Arctic Divestment: Who Wins?

Climate change is wreaking havoc in the Arctic, and while most see it as a massive threat, some see opportunities for profit. As global decarbonization is underway, here is a look at what is happening on the ground, what is in the ground and who stands to win or lose the most.

Background on Climate Change in the Arctic

The Earth has sustained changes due to anthropogenic causes for decades. We know the biggest culprit of climate change are the greenhouse gas emissions from the omnipresent fossil fuel industry

But recent accelerations in this climate disruption were acutely recognized in 2015’s Paris Agreement, established in 2015 via the United Nations Framework Conven­­tion on Climate Change. It

Emphasiz[es] with serious concern the urgent need to address the significant gap between the aggregate effect of Parties’ mitigation pledges in terms of global annual emissions of greenhouse gases by 2020 and aggregate emission pathways consistent with holding the increase in the global average temperature to well below 2 °C above pre- industrial levels and pursuing efforts to limit the temperature increase to 1.5 °C above pre- industrial levels.”

In 2018, the Intergovernmental Panel on Climate Change released the Working Group 2, Assessment Report 5, which stated that when comparing the 2oC temperature rise to 1.5oC rise, we really need to do everything we can to aim for the lower increase. Some key points, with regard to the Arctic, include:

  • The Arctic is warming two to three times faster than the rest of the planet
  • Loss of Greenland’s ice sheet is irreversible and will result in major sea level rise
  • Likelihood of ice-free Arctic during the summer much higher at 2oC temperature rise
  • Indigenous peoples will be particularly vulnerable if global warming temperatur­es exceed 1.5oC.

The report also mentions that the Arctic is an example of one of the places on Earth that will suffer “very high risks of severe impacts/risks and the presence of significant irreversibility of the persistence of climate related hazards, combined with limited ability to adapt due to the nature of the hazard or impacts/risks,” if the global mean surface temperature is allowed to reach 2oC. There are many who are concerned that we are not on track to maintain a 1.5oC rise.

On the Ground         

2020 in the Arctic brought a summertime low of 1.4 million square miles of sea ice, the second lowest minimum history, only missing the 2012 record by 100,000 square miles. This summer the Arctic sustained unprecedented heat waves with temps, reaching 100.4oF, permafrost and sea ice melting so much it is causing communities to relocate due to erosion of the land and infrastructure. “As permafrost melts, it releases greenhouse gases, including methane, carbon dioxide and nitrous oxide. An estimated 1,400 gigatons of carbon are frozen in permafrost across the Arctic circle, making it one of the largest carbon sinks in the world.”

The Arctic’s rapid melt is of great concern for several reasons. The Woodwell Climate Research Center (WCRC) concurs with IPCC report that the Arctic is warming two to three times faster than the rest of the planet. The permafrost is not just slowly melting but also having abrupt shifts where entire chunks of land just collapse, already seeing relocation of Arctic communities like Shishmaref, Alaska. Noting that permafrost has twice as much carbon as in the atmosphere and three times as much as in the forests, they also found that the subsea permafrost is also melting, bubbling up methane in thermokarst lakes. The WCRC agrees that these fugitive methane leaks have not been calculated into our allowable carbon budgets.

            Another effect has been that widely felt is the profound shift for food security for subsistence hunters. Due to the permafrost melting, rivers have become braided, forcing the salmon, which accounts for 34% of the Alaskan diet, to alter their natural spawning routes, causing the already declining population to be even smaller. This drop in salmon numbers in Alaska was confirmed in November 2020 as the harvest in Norton Sound was only worth just over $290,000. This is a decline of 86% since 2019, when it was worth over $2 million. The subsistence hunters have had to turn more to the moose for food, however, due to the warming air and land temperatures, the rutting season for moose has adjusted to meet their needs. However, that change does not coincide with hunting season, leaving Indigenous tribes only one week of the allotted four to hunt in an appropriate manner.

How will this divestment affect the Owners of the Arctic?

The Arctic covers 5.5 million square miles, is almost the same size as Antarctica, “the size and shape of the Arctic Ocean Basins are roughly similar to those of the Antarctic continent and it is 1.5 times the size of the continental US.” (82)  Possession of area is observed by the Arctic Council, and is divided between Finland, Iceland, Sweden, those will oil concerns, or the Arctic 5, the US, Canada, Russia, Norway and Greenland. Territories extend out of each country’s Exclusive Economic Zone 200 miles from their shores, as designated by the United Nations Convention on the Law of the Seas. The UNCLOS is only ratified by 4 of the Arctic 5, with the United States declining to participate. As the sea ice melts bringing us closer to completely ice-free summers, there has been talk of whether it is necessary to revisit UNCLOS as “in its current form, the Convention is not wholly suitable for this purpose because it does not sufficiently consider the constantly changing circumstances of the Arctic environment due to climate change.”

