The Implications of a melting Arctic: Natural Resources, Law of Sea Treaty and Projections on Ice Trends

in Business In Feature Politics Science & Technology Special Focus Colums The Arctic Series by Ziad Al-Achkar — July 25, 2012 at 8:54 am | 0 comments

    The second part of this series will focus on the research and estimates on the natural resources in the Arctic, the legal issue surrounding the location of these oil and gas fields present, drawing attention to key articles in the Law of Sea Treaty (LOST). Secondly this part will dive into the projection and estimations of ice trends in the Arctic and the implications on exploration and international trade.

Natural Resources

        The research made by the U.S geological survey (USGS) in cooperation with the  the geologic survey of Denmark and Greenland has revealed massive amounts of recoverable natural resources in the Arctic oceans. The Geological Survey’s Circum-Arctic Oil and Gas Resource Appraisal (CARA) has concluded that the estimates of natural resources “ technically recoverable “ are as follow: “9,300 million barrels of oil equivalent, including approximately 3,069 million barrels of crude oil, 32,252 billion cubic feet of natural gas, and 861 million barrels of natural gas liquids” [1] The USGS assessment made in 2008 has revised the estimated of natural resources in the arctic oceans and determined that :  “90 billion barrels of oil, 1,669 trillion cubic feet of natural gas, and 44 billion barrels of natural gas liquids may remain to be found in the Arctic, of which approximately 84 percent are expected to occur in offshore areas.”[2]  The term technically recoverable resources is defined by USGS as “those producible using currently available technology and industry practices”. It is important to note that USGS assessment does not provide any economic background and does not consider the costs of exploration and the need for the development of infrastructure needed to be able to extract those natural resources.

     Research and assessment made by consultants Wood Mackenzie and Fugro Robertson have led them to different estimates in regards to the percentage of un-recovered natural resources. While the USGS estimates that natural resources in the arctic amount to approximately 25% of total undiscovered natural resources; the Wood Mackenzie and Fugro Robertson assessment estimated a smaller percentage, approximately 14% of total undiscovered natural resources. However, both assessments are in concurrence in regards that natural gas will amount to approximately 75% of the potentially undiscovered resources. The Wood Mackenzie and Fugro Robertson Assessment estimates that at peak level of output of oil may reach 3 million barrel per day, whereas gas output peak will be reached at 5 million barrel of gas per day[3]. The vast majority of the resources are located in 4 provinces: West Siberian Basin, Arctic Alaska, East Barents basin and the East Greenland Rift Basin . The Wood Mackenzie and Fugro Robertson Assessment indicated that Russia owns 69% of the undiscovered but technically recoverable gas in the Arctic; such numbers will lead Russia to solidify its position as one of the leading exporters for the world and in turn render Gazprom, Russia’s national gas company, into the biggest gas company in the world. The Wood Mackenzie and Fugro Robertson report also indicated that Russia’s south Kara Yamal basin is home to approximately 90 billion barrels of oil[4], a figure that equals the estimates made by the USGS for the total undiscovered oil in the Arctic. Russia is the biggest winner in the unlocking of the Arctic. Russia will have access to resources following the melting of the ice and the retraction of ice-caps, which are the biggest limitations to the exploration and extraction of the resources. Whereas the inherent benefits of the natural resources are clear, especially with price of natural resource commodities scheduled to increase with the supply depleting, there are many detriments that will come with the unlocking of those natural resources.

        The first issue that will come up is the costs of extracting the natural resources that lie within the arctic sea. The question must be asked whether it is profitable to go forward with exploration of natural resources within the Arctic Ocean currently or wait till the ice levels retract in the coming year. Unfortunately, there hasn’t been any research done on the costs that the extrapolation of the resources will amount to, future data analysis and research will have to examine such areas. Another big issue lies with the degradation of the ecological life in the arctic and the danger to the wildlife. Environmentalist also are wary of Offshore drilling in the Arctic and the dangers of oil spills, a legitimate worry that the Arctic nations will have to address should they choose to pursue a policy of exploration. Another area that will be an issue, most notably with Russia, is the continued reliance on natural resources as the primary source of revenue for government’s budgets and the economy. The Russian rentier economy is in desperate need for diversification and with the potential for doubling their current oil and gas reserves [5]  it’s hard to imagine that the trend will reverse itself. The current Russian leadership wants to increase Russia’s export of Oil and Gas, with Putin calling to become the world leading export of natural resources[6].

Law of Sea Treaty

     The exploration of natural resources in the Arctic Ocean will come to address issues such as border delimitations. In order to understand these issues defining Territorial water and Economic Exclusivity Zones is crucial.  The United Nations convention on the Law of Sea has established in Part II, Section II, Article 3 that “Every state has the right to establish the breadth of its territory sea up to a limit not exceeding 12 nautical miles, measured from baselines determined in accordance with this convention”[7] Furthermore, Article 2.2 states “This sovereignty extends to the air space over the territorial sea as well as to its bed and subsoil”[8] These two articles highlights the sovereignty of each state over its territory and the rights to explore the resources that lie within those borders. The Economic Exclusive Zone, as stated in Part V Article 56; 1.a explains that “the coastal State has: sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or non-living, of the waters superjacent to the seabed and of the seabed and its subsoil, and with regard to other activities for the economic exploitation and exploration of the zone, such as the production of energy from the water, currents and winds”[9]. Article 57 explains that” The exclusive economic zone shall not extend beyond 200 nautical miles from the baselines from which the breadth of the territorial sea is measured”[10]. Article 74 focuses on “Delimitation of the exclusive economic zone between States with opposite or adjacent coasts” One of the main issues facing the arctic nations is border disputes because of the proximity of the coast-lines; hence disputes over who has right over exploration of natural resources. The Law of Sea treaty Article 74.1 states that “The delimitation of the exclusive economic zone between States with opposite or adjacent coasts shall be effected by agreement on the basis of international law, as referred to in Article 38 of the Statute of the International Court of Justice, in order to achieve an equitable solution”[11]. This clause puts an emphasis on the importance of inter-government cooperation and negotiation to resolves the issues and work together to reach agreeable solutions.

