The Arctic Is Not All It’s Cracked Up To Be

Navy Petty Officer 2nd Class Andrew Krauss prepares to videotape visitors to the Los Angeles-class fast-attack submarine USS Alexandria (SSN 757) in the Arctic Ocean on March 17, 2007. Alexandria is taking part in exercise ICEX 07 with the Royal Navy submarine HMS Tireless (SS 88) and the applied physics ice station. The exercise is in support of arctic testing for U.S. and United Kingdom submarines being conducted on and under a drifting ice floe about 180 nautical miles off the north coast of Alaska. Photo Credit: Chief Petty Officer Shawn P. Eklund, U.S. Navy.

There’s a lot of talk about the Arctic these days. Secretary of State Mike Pompeo recently said, “We’re entering a new age of strategic engagement in the Arctic, complete with new threats to the Arctic and its real estate, and to all of our interests in the region.”[i]  Senator Dan Sullivan of Alaska noted that “we are in the midst of a national awakening regarding the importance of the Arctic.”[ii] President Vladimir Putin has Russia asserting itself further into the Arctic, and Chinese President Xi Jinping declared China a “near Arctic state.” 

All this chatter is for good reason. As the narrative goes, 30% of the world’s natural gas, and 13% of its oil lay dormant in the Arctic.[iii] Countless quantities of rare earth minerals such as Scandium and Uranium await extraction. Abundant fisheries are fodder for commercial fishing operations, and shorter shipping routes offer significant cost savings. But, for all this discussion there sure isn’t much action. Why? Because the Arctic is not all it’s cracked up to be. Here, I present three myths about the Arctic. I assert the Arctic will remain much of what it is now – cold, dark, unprofitable, and geostrategically insignificant. I argue hydrocarbons cannot be extracted profitably, shorter shipping routes do not save money, and countries cannot effectively project national power.

Myth 1: Countries can profit from the Arctic’s hydrocarbons

Hydrocarbon extraction is market driven. Today, the costs outweigh the benefits and supply far exceeds demand. Neither will change. In 2014, Royal Dutch Shell, arguably one of the world’s most successful and sophisticated energy companies, began expanding its Arctic operations into the Beaufort Sea. It invested $7B into its ambitious Arctic drilling project. The results were, in Shell’s words, “disappointing.”[iv] The costs were high, the results were poor, and controversy was damning.

Shell’s efforts far exceeded benefits. It needed to find “a lot” of oil to make return on its massive investment, but it’s state of the art Polar Pioneer Arctic drilling rig failed to find very much of it. And, adding to its struggle, despite its responsible practices and adherence to U.S. and international law, Shell was still met with great criticism. Environmental activists painted Shell’s operations as villainous and its failure as a cause for celebration. Some oil analysts believe Shell was actually relieved to pull out of the Arctic.[v]

Shell is not alone. Exxon-Mobile failed in Russia. In 2018 Exxon withdrew its Arctic ventures because of European and U.S. sanctions against Russia that prevented it from doing business.[vi] After twice failing to obtain waivers, even with former Exxon CEO Rex Tillerson serving as Secretary of State, Exxon continued its Russia operations. As a result, it was fined $2M by the U.S. Treasury Department and even worse for Exxon, it eventually closed its Russia operations at the cost of $200M.[vii]

 But high cost is just one reason Arctic operations are failing. Low demand is another.  The International Energy Administration estimates that oil prices must hover around $100/barrel for Arctic oil operations to profit.[viii] Today, the price is half that and unlikely to rise that high anytime soon, especially while fracking continues unabated. Globally, oil demand is also decreasing as energy companies and consumers turn towards renewables. Indeed, even Saudi Arabia and Norway are divesting their sovereign wealth funds from hydrocarbons and shifting into renewables. 

Russia, however, has a greater demand for Arctic oil and gas than the rest of the world. It relies exclusively on Arctic hydrocarbons to feed its energy needs and supplies much of Europe.  But many of its Arctic projects are stagnating. The Prirazlomnaya oil platform had very little success in the Barents Sea, and Gazprom recently ended its efforts in the Shtokman field. When asked why these projects fail, a Russian geologist, speaking anonymously, said, “Russia lacks the technology.”[ix] So, despite Russia’s desire and necessity to increase its Arctic operations it lacks the ability to realize its potential. 

Myth 2: Shorter Arctic routes are cheaper

A shorter route does not mean a cheaper route. Arctic shipping routes could save a great deal of time and money for companies currently using the Panama and Suez canals for transit between Asia and the United States, or Asia and Europe.[x] But, the costs saved on transit time is lost on overcoming significant challenges.

The Northern Sea Route (NSR) along Russia’s Arctic Coast is transitable for only three months. It may be open longer as the ice cap furthers its retreat, but a receding ice cap does not mean no ice cap. Winter and Spring will always present difficulties. Even in the best of times, the NSR is still incredibly dangerous. The waters are largely uncharted, each season is different, and the weather is always unpredictable. Search and rescue assets are far away, and experienced ship captains are lacking. It will be decades before large cargo ships that could link China and northern Europe through the Arctic Ocean can reliably make the journey.[xi] Until all these challenges are overcome, it remains cheaper to take other established and reliable routes.

