Nations joust but North Pole payoff may be years away
Even as melting Arctic glaciers threaten to swamp shorelines, nations from Russia to the U.S. are betting that warming temperatures also will unlock trillions of dollars in new wealth.
“It is potentially the biggest strategic opportunity in America since the Louisiana Purchase in 1803,” said Scott Borgerson, a former Coast Guard officer and now an adviser at Catalyst Maritime.
President Barack Obama begins a three-day Alaska trip on Monday to underscore the urgency of combating climate change. His visit comes as the Arctic’s potential for oil and gas production and shorter trade routes when the ice melts puts it at the crossroads of economics and geopolitics.
Already, the polar economic dawn includes server farms for companies such as Facebook Inc. and Google Inc., which enjoy lower cooling costs in the north. Possible future rewards include an estimated 90 billion barrels of oil and 1.7 trillion cubic feet of natural gas that await discovery in the Arctic, with the vast majority located offshore, according to a 2008 U.S. Geological Survey report.
Any big financial payoff, however, is probably decades away. Falling commodity prices are discouraging exploration for Arctic oil and gas, while new trade routes across the top of the world are falling short of expectations.
“Arctic development is a lot slower than people thought,” says Malte Humpert, executive director of the Arctic Institute, a Washington-based policy group. “The hype is wearing off. It’ll be many, many years before we see the development people have been talking about.”
That hasn’t deterred Russia, which has been the most assertive, and theatrical, in advancing its claims. In 2007, a pair of Russian mini-subs descended more than two miles below the polar icecap to plant a titanium flagpole on the North Pole’s seabed, a purely symbolic gesture.
Russia, which boasts half the Arctic coastline and depends on the region for roughly a fifth of its national economic output, is expanding its Northern Fleet, upgrading regional facilities and staging unannounced military exercises.
“The Arctic’s incredibly important to Russia,” says Heather Conley, a former State Department official now at the Center for Strategic and International Studies in Washington. “They’re basing their future economic development on it.”
Russia’s not alone. Canada and Norway are preparing their militaries to defend territorial claims and forestall a 19th century-style resource grab. The cash-strapped U.S. Navy is concentrating for now on improving its ability to operate in the unforgiving north.
Oil prices below $50 per barrel— less than half the price a year ago — discourage exploration efforts that incur high costs in the harsh Arctic climate.
One exception is Royal Dutch Shell Plc, which is spending more than $1 billion annually on Arctic exploration. On Aug. 18, the company won U.S. approval to drill in Arctic waters for the first time since 2012 after its efforts were derailed by the grounding of a drilling rig.
“Shell is a bit of an outlier,” James Henderson, senior research fellow at the Oxford Institute of Energy Studies, said in an email. “Other companies have taken a much more cautious approach, for environmental and cost reasons, and this caution will only be further underlined in a low oil-price environment.”
The increasingly ice-free Arctic seas have opened a shortcut between Europe and Asia for ships bearing cargoes such as diesel fuel and iron ore. The sailing distance from Rotterdam to Yokohama via a northern route that hugs the Russian coastline is almost 40 percent shorter than the one through the Suez Canal, the Indian Ocean and the South China Sea.
Yet only 31 vessels transited that route last year, down from 71 the year before, according to the Northern Sea Route Information Office in Murmansk, Russia. Those dozens are dwarfed by more than 17,000 ships that passed through Egypt’s Suez Canal in 2014.
A second polar route — the fabled Northwest Passage sought for centuries by mariners such as Henry Hudson — has seen only a handful of vessels. Submerged ice formations that rise from the seabed and complex channels discourage traffic.
Despite the thaw, the northern route is still open only four-and-a-half months each year. Even then, the possibility of encountering ice makes it poorly suited for container cargo ships, which require precise scheduling. Shallow waters and a lack of navigational aids further complicate the journey.
While the route makes sense for trade between ports such as Japan’s Yokohama and Rotterdam in the Netherlands, many major export hubs in Vietnam and Indonesia are too far south, says Sverre Bjorn Svenning, research director at ship brokers Fearnleys in Oslo.
“If you go south of Hong Kong or south of Rotterdam, it’s cheaper on the traditional route,” he said.