Putin Seeks Arctic Riches

(Credit: Weitz)

By Dr. Richard Weitz

11/27/2011 – Given the importance that Putin assigns to maintaining control of Russia’s energy resources, it is unsurprising that he has already outlined have ambitious goals to develop Arctic hydrocarbon resources in coming years. Geological experts believe that the Arctic holds more than 22% of the world’s undiscovered natural gas and oil resources, making it the next frontier in the global search for energy.  In addition, if Arctic ice continues to melt and shrink, resources will become more readily accessible, and new transit routes will become navigable that provide cheaper transportation for resources.

However, the path to the development of the Arctic region is fraught with difficulty and conflict. The primary impediment to the peaceful development of Arctic energy resources are the competing sovereignty claims to the Arctic among bordering states.

While under current international law, the claims of states bordering the Arctic are limited to the exclusive economic zones (EEZ) comprising the territory 200 nautical miles outward from their respective borders, Russia, the United States, Canada, Norway, and Denmark have all made territorial claims to portions of the Arctic outside of these zones. Each has done so through a mechanism introduced in the United Nations Convention on the Laws of the Sea, which allows states to claim portions of the continental shelf outside their exclusive economic zones in the first ten years after ratification.

The Arctic is a key repository of energy resources, and rare earth metals.  And the new transit zones provide maritime shipping and undersea military operations to have a new venue. (Credit: Bigstock)
The Arctic is a key repository of energy resources, and rare earth metals. And the new transit zones provide maritime shipping and undersea military operations to have a new venue. (Credit: Bigstock)

Moscow has claimed both the Mendeleev Ridge and the Lomonosov Ridge, stating they constitute extensions of Russia’s continental shelf.  Other experts contend that the ridges do not extend far enough to justify the Russian claim in international law.

Nonetheless, the 5 states making up the Arctic Council have clear claims in their EEZs.  But the speed with which these claims are realized in production capacity and the commitment of resources to the region are important factors in exercising sovereignty and realizing wealth. In the current situation, the Russians and Canadians are committing resources ahead of the other three.  Denmark and Norway are next and the US is dead last in committing resources to the Arctic mission.

Not only are there political challenges to gaining access to Arctic fuel reserves, but the geography of the region must also be taken into account. These reserves lack functioning gas fields and pipelines, and require hundreds of billions of dollars in investments. Even then, many of these areas may not be accessible until the ice cap shrinks further. Russia has responded to these challenges by announcing a number of costly programs to explore and develop East Siberian oil and gas fields and to build a network of oil and gas pipelines towards the 2020-2030 timeframe, despite their costing many tens of billions of dollars.

The Kremlin appears to see the Arctic as a necessary part of Russia’s future security in the realms of energy and geopolitics. Putin has advocated the aggressive expansion of the Arctic, citing the “urgent” need to secure Russian “strategic, economic, scientific and defense interests” there.”  To discourage other Russian as well as foreign companies from operating there, the Russian government has granted Gazprom and Rosneft a duopoly in the Arctic region. In a 2007 statement, the Director of Gazprom’s export business, Alexander Medvedev, dismissed proposals by both British Petroleum (BP) and Royal Dutch Shell for joint ventures there, saying that “development in the extreme conditions of the Arctic was within Gazprom’s capabilities.” On August 19, 2011, Gazprom launched its first Arctic oil platform, with plans to being production in early 2012.

The development of the Arctic is fraught with a number of large obstacles, not the least of which are the severe conditions in the region and the difficulties they pose to the extraction of oil and gas reserves. The environment necessitates the construction of expensive custom equipment capable of withstanding the frigid temperatures and the constant supervision of soil conditions and the icepack for fear of damage to the facilities.

Oil rig operating in Canadian high north.  (Credit photo: Bigstock)
Oil rig operating in Canadian high north. (Credit photo: Bigstock)

Furthermore, the energy infrastructure in the Russian Arctic remains largely undeveloped. Pipelines have yet to be constructed to connect the Arctic’s oil and gas fields to international energy markets, necessitating expensive overland or oversea transportation on top of enormous initial development costs and the high cost of labor.  As such, the development of the Russian Arctic will likely cost tens, if not hundreds, of billions of dollars over the course of the next decade, costs that may prove to be prohibitive to Moscow’s solo development of the Arctic.

Although Russia has sought to avoid triggering a strategic race for Arctic riches, Moscow’s ambitions to develop the Arctic have worried the United States, Canada, Norway, and Denmark, the other states that have claims to Arctic territory. In 2009, Denmark began the process of setting up an Arctic Command within its armed forces, citing the region’s heightened “geostrategic significance” in light of the contention over it. This force will include an Arctic Response Force, a specialized military unit adapted to Arctic conditions capable of quick response throughout the region.