Russia

Russia has by far the largest share, “Among the five littoral states, Russia possesses more than half of all the Arctic’s estimated oil and gas resources. In other words, Russia is in control of the majority of the Arctic’s hydrocarbons because they fall within their maritime boundaries” Russia has little reason to worry about competition, as it expands its own oil industry and continues to partner with multinational firms like BP, who has a “19.75% share of Rosneft”  through three joint ventures at varying stages development.

Russia and China have also become major partners through the Power of Siberia natural gas pipeline. Bonded together by trade sanctions ever since Russia annexed Crimea in 2014, the two giants have advanced military ties, taking “part in joint maneuvers” and “Russia-China trade reached a record level that year, exceeding $100 billion,” This relationship definitely gives China some options to break dependence on liquified natural gas from the United States. “China is expected to become the world’s largest gas importer next year and account for more than 40% of global gas demand growth through 2024, according to the International Energy Agency. With Power of Siberia, Russia could fulfill nearly 10% of China’s gas demand by 2024, according to IEA data. The two governments are already discussing a sequel: a gas pipeline through Mongolia. The energy relationship is a sign of a broader geopolitical alignment, said Alexander Gabuev, senior fellow at the Carnegie Moscow Center think tank.”

The Northern Sea Route, nearest Russia, is thawing out the fastest, with the Northeastern passage open for 112 days straight in 2020 before finally freezing over. This not only gives the former Soviet Union fast access across the ocean, but also gives them an advantage to build up their military presence ahead of the remaining Arctic littoral states. The Russians established a “new military district” that encompasses the entire region from the Pacific to the Atlantic coasts in 2014, and in 2017 they started work on “a small fleet of icebreaking vessels equipped for antisubmarine warfare.” Seeing potential for aggression from Russia, President Elect Joe Biden plans to bolster the Arctic Council, “standing firm with council partners to hold Russia accountable for any efforts to further militarize the region.”  While this divestment from fossil fuels in the Arctic may have some effect on Russian plans, it won’t be substantial. Although many of these institutions were prevented from financing anything in Russia due to sanctions, Russia has managed to find money elsewhere.

Norway

Norway, in addition to being an international leader in clean energy and electric vehicles, they have recently invested $900 million into their enormous oil industry so that they can open 125 new oil exploration blocks spread out over nine acreages, eight of which are in the Barents Sea, and among the northernmost such installations on the planet. Norway’s Equinor, formerly Statoil, has major partnership with Russia’s Rosnef in the Arctic. They have a 33% interest in three projects in the Sea of Okhotsk, another 33% interest in on onshore project in West Siberia, and 49% stake in the “Dominik Limestone Formation in the Samara Region.” Since the 2010 Barents Sea delimitation agreement, Equinor and Rosnef have a joint venture in the “Timan-Pechora basin located in the Nenets Autonomous District 60 kilometres north of the Arctic Circle.” They plan to continue this arrangement until 2031, with the possibility to extend the agreement. Norway’s “government total net cash flow from the petroleum industry is estimated to NOK 87 billion ($9.5 billion) in 2020, and is estimated to close to NOK 99 billion ($10.8 billion) in 2021.” As Norway also has the sovereign wealth fund and has plenty of funds of its own, this divestment is not likely to stop them from proceeding with their plans.

Denmark – Greenland

Greenlandhas some activity with the oil majors but initially had disappointments as multiple wells turned out to be dry. Half the size of Western Europe, Greenland has a 70% share in renewable energy, most of which is hydropower.  The population is largely Inuit, the government reflects this and the desires of Indigenous peoples of Greenland are considered to be respected and included into national policy. Greenland is owned by the Kingdom of Denmark, who still handles Greenland’s financial affairs. In 2020 alone, “Melt extent was greater than any year prior to 2002, with about 70 percent of the ice sheet experiencing some melting.” According to study out of the University of Buffalo, and published in the journal, Nature,