       The Russian-Norway treaty signed in the end of September of 2010 highlighted a positive move forward; most notably after the fact that Russia had planted , a few years earlier, a Russian flag in the sea bed of the Arctic claiming ownerships of the sea beds and its resources[12], a move that was highly controversial and sparked comments from Arctic nations and especially Canada’s prime minister Stephen Harper who dismissed Russia’s action and stated that Canada will not shy away from defending its rightful claims. Canada’s then foreign affairs minister Peter McKay is famously quoted saying: “This isn’t the 15th century you can’t go around the world and just plant flags and say ‘We’re claiming this territory”[13].  Russia’s flag action was merely symbolic and under international law holds no weight or legal bidding. Events like these highlighted the needs for serious work on border delimitations between the arctic nations.

Projections and Estimation of Ice Trends

     The main aspect of this paper is based on the trend that has been created by Climate Change. Due to increases in temperatures observed all over the world, there have been very noticeable changes in the ice and ice-caps in the Arctic Oceans. The Inter-governmental pancel on global climate change (IPCC) 2007 report indicated that satellite data showed an annual reduction of the Arctic Sea ice by 2.7% on average per decade with 7.4% decrease per decade during the summer months[14].  The National Oceanic Atmosphere and Atmospheric Administration’s (NOAA) website contains projections that used computer models and accumulated data to predict the future of the arctic; the results revealed that the ice extent and thickness during the summer time will decrease to unprecedented levels to almost a complete ice-free summer. On the other hand, during the winter seasons, ice thickness is reported to decrease as the ice extent retracts but not to levels enough to open up the Arctic Ocean to shipping from all kind of vessels[15] .

      The Arctic Climate Impact Assessment (ACIA) scenario has estimates that predict an ice-free summer within 30-50 years. The ACIA report predict that by the end of the 21^st century the Arctic route will be accessible for 120days of sailing, mainly during the summer when the ocean is ice-free[16]; however during winter times large vessels are the only ships capable of sailing and some will require the use of Ice-breakers[17]. What we are witnessing here is known in economics as Economy of scale, the limitations given by the fact that vessels during the winter cannot be wider than the ice-breakers themselves in order to be able to maneuver through the ocean. Shipping through the artic is limited by the physical nature of the arctic itself, i.e. the ice component, which limits the potential for economic growth( due to limitations in trade) . The effects on the international trade system that this potential route will provide are very significant; it is widely understood that the use of the northern route will provide faster, shorter routes to link the world; however there are no estimates as to the potential revenues that this route will provide and their implications.

      Realistically, it’s not feasible to expect a year round shipping and trade through the Arctic routes until at least 2050, at which point if the trend continues, we will witness a significant reduction of ice extent and ice-thickness making shipping through the arctic route easier, safer and most importantly less costly as  Ice-breakers will not be required to accompany vessels in their routes On the other hand, It is important to note that projections are not perfect.  On July 24th 2012, NASA Scientist observed a huge reduction of ice in Greenland. Satellite Imagery revealed that in a matter of days Ice Melt had reportedly increased from 40% to almost 97% , a phenomenon that was unexpected by scientists and dubbed “Unprecedented”. Unexpected melting could lead for a revision of the estimates on when the Arctic could become a year-round trade route.

     Shipping through the Arctic Ocean will create areas of contention. Under the Law of Sea Treaty Article 234: “Coastal States have the right to adopt and enforce non-discriminatory laws and regulations for the prevention, reduction and control of marine pollution from vessels in ice-covered areas within the limits of the exclusive economic zone”[18]. Russia has been adopting regulations which requires that vessels wishing to enter the Northern Sea route or sail through Russia’s Exclusive Economic zone are required to submit the following: an application for guiding, a set fee to use the route – often referred to as the ‘ice-breaker fee[19]. The fees that Russian requires are expensive and they are required year round, even throughout summer seasons when Ice-breakers are not necessarily required. The U.S has strongly opposed Russia’s regulation as they believe that ships sailing through International waters should not be required to pay any fees or to adhere to any state’s regulations or rules.  The United States refuses to adhere and ratify the LOST treaty as they perceive it as a danger to US interests and Operations at sea.

      There is a strong need however for governments to begin working on rules and regulations for the governance of the Arctic Ocean, potentially under the purview of the Arctic council, and to work on resolving outstanding issues, mainly on the delimitation of borders, the distribution of natural resources in contested areas and the establishment of regulations for shipping. Additionally environmental considerations have to be a priority as any additional disasters that may occur to the arctic could have dramatic consequences on a global level.

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Tags: Arctic Climate Change Foreign Policy Ice caps International Law International Trade Military Spending NATO Oil