Vancouver, Canada - The publication last week of a U.S. Geological Survey (USGS) on potential fossil fuel resources beneath the shrinking polar ice cap has highlighted what could become the next great play in the global energy market. Circumpolar countries are already staking overlapping territorial claims to this vast territory and the prospect of a new polar sea route between Asia and Europe has reignited Canada-US tensions with respect to sovereignty over northern waters. Lost in the debate at times are the escalating environmental implications of opening up the frozen North.

No one ever doubted the Arctic was rich in energy resources - but until now the scale of that wealth was known only to researchers and industry insiders. Now, however, the facts are out for all to see and the message is as unsettling for those concerned about the environment as it is pleasing to those who seek to exploit this treasure chest of fossil fuel reserves.

The U.S. Geological Survey’s first publicly available petroleum resource estimate of the entire area north of the Arctic Circle reveals an estimated 90 billion barrels of undiscovered, technically recoverable oil; 1,670 trillion cubic feet of technically recoverable natural gas; and 44 billion barrels of technically recoverable natural gas liquids - in 25 geologically defined areas, most (84%) of which are in offshore locations.

This represents about 22% of the world’s undiscovered but technically recoverable fossil fuel resources: 13% of undiscovered oil; 30% of undiscovered natural gas; and 20% of undiscovered natural gas liquids. 

 According to the survey, more than half of the undiscovered oil resources to occur in just three geologic provinces - Arctic Alaska (30 billion barrels), the Amerasia Basin (9.7 billion barrels), and the East Greenland Rift Basin (8.9 billion barrels). On an oil-equivalency basis, undiscovered natural gas is estimated to be three times more abundant than oil in the Arctic, +70% of which is estimated to lie in three provinces - the West Siberian Basin, the East Barents Basins and Arctic Alaska.

Donald Gautier, the USGS geologist in charge of the survey, noted in a recent Globe and Mail article that, "There are geological places in the Arctic that no one has even thought of before from the point of view of oil and gas potential." Some of these potential reserves located off Canada’s Arctic coast are technically recoverable using current drilling methods.

What has heated up the play in the Arctic is not just the enormity of the potential recoverable resources but the combined influence of climate change and rising oil prices that have put Arctic oil and gas into play much sooner than many had believed even five years ago.  The dramatic decline in the summer polar ice cap - down 50% since the 1950’s - has made open water access for oil and gas exploration and development much easier.  Some analysts assert that resources that many thought might never be tapped could conceivably come on line in 15 to 20 years.

Even then, the costs involved will be very high.  Arctic conditions are difficult under any circumstances and moving product to market could be very expensive, not to mention there is a global shortage of both drilling rigs and experienced oilfield personnel.  Rough estimates of pipeline costs, such as those planned for the Mackenzie Delta and the Alaska North Slope, range upwards of $1.5 - to $2-million per mile while costs for offshore pipelines further north, could easily be four or five times higher.

The Arctic Resource Rush Is On

Resource companies are investing heavily in Arctic activities and major decisions are pending that could shape the pace of Arctic resource development for the next decade.

• BP, which operates the huge Prudhoe Bay field in Alaska, has signed a $17 billion exploration agreement with Russia.
  
• Exxon-Mobil spent $600 million for the rights to explore a tiny lease in the Beaufort Sea, and this year BP paid $1.2 billion to explore in the same region.
  
• The U.S. Bureau of Land Management announced last week that itwill sell lease rightsfor oil and gas explorationin 2.6 million acres ofthe National Petroleum Reserve-Alaska.
  
• The Alaska State Senate will decide this week on whether to issue an exclusive license to pursue federal certification for the 1,715-mile pipeline to TransCanada Corp., a Canadian company. If approved, TransCanada could receive up to $500-million (U.S.) of government funding to advance the project to the construction stage by 2014. That project is expected to cost between $26 billion and $30 billion, more than 60 per cent higher than the estimated cost for the proposed Mackenzie gas pipeline in the Northwest Territories.
  
