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The new Arctic development challenge New report reviews risks and difficulties in the Arctic as climate change opens region to petroleum exploration and development Alan Bailey Petroleum News
While the warming climate and receding sea ice are opening the Arctic, creating new opportunities for resource exploration and development, the region continues to present formidable challenges for would-be Arctic energy developers. And a new report, prepared by the Fridtjof Nansen Institute and risk management company DNV, reviews those challenges and assesses some of the risks. The report, prepared for the Offshore Northern Seas Conference, held in Stavanger, Norway, in August, concludes that the management of Arctic challenges needs more knowledge and better technology, coupled with close and transparent cooperation between authorities, industry and society.
“There is widespread concern that the increased interest (in the Arctic) will unleash unsafe and high risk projects that could have a disastrous impact on the Arctic environment and habitat,” the report says in its introduction. “This report is not advocating specific decisions for companies contemplating Arctic activities but, acknowledging that increased economic activity in the region is all but inevitable, it addresses crucial issues with regard to risk analysis and management in the strategic planning of Arctic operations.”
Challenging region While the region’s remoteness and harsh conditions render it a difficult place in which to operate, the diversity of the environment from one location to another causes solutions to challenges in one area to possibly be inappropriate for use elsewhere, the report says. And those regional variations are also complemented by strong seasonal variations in weather conditions and in the relative length of daylight.
“Both the considerable climate variability and longer-term climate trends affect the prospects for economic activity over time,” the report says. “In the ocean, the reduction in sea-ice cover facilitates shipping, but higher air temperatures reduce permafrost and threaten to soften the ground enough to hamper land-based transport and construction.”
At the same time the rights of the approximately 320,000 indigenous people who live in the Arctic region have become widely recognized, with the rights of these people to use, own, develop and control land and resources in their traditional territories being expanded in recent decades, following the severe injustices of the past, the report says.
Increased interest Against this background, disappearing sea ice, improved Arctic mapping, improved international relations and escalating commodity prices are all driving an increased interest in opening Arctic shipping routes and developing Arctic resources. Arctic countries are formulating new policies and plans for development in the north, while large companies are starting to include Arctic resources in their assessments of future resource potential. There has been heightened interest in new offshore technologies and ship designs for use in previously inaccessible Arctic regions.
“The presence of strategic resources — in particular hydrocarbons and important minerals — in this vast but scarcely developed region has led some observers to argue that a race for resources will soon be under way. Such reasoning often ignores the fact that most resources in the Arctic are today under national jurisdiction, and that the coastal states have exclusive jurisdiction over their exploitation,” the report says. The report also emphasizes the importance of the United Nations Law of the Sea Convention in resolving issues over offshore territorial claims.
Few disputes Contrary to popular perception, there are at present relatively few Arctic territorial disputes and there is general agreement between the Arctic nations on “the rules of the game,” with strong incentives to avoid conflict, the report says. There is potential for conflict between the interests of indigenous people and industrial activity, and “attention to indigenous interests must be considered a prerequisite for license to operate in the Arctic,” the report says.
Mining activities and the development of energy resources above the Arctic Circle have been in progress in one form or another since before World War II. But, although Arctic industrial activity has generally been increasing, economic activity is still relatively limited.
From the perspective of the Arctic offshore oil and gas industry, Russia has been actively exploring in its Arctic seas, with an Arctic offshore oil field scheduled to come on line in 2012; Norway is stepping up operations in the Barents Sea; and there has been exploration drilling offshore western Greenland. Exploration offshore Canada and Alaska started in the 1970s: Currently Shell, ConocoPhillips and Statoil have exploration programs in the Alaska Chukchi Sea.
Oil spill risk The biggest environmental concern is the risk of a major oil spill in Arctic waters, either from oil industry activities or from a shipping accident, the report says.
“Whereas the receding ice cap associated with a warming Arctic will improve access to some offshore and onshore areas, other effects are likely to create new operational challenges — like higher mobility of sea ice, more frequent calving from glaciers, and more extreme weather — that raise the likelihood of accidents,” the report says. “Should an offshore accident occur, climate and weather conditions as well as long distances are likely to hamper response action and restoration efforts. Currently available technologies for recovery of oil from the surface perform poorly in high waves and rough weather conditions. In the Arctic, low temperatures and scarce sunlight over much of the year slow down evaporation as well as the physical, chemical and biological breakdown of pollutants. Thus, hazardous compounds released during an emergency may remain in Arctic ecosystems for long periods, aggravating the risks of bioaccumulation, and ocean currents may spread them over extensive areas.”