Myth 3: Controlling the Arctic is strategically important

If the Arctic is not profitable, then perhaps it is still strategically valuable. Many defense officials cite Russia’s military build-up as a sign the Arctic is an emerging battleground or perhaps a place of great military stand-off.[xii] Russia is occupying Cold War bases and is amassing an enormous Arctic force. It floated a nuclear power plant across Arctic waters and planted a titanium flag beneath the North Pole. But despite this, the sentiment is now changing regarding the strategic value of the Arctic. As recently as April 2019, the Navy’s new Arctic strategic outlook perceives the Arctic to be at “low risk for conflict.”[xiii] For now, Russia is all bark, and no bite.[xiv] 

This is largely because Russia’s military activity is defensive in nature. Russia’s foreign minister has stated, “We don’t threaten anyone. We ensure sufficient defense capabilities given the political and military situation around our borders.”[xv] Of course, Sergey Lavrov’s comments have been met with skepticism, but there is reason to believe him. Studies by the Arctic Institute suggest Russia is motivated by the potential gains achievable through cooperation like shared search and rescue and route charting.[xvi] 

And finally, on a practical note, there is nothing to fight for in the Arctic. All land disputes are resolved or irrelevant (the Hans Island dispute, for example) and most Exclusive Economic Zone disputes are resolved. Securitizing the Arctic would destabilize it. If U.S. and NATO forces begin aggressively patrolling the Arctic, it justifies Russia’s actions. Military posturing increases chances for miscalculation. As Robert Huebert, professor of Strategic Studies at the University of Calgary and acclaimed Arctic expert, sees it, an Arctic security dilemma is on the horizon if not already here.[xvii]   Frankly, if Russia wants to patrol the Arctic and expend its resources in a futile, frozen ocean then let it. America has what it needs. If it is needed in the Arctic, the U.S. will go. For now, it is needed elsewhere, and if Russian efforts are depleted in those places because of its Arctic front, all the better.

The Arctic hype is wrong. The region is not all it’s cracked up to be: It’s not profitable, it’s not safe to transit, it’s not a reliable place to operate. It is cold, dark, and irrelevant. Don’t believe anyone that thinks otherwise.


Bibliography

[i] Somini Sengupta, “United States Rattles Arctic Talks With a Sharp Warning to China and Russia,” The New York Times, 6 May 2019, https://www.nytimes.com/2019/05/06/climate/pompeo-arctic-china-russia.html.

[ii]Press Release, Office of Senator Lisa Murkowski, 11 November 2019: https://www.murkowski.senate.gov/press/release/murkowski-wicker-sullivan-introduce-legislation-to-prioritize-arctic-maritime-transportation-opportunities-safety-and-security?sfns=mo

[iii] National Petroleum Council, Arctic Potential: Realizing the Promise of US Arctic Oil and Gas Resources, 2019: https://www.npcarcticreport.org/

[iv] “Shell Stops Arctic activity after ‘disappointing’ tests,” BBC, 28 September 2015: https://www.bbc.com/news/business-34377434

[v] Stuart Elliot quoted in, “Shell Stops Arctic activity after ‘disappointing’ tests,” BBC.  28 September 2015: https://www.bbc.com/news/business-34377434

[vi] Associated Press, 1 March 2018: https://www.usatoday.com/story/money/energy/2018/03/01/exxon-mobil-withdraws-russia-deal-due-sanctions/384415002/

[vii]Tom DiChristopher, “Treasury fines Exxon Mobil $2M for violating Russia sanctions while Sec of State Tillerson was CEO,” CNBC, July 2017: www.cnbc.com/2017/07/20/treasury-fines-exxonmobil-2-million-for-violating-russia-sanctions-while-secretary-of-state-tillerson-was-ceo.html

[viii] Robbie Kramer, “Oil Companies Cool on Arctic Drilling. Trump Wants It Anyways,” Foreign Policy, 24 March 2017: https://foreignpolicy.com/2017/03/24/oil-companies-cool-on-arctic-drilling-trump-wants-it-anyway-energy-alaska-environment/

[ix] Ekaterina Ananyeva, “Russia in the Arctic region: Going bilateral or multilateral? Journal of Eurasian Studies, 10 January 2019: https://journals.sagepub.com/doi/full/10.1177/1879366518814655

[x] Chris Mooney, “Arctic shipping will be much cheaper, but it won’t be possible year-round,” Anchorage Daily News, 10 September 2016: https://www.adn.com/arctic/2016/09/10/arctic-shipping-will-be-much-cheaper-but-it-wont-be-possible-year-round/

[xi] Jon Vidal, “Arctic shipping passage ‘still decades away,’” The Guardian, 9 February 2018: https://www.theguardian.com/environment/2016/feb/09/arctic-shipping-passage-still-decades-away

[xii] Elizabeth Buchanan and Mathieu Boulegue, “Russia’s Military Exercises Have More Bark than Bite,” Foreign Policy, 20 May 2019

[xiii] Mallory Shelburne, “Navy’s Arctic strategic outlook says region at “low risk for conflict,’” Inside Defense, 22 April 2019: https://insidedefense.com/insider/navys-arctic-strategic-outlook-says-region-low-risk-conflict

[xiv] Buchanan and Boulegue, “Russia’s Military Exercises Have More Bark than Bite.”

[xv] Sergei Lavrov in Henry Meyer, “Russia Defends Arctic Military Buildup Amid Tensions With US,” Bloomberg, 9 April 2019: https://www.bloomberg.com/news/articles/2019-04-09/russia-defends-arctic-military-buildup-amid-tensions-with-u-s

[xvi] Pavel Devyatkin, “Russia’s Arctic Strategy: Military and Security (Part II),” The Arctic Institute, 13 February 2018, https://www.thearcticinstitute.org/russias-arctic-military-and-security-part-two/.

[xvii] Robert Huebert at the “An Ice Diminishing Arctic” Forum, 17 July 2019, Wilson Center, Washington DC.

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