• Imperial Oil and its partners - ConocoPhillips Canada, Shell Canada Limited. ExxonMobll Canada and the Aboriginal Pipeline Croup (APG) - say the earliest the Mackenzie Pipeline project could be on line is 2014, three years later than the original startup target of 2011 and at $16.2 billion and rising, far more than the original estimate of $4 billion.  The stakes are high. If the Alaska Highway pipeline goes ahead, it will delay or kill the Mackenzie Valley project, negating the $100 million so far invested in research, training, socio-economic agreements, negotiations and the regulatory review process.

Geopolitical Issues are in play also

The energy potential of the Arctic region has prompted the circumpolar countries, (Canada, Denmark, Norway, United States and most notably Russia), to stake out territorial claims for large tracts of the seabed beneath the shrinking polar ice cap.  A testy battle looms over Canada’s Arctic sovereignty claims with respect to possible shipping lanes linking Europe and Asia.  Canada maintains these lanes are within its territorial waters; the US argues they are beyond the 12-mile limit and therefore lie in international waters. Others argue that the Northwest Passage is akin to the Suez Canal - an international straight.

Were the underlying issues not so serious, one might laugh at the antics of a Russian submarine dropping a flag on the seabed beneath the North Pole or Canada’s former National Defence Minister Bill Graham tromping ashore on the tiny and disputed Hans Island, claimed by both Canada and Denmark, to plant the Maple Leaf.

Under the Law of the Sea Convention, countries can extend their economic zones beyond the 200 nautical mile limits (about 370 kilometres) from their coasts if they can prove the outer edge of the continental shelf extends beyond that distance.  Hence, the contentious Russian claim to the Lomonosov Ridge. An estimated 400 billion barrels of oil lie beneath the Arctic seabed beyond the existing 200-nautical-mile economic zones where countries can regulate and control drilling, almost equal to the proven reserves of Saudi Arabia and Iran combined.

Environmental Considerations are immense

In addition to the not insignificant economic and security implications, the environmental implications of tankers moving through vulnerable Arctic waters are particularly troubling.

Michael Byers, Canada Research Chair in International Law and Politics at the University of British Columbia, noted in a recent Yale review article that, "Our ability to stop that ship or clean up if it runs aground and spills its load is severely lacking.  We have the longest coastline in the world in a region that is covered by ice for most of the year and we don’t even have an all-weather icebreaker." (The Russian government has offered the use of seven of its nuclear icebreakers to keep the "Arctic bridge" between North America and Eurasia open.)

Nor does Canada have a network of airports in the far north from which to mount any rescue or clean up operations.  Unlike the Exxon Valdez clean up, which itself cost over US$2 Billion, took years to be completed and even longer to wend its way through the legal system with respect to compensation and penalties. And that happened near settled communities and well equipped emergency response systems.

Already demonstrating the effects of global warming - glacial melting, declining sea ice, warming landmasses, permafrost thawing, decreasing ocean salinity, rising sea levels and changes in Arctic and North Atlantic air and ocean circulation - fragile Arctic ecosystems face the additional onslaught of environmental damage associated with oil and gas activities.  Pollution in the Arctic is already a serious problem.  Arctic plants and animals are especially vulnerable to contaminants in the environment and some species high in the food chain (marine mammals, polar bears, birds of prey, whales and some fish species) are known to contain contaminant levels that exceed international thresholds.

Arctic ecosystems are especially vulnerable to oil pollution. Limited sunlight and cold temperatures slow the decay of organic pollutants, which can remain concentrated in flat, poorly drained soils.  During the spring melt these contaminants end up in rivers and oceans, further damaging fish stocks and marine habitats.

Habitat fragmentation from road building and pipeline construction, natural resource extraction, ship borne pollution, combined with long term changes such as melting sea ice and changing permafrost and tundra conditions, lead to widespread and permanently damaged northern ecosystems.

At this point, it’s a Wait and See game.  The Canadian government has some heavy issues to deal with in the Arctic: protecting Canada’s sovereignty, preserving fragile ecosystems, ensuring stable economic and equitable social development, bringing new energy resources on line, living up to its international commitments to reduce greenhouse gas emissions and setting a new standard for responsible environmental policy.  The costs are high, as are the risks. The costs of failure, however, would be much higher.