“The GIS lies within the rapidly warming Arctic, and its contribution to sea-level rise has recently accelerated. The future of GIS mass change is uncertain, but projected warming combined with feedbacks in the coupled ice-sheet–climate system will lead to continued losses. Given plausible future climate scenarios, the GIS may be entirely gone in as few as 1,000 years”

A third report confirms, “The Greenland Ice Sheet is losing mass at accelerated rates in the 21st century, making it the largest single contributor to rising sea levels. Faster flow of outlet glaciers has substantially contributed to this loss, with the cause of speedup, and potential for future change, uncertain.” Despite this slowly unfolding catastrophe, Greenland’s national oil company collaboration with Denmark, Nunaoil, just recently opened up three new offshore areas for oil and gas exploration and promising to adhere to strict environmental standards. Greenland is being greatly affected by climate change, but their plans for development of oil and gas won’t be too affected by this trend in divestment.

Canada and the United States

The warm Arctic temperatures have affected Canada as well, with the Collapse of Milne Iceshelf. The last ice shelf in Canada, losing up to “43 per cent of its total surface area,” in August 2020.  In June 2019, a team of scientists from the University of Alaska, Fairbanks, studying Canadian permafrost were “amazed” to have found it melting 70 years early, stating that temperatures are higher now than they have been in 5000 years. As stated earlier, the WCRC found that abrupt shift in permafrost that caused huge sections of earth to collapse have been found in Canada, Alaska and Russia.

Canada’s energy sector is massive, bringing in $17.9 billion in government revenues in 2018. The majority of Canadian activity in energy happens in provinces well below the 66oN, with the largest sector in Alberta. However, seventeen of the same banks who are divesting from the Arctic are also pulling new financing from oil sands and there are six who are tightening their restrictions on the companies in which they invest. This Arctic divestment could affect Canada to some degree, however, in December 2016, the Canadian and American governments, signed a joint Arctic drilling banFormatting…, declaring Arctic territorial waters off limits to new oil production. While both governments agreed to the ban being indefinite, the Canadians will perform a review every five years, with the next review scheduled for 2021. Never the less, oil giants ConocoPhillips, ExxonMobil and Hilcorp, including their newly gained former BP assets, are interested in proceeding in the Arctic as is the Alaskan government and state oil groups like the Alaskan Oil and Gas association. Even Shell is trying to return to the Arctic, having left production in Chuchki Sea due to difficulties encountered back in 2015. This time, the “company seeks state approval to form an exploration unit covering 86,400 acres and 18 Alaska Beaufort Sea state offshore leases held by Shell.” But to proceed, they all really depend on multiple banks to survive, and as environmentalism gains ground, all those concerned with the fossil fuel industry have been fighting hard to keep the money flowing to the Arctic, with much attention being paid to ANWR. 

Gwich’in Council International

The ANWR has been populated and protected for thousands of years by the Gwich’in Indigenous community, from the larger Athabaskan tribe, who depend on the coastal plain for the migrating herd of porcupine caribou and other animals specific to the ANWR for sustenance. They find this advancement into ANWR as a huge threat that will affect food security and livelihoods in general. They have no interest in the riches gained from oil and gas, as the price they will have to pay in terms of sustaining their world is much higher. The coastal plain of the ANWR is considered sacred to their way of life and they are rightly concerned that seismic blasting, drilling, heavy equipment and the building of all the infrastructure that goes along with a massive oil installation will harm not just the land, but all those who live on her. The Gwich’in Council International is a permanent member of the Arctic Council.

The Fight for ANWR

The Trump administration, in the name of achieving energy dominance, immediately went after the Arctic drilling moratorium, reversing it first by executive order in April 2017, and then opening ANWR to drilling in the 2017 federal tax bill.  This attack on the ANWR was successfully repelled in March 2019, as a federal judge declared the executive order illegal. The Trump administration quickly appealed that ruling, in May 2019.  In September 2019, the US House of Representatives passed a bill 225-193 to block Arctic drilling, only to have the Department of the Interior simultaneously “mov[e] to open a portion of the area to drilling. The Bureau of Land Management released what it said was its final environmental impact statement for the oil-and-gas leasing program for a 1.5-million-acre portion of ANWR known as Area 1002.” As Canada still observes the moratorium, it becomes clear that this Arctic divestment really affects the players in the US the most.

