced in Greenland.
Energy companies such as Statoil wouldn’t be investing in the Arctic if it didn’t believe fossil fuel demand would continue to be high for decades, Hansen argued.
Such long term planning suggests companies are betting on weak climate legislation or radical advances in the development of CCS technology to allow fossil fuels to be burned long into the future. Otherwise, investing in the Arctic’s fossil fuels simply wouldn’t be worth their while.
Gamble
It may be the case that oil and gas companies will have their hand forced by the risky nature of Arctic resource exploration, however.
One of the world’s biggest energy companies, Shell, pulled the plug on its Arctic programme earlier this month after profits plummeted.
It has so far invested over $5 billion on the project with little return, according to the ThinkProgress blog. Shell’s Arctic exploration had been beset by problems for years, with dangerous conditions, equipment failures and public campaigns against its activity adding to the cost.
So while climate change may present fresh opportunities for companies to exploit the Arctic’s resources, the experience of those currently trying to do so highlights the risks, rather than the rewards.