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Ships wait in harbor at Spitzbergen, Norway (Photo: Irene Quaile)
Image: DW/I. Quaile

Arctic Business

Irene Quaile
January 29, 2013

Interest in the economic potential of the Arctic is on the rise. Oil, gas and polar shipping lanes were high on the agenda at the annual Arctic Frontiers conference recently in Tromsö in Norway.


When a Russian research submarine put a Russian flag on the seabed 4,200 meters below the North Pole in 2007, the message was clear. Political and economic interest in the "high north" of the planet is growing, as the changing climate makes the Arctic more easily accessible.

The Arctic is warming twice as fast as the rest of the earth. 2012 saw a record melt of the summer sea ice. While concern about the effects of the continually warming world are growing, businesses and governments in the Arctic region are hoping to profit from easier access to the natural resources locked below the ice.

Valuable minerals and around a quarter of the world's still undiscovered reserves of oil and gas are thought to lie in the Arctic. New northern shipping routes becoming navigable in summer could drastically reduce transport time between the world's commercial hubs.

The former and new routes across the Arctic are shown in this DW graphic. --- DW-Grafik: Peter Steinmetz
Ice-free shipping lanes would reduce transport times

Who owns the Arctic?

"The Arctic, like every other region, belongs to the states in the region", Swedish Arctic Ambassador Gustav Lind told DW. Sweden currently holds the rotating two-year chairmanship of the Arctic Council. Canada, the USA, Russia, Norway and Denmark (with Greenland and the Faroe Islands) make up what is known as the Arctic states. Their northern European neighbours Finland, Sweden and Iceland are also members of the Council. Germany, France, the UK, Poland, Spain and the Netherlands have the status of permanent observers.

The organisation coordinates research and development activities in the polar region. During the annual Arctic Frontiers conference in the Norwegian city of Tromsö, the Council opened a new permanent secretariat there. The conference itself illustrates the growing interest in the region, with a thousand delegates from 26 countries attending over the week. And, interest in joining the Arctic club is growing. During the Tromsö gathering, top-ranking representatives from China, Japan, South Korea and the EU reiterated their interest in also taking on observer status.

Territorial claims in the Arctic Ocean are continuing. By international law, each of the five Arctic states has a right to an economic zone stretching 200 nautical miles from its coastline. However, according to the UN Law of the Sea (UNCLOS), a country can claim additional territory if it can prove its continental shelf continues underwater.

China's ice breaker Xuelong or
China has invested in new icebreakers for the ArcticImage: picture-alliance/dpa

Russia, Denmark and Canada are claiming further territory. The USA has not ratified the UNCLOS convention. The Commission on the Limits of the Continental Shelf has so many claims to deal with that it could take years or even decades to reach an agreement.

Energy from the frozen North

Meanwhile the race to get at the Arctic's valuable resources is continuing. Some 90 billion barrels of oil are estimated to lie in the Arctic region. But multinational oil companies are only prepared to start drilling activities if the legal and economic conditions are right.

The price of energy is one key factor, according to Arctic expert Charles Emmerson from the British think-tank, Chatham House. The rapid expansion of shale gas production in the USA, for example, has relieved pressure on the worldwide energy market, he told DW. The other issue is the companies' reputation. "It is not just about technical expertise, but about the wider public sense that it is not a good idea and if something goes wrong, you are held accountable", said Emmerson.

Since the Kulluk, a drilling rig owned by Shell, ran aground off Kodiak Island, Alaska at the end of 2012, a US commission has been set up to examine the safety procedures of the company's Arctic programmes. Critics say the accident demonstrates that Arctic drilling is too risky. There is widespread agreement amongst experts that shipping, oil or gas accidents would be very difficult to tackle. The consequences for the environment could be disastrous.

This aerial image provided by the U.S. Coast Guard shows the Royal Dutch Shell drilling rig Kulluk aground off a small island near Kodiak Island Tuesday, Jan. 1, 2013. No leak has been seen from the drilling ship that grounded off the island during a storm, officials said, as opponents criticized the growing race to explore the Arctic for energy resources. (Foto:U.S. Coast Guard/AP/dapd)
The Shell-rig "Kulluk" ran aground off AlaskaImage: AP

Another key energy project in the Russian Arctic was delayed in 2012. The Shtokman gas fields in the Barents Sea are amongst the biggest in the world. But the drilling project was halted. Professor Marcel Gubaidullin, Director of the Institute for Oil and Gas at the Lomonosov University in Archangelsk, told DW it was proving too expensive to extract the gas in this extreme location.

Faster shipping lanes from Asia to Europe?

By 2040 at the latest, possibly much earlier, the Arctic ocean could be ice-free in summer. This could lead to the opening up of a Central Arctic shipping route, which would drastically shorten transport times between Europe and Asia and North America.

International companies are already making increasing use of the Northern sea route to transport gas and other commodities. The North East passage, which goes along the Russian coast, shortens the distance between Shanghai and Hamburg by 6,400 kilometers (3976 miles), cutting travel time by more than a week.

In May, Canada will be taking over the chairmanship of the Arctic Council for the next two years. Leona Aglukkaq, the Canadian Minister responsible, made it clear in Tromsö that the economic development of the region will have top priority during that time.

Although environment organisations are highly concerned about the possible impacts on the sensitive ecosystem, interest in Arctic oil and gas are likely to increase in the coming years. Instability in traditional gas and oil-rich regions like the Arab world could make companies more willing to invest in areas which are less politically volatile, like the Arctic.

A cruise ship steers through waters off Greenland (Photo: Irene Quaile)
The Arctic's melting ice also means cruise ship companies can now operate more easily as wellImage: DW/I.Quaile

Energy is a global issue, as participants at the Arctic Frontiers meeting found out first-hand. Norwegian premier Jens Stoltenberg had to cancel his appearance at the conference, following the recent attack by Islamic extremists on a gas plant in Algeria. The Norwegian energy giant Statoil is one of the operators.

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