Canada has begun to flex its military muscle in the Arctic, recently conducting the country’s largest Arctic military exercise ever in the Canadian High North. The exercise involved over one thousand troops, military aircraft, naval vessels, and unmanned drones.  The display of force appears to have been at least in part a response to a March 2009 announcement by the Russian government, which stated that Moscow “expects the Arctic to become its main resource base by 2020.”  In an effort to further that goal, that it will deploy military forces “capable of ensuring military security” to the region.  In July 2011, Moscow began planning for the deployment of two military brigades, consisting of roughly four to six thousand soldiers, to a permanent position in the Arctic.

Yet, the Arctic is not fated to become an arena of international conflict. Cooperation and joint development of the region could develop that would satisfy all parties. The forum for such an agreement would likely be the Arctic Council, an intergovernmental forum made up of the eight Arctic states (Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden, and the United States) that seeks to cooperatively address the issues facing the Arctic region. The status of the Arctic Council has expanded in recent years as climate change and strategic concerns in the Arctic have heightened its geopolitical significance.  While the Arctic council did not address the issue of a strategic race for the resources of the Arctic in its most recent declaration,  the common objectives of the Norwegian, Danish, and Swedish chairmanships, which have lasted from 2006 through 2012, call for “international cooperation” as “a prerequisite to sustainable development” in the region.

A helicopter is seen operating in the Arctic.  Providing for maritime safety and security will be a core mission facing the 5 Arctic Council states.  Acquiring assets to operate in the Arctic will be crucial, and here Russia and Canada are clearly committed. The United States is not.A helicopter is seen operating in the Arctic.  Providing for maritime safety and security will be a core mission facing the 5 Arctic Council states.  Acquiring assets to operate in the Arctic will be crucial, and here Russia and Canada are clearly committed. The United States is not.

One reason why Russian policy makers currently proclaim a cooperative approach toward the Arctic is their desire to limit NATO’s role in the Arctic. Another more positive dimension is Russia’s need for foreign technologies and other resources to access their Arctic riches.

Putin said that the Russian oil industry would need more than 8.6 trillion rubles ($280bn) of additional capital during the next decade to sustain current production levels. The International Energy Agency estimates that by 2035, Russia’s maturing Siberian oil fields could produce almost one million fewer barrels of oil each year.  Attracting almost $300 billion would probably require at least some foreign capital as well as foreign technology to exploit Russia’s offshore energy resources.

Although Gazprom and Rosneft are the only Russian companies legally permitted to undertake energy production activities on the Arctic continental shelf, they have yet to take full advantage of this privilege due to inadequate money and technology. Exploiting Russia’s offshore oil and gas deposits in the Arctic waters present major geophysical challenges from the polar ice, cold temperatures, and severe storms. Through joint ventures and other arrangements, Russian energy firms are seeking foreign partners who can bring their experience, technology, managerial skills, and other assets to the challenging task of exploiting the Arctic.

The immense costs, risks, and difficulty associated with the extraction of Arctic hydrocarbon resources provide a strong incentive for the Russian government to cooperate with Western governments and companies. The recent moves by both Gazprom and Rosneft to invite cooperative development with a host of Western oil majors may prove to be the first step in a process whereby setbacks and roadblocks, financial or otherwise, will induce Moscow to support a much larger influx of Western capital and expertise through agreements with Western oil and gas companies.

However, even in light of the Exxon Mobil-Rosneft strategic cooperation agreement, numerous impediments still exist to such cooperation, not the least of which is the assertion by Putin that while Russia remains open to dialogue on cooperation in the Arctic, it will defend its interests in the region, likely by force if necessary, regardless of any prevailing cooperation.  Thus, it appears as if any cooperative agreement between the Arctic states would need to respect Russian interests for it to have any chance of creating sustainable and peaceful collaboration. Furthermore, numerous legal impediments to Western investment may ultimately deter many Western firms from entering the Russian energy market altogether for fear of reprisal from Moscow.

The international community should take advantage of Russia’s currently cooperative stance and work to address some important issues that could impede the safe and secure development of the Arctic’s resources. These include establishing a mechanism to monitor and respond to environmental problems, promote peaceful scientific research and related activities, resolve conflicting claims and ideally promote collaborative projects to exploit the region’s natural resources, prevent the depletion of rich fish stocks and protect fisheries from the adverse impact of climate change, reinforce confidence-building measures among the parties, construct the capacity to manage the growing human activity in the Arctic, and ensure representation of all interested stakeholders (including extra-regional states with a major presence in the region and non-state actors) in Arctic-related decisions.

Some of these issues can be addressed through multilateral institutions, but there is also room for unilateral restraint as well as bilateral arrangements. For example, U.S. Northern Command, which has recently assumed responsibility for the Arctic under the new Unified Command Plan, should make it a priority to engage with their counterpart military commands in Russia and China as well as the other NATO states. The militaries can profitably follow the path already pursued by the countries’ scientific establishments, which have long collaborated on multilateral research projects in the Arctic.