On the other hand, day-to-day disturbance from oil and gas industry operations is likely to have a minimal environmental impact — the biggest issue will likely be habitat fragmentation from infrastructure construction, the report says.
Risk management Internationally, there are some general principles for environmental management that steer environmental regulation but that, in the Arctic, need to take account of the diverse natural environment, as well as of contrasts in social, cultural and economic settings.
While resource management policies need to be based on a sufficient knowledge of the environment, the extent to which science rather than political and commercial priorities should steer policy decisions remains controversial, the reports says. And there is an open question over the extent to which governments should contribute to the cost of obtaining the necessary environmental knowledge.
A lack of environmental knowledge, the difficulty of monitoring environmental conditions and the immaturity of technologies in the Arctic all point to the need for a precautionary approach to Arctic environmental management, but that precautionary principle, controversial in international law, will likely be needed less as more knowledge about the Arctic environment becomes available, the report says.
International cooperation When it comes to international coordination and cooperation over managing risks, the Arctic Council, an intergovernmental forum of the eight Arctic nations, has achieved rising prominence, the report says. International cooperation is important in ensuring that actions within one national jurisdiction do not cause harm in elsewhere. Different nations need to work together in managing Arctic offshore development, as Norway and Russia have done in collaborating over their management plans for the Barents Sea.
Individual nations are responsible for the environmental regulation of the oil and gas industry in the Arctic offshore, albeit with obligations to meet international pollution prevention standards.
“All in all there exists a considerable body of international binding and non-binding instruments aimed at reducing the risks associated with offshore operations by influencing national legislation,” the report says. “A logical continuation of this development might be to support stringent technical and environmental regulation. Prescribing procedures and technology would create a level playing field and raise the standards throughout the Arctic, preventing companies with lower standards from operating.”
However, the authors of the report argue for a performance based approach to regulation in the Arctic, with regulators setting safety and environmental standards that companies must meet, while giving the companies the responsibility to determine how to meet those standards.
Risk is inevitable All human activity involves some level of risk and a requirement for zero risk in the Arctic would preclude any use of Arctic resources, the report says. And risk is a matter of perception.
“Typically, society tends to have high risk tolerability for road traffic fatalities, and much lower risk acceptance related to relatively rare major accidents within industrial activities such as the offshore and maritime industries,” the report says.
It is necessary to obtain the knowledge required to be able to adequately weigh the downside risk associated with an activity against the benefit of allowing the activity to proceed.
“But it is not always obvious who defines the risk and benefits on behalf of society,” the report says. “Not least, the proper representation and involvement of indigenous peoples is a prerequisite for appropriate balancing of potential disadvantages and advantages.”
Safety barriers But a low tolerance for risk in combination with a complex risk environment will lead to the need for several layers of safety barrier, the cost of which will have to be considered by the owners of an Arctic operation.
“The need for additional barriers … should ideally be decided on the basis of risk-tolerance levels that reflect the actual risk that society is willing to take in order to receive the benefits from activities in polar areas,” the report says. There is a need to establish risk acceptance criteria for Arctic operations, setting acceptable risk levels.
And the particular challenges associated with petroleum exploration and development in the Arctic require new safety measures. In some cases new technology will be required, and in other cases it will be necessary for industry to transfer existing Arctic knowledge and experience from onshore regions.
Risks can be reduced through standards for the best available environmental and safety technology for, for example, well blowout preventers, and by adopting mitigation measures to address identified risk factors.
Focus on prevention But with no best available technology for dealing with some potential Arctic situations such as recovering oil from between or under ice floes, there will need to be a particular focus on accident prevention in the Arctic, to manage risks to levels similar to those for, for example, in the North Sea, the report says.
“Even if the task is complicated companies must establish concrete risk-mitigation strategies if they are to remain licensed to operate in the Arctic in the longer term,” the report says.
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