When it comes to Arctic oil drilling, all geopolitics are local

Posted By Steve LeVine Tuesday, October 4, 2011 - 8:20 AM Share

The great Arctic oil race is under way. In Russia, where one needs only Vladimir Putin's signature to drill in the most environmentally vulnerable region on the planet, ExxonMobil a month ago sealed a deal to explore underneath the Kara Sea. Now, the United States may allow Shell to explore the Chukchi Sea offshore from Alaska. At stake are the world's largest remaining untapped oil and gas reserves, and for Russia a chance to extend its economic and geopolitical power.

In the U.S., these big economics are interwoven with big local politics. A U.S. regulatory agency -- the Bureau of Ocean Energy Management -- yesterday sided with Shell and against environmental groups worried about whales, polar bears, walruses and fish in the proposed drilling area. A federal judge now can decide whether to allow the permitting process to advance. But significant judicial and regulatory hurdles remain before the company can drill exploratory wells as planned next year, not to mention the rigorously contested U.S. presidential election: President Barack Obama recently lifted a drilling moratorium in the Gulf of Mexico -- a key talking point of his Republican critics -- but he is also attempting to appeal to his own political base, and that could lead him to a different decision in the Arctic.

The Chukchi lies above a tremendous store of oil -- 15 billion barrels of recoverable reserves, according to the U.S. Minerals Management Service. A 1-billion-barrel field is regarded as a supergiant. All in all, there are some 134 billion barrels of recoverable oil and natural gas liquids within the whole of the Arctic Circle, according to the U.S. Geological Survey.

Given that no actual drilling has yet taken place anywhere, it's not surprising that the industry hasn't assembled a spill-action mechanism. But given the scale of U.S. environmental activism opposing Arctic drilling, this is a case in which companies wishing to drill on U.S. territory will have to demonstrate proactively that they are prepared for any eventuality, as they more or less have in the Gulf of Mexico.

When it comes to foreign companies, local politics are a feature of oil development in Russia too. Russia's geopolitical influence is based largely on the 10 million barrels of oil and 1.6 billion cubic meters of natural gas it produces every day, so Putin will want to proceed with development of the Arctic. But he also will force Exxon to take the same steps as Shell when drilling proceeds underneath the Kara.

Justin Sullivan/Getty Images

EXPLORE:ARCTIC DRILLING

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BUDAHH

12:59 PM ET

October 4, 2011

Is the last line supposed to be a joke about Puttin's will to

make sure Exxon will act as shell?

They want power and they will do anything to get it , look at what the old rule did to Russian nature , I don't think the environment is their main concern.

STEVE LEVINE

6:27 PM ET

October 4, 2011

Does Russia care about pollution?

Budahh: it's more complicated than that. It is true that, if you are a domestic producer, you can get away with environmental degradation in Russia, and in fact in large swaths of the former Soviet Union. But it is not the same for foreigners. Foreign companies are held to environmental standards often exceeding practices in their own countries. This is what will happen with Exxon.

BABA BOO

8:10 PM ET

October 4, 2011

a day not a year

Russia produces ca. 3.65 billion barrels/year; 19 trillion cubic feet of NG/year.

TACOROCCO

8:00 AM ET

October 5, 2011

Can you really have a race through muskeg?

1. Russia, like any other nation has the right to exploit their natural resources.

2. Unlike Canada and the US (and thanks to the Soviet gulags) Russia's arctic land infastructure is leaps and bounds ahead of ours making it easier to get to those resources. Plus the NEP is ice free longer than the NWP giving us no reason to be suprised that the Russians are exploiting their arctic faster than we are.

3. About 14% of the worlds actual oil and gas reserves are in the arctic. Not much.

4. Alos consider the economic and logistic difficulty oil companies have to go through to get it. Never mind CDN or US regulations and the curent market.

Consi?ering the above the authour also mentioned - Given that there is little or no drilling going on we can conclude that there is no real race for arctic resources.

TACOROCCO

8:07 AM ET

October 5, 2011

Forgot to mention. Gas is

Forgot to mention.

Gas is king in the arctic and if shale gas does live up to what some people believe and hope it will to, arctic resources will be a lot less attractive to big oil.

NICOLAS19

1:12 PM ET

October 5, 2011

interesting topic

I actually wrote my thesis on it, back in 2009, on how the territorial dispute could be resolved based on international law.

The U.N. Convention on the Law of the Sea should be applicable to divide the Arctic seabed, same as it applies to all seabeds on Earth (except for the Antarctic). This would allow five players in the Arctic field, Russia, Canada, the US, Denmark and Norway. Russia is entitled to almost half of the arctic seabed, Canada less then a quarter, while the other three countries share the rest.

There have been various publicity stunts around the issue (Russia planting a flag underwater, skirmishes between Canadian and Dane sailors, etc.), but geographical facts are not alterable, Russia has right to the biggest chunk of the territories. Naturally, the US can't take it that they might be left out of something big, and they are already militarizing the region (http://www.stwr.org/global-conflicts-militarization/north-american-integration-and-the-militarization-of-the-arctic.html).

The fact that probe drilling can take place - which was technologically unaccomplishable a few years back - means the signal shot of the race. With both the drilling technology evolving and the ice-barrier thinning, real competition can start soon.