In July 2020, “The U.S. House Appropriations Committee approved a bill that would erect barriers to oil development in the Arctic National Wildlife Refuge and logging in the Tongass National Forest.” This attempt to protect the ANWR was only met in August 2020, with defeat as the Trump administration “finalized its plan to open up part of the Arctic National Wildlife Refuge in Alaska to oil and gas development, a move that overturns six decades of protections for the largest remaining stretch of wilderness in the United States.” ANWR and its pristine coastal plain is being protected by the Gwich’in Steering Committee on behalf of the all the Gwich’in tribes in Alaska and Canada. It began its impactful work in 1988 and has had representatives speak multiple times before the US Congress as well as the UN’s Special Rapporteur on Indigenous Peoples. They have recently joined forces with the National Audubon Society, the Natural Resources Defense Council, the Center for Biological Diversity and Friends of the Earth to bring one of two lawsuits that have been filed against this most recent action. The second lawsuit is being brought by the states of Washington, Massachusetts, California, Connecticut, Delaware, Illinois, Maine, Maryland, Michigan, Minnesota, New Jersey, New York, Oregon, Rhode Island and Vermont.

President Elect Joseph A. Biden plans to scale back dependence on the fossil fuel industry, permanently protect the Arctic National Wildlife Refuge and pursue a global moratorium on Arctic drilling. He is also calling for a “worldwide ban of fossil fuel subsidies, and will direct the “Overseas Private Investment Corporation (OPIC), the Export-Import Bank, and the new U.S. International Development Finance Corporation significantly reduce the carbon footprints of their portfolios.” Despite the litigation and knowledge of Mr. Biden’s plans, the Trump administration on November 13th, 2020, announced plans to speed through drilling licenses in the ANWR as early as Monday, November 16th, 2020. While this just initiates the very long process that includes multiple permits, it is important to note that “Congress mandated the Interior Department hold two auctions of coastal plain oil leases before December 22, 2024.”

Dirty Tricks

The fossil fuel industry has a deservedly bad reputation for environmental misinformation. Exxon has been outed more than once, using tactics employed by the tobacco industry regarding their responsibility towards their product’s safety.  In the ANWR, it seems that the US government and industry insiders manipulated the situation to their advantage through Steve Wackowski. A familiar face in the Alaskan oil industry, Mr. Wackowski was appointed by Interior Secretary Ryan Zinke to be “ co-chair of the international board that manages the Porcupine caribou herd, one of several important species the refuge was created to protect. The position has traditionally been held by FWS personnel. In that role, Wackowski has prevented the International Porcupine Caribou Board, made up of U.S. and Canadian members, from weighing in on the environmental review for oil and gas leasing in the refuge.”

ANWR: What is in the ground?

Oil and gas are huge business in Alaska, usually funding “up to 90 percent of the state’s General Fund revenues” and has brought in “$180 billion in total revenue since statehood,” or 1959. Alaska currently produces an average of 496,106 barrels per day and if the coastal plain in ANWR is allowed to reach peak production, it could produce up to 880,000 barrels per day, according to the EIA. This would put ANWR at its peak in the same league as Libya in 2020, after a years-long civil war. The Environmental Protection Agency’s greenhouse gas equivalency calculator:

5.80 mmbtu/barrel × 20.31 kg C/mmbtu × 44 kg CO2/12 kg C × 1 metric ton/1,000 kg = 0.43 metric tons CO2/barrel

puts CO2 emissions of one barrel of crude consumed at 0.43 metric tons, which would mean emissions at potential peak production in ANWR of 880,000 bpd would be 378,400 metric tons of CO2 emitted per day. While the majority of the North Slope in Alaska bears oil and gas infrastructure, the until recently protected coastal plain of the Arctic National Wildlife Refuge (ANWR) has been tempting real estate for the fossil fuel industry, with massive untapped potential waiting for them in the melting environment. According to the assessment done by the US Geological Survey in 1998, the coastal plain or (Area 1002) total amount of crude oil that is recoverable is somewhere between 5.7 and 16.0 billion barrels of oil, putting the “mean estimate at 10.4 billion barrels.” The reason why the range is so wide, is that there was only ever one well drilled in ANWR, by Chevron and BP, who refused to share the results even with the USGS when they made their assessment of the area in 1998. While leases are about to be auctioned, actual production in Area 1002 is not expected to start until 2030 and will not hit peak production until 2040.

It brings up the question of where the oil will go once produced. Currently Alaskan crude is sent to Hawai’i, Washington, and California, where the crude gets distributed to 12 of the 15 refineries in the state. Alaskan crude is also exported to Asia, with South Korea being a major customer. Since California plans to only sell new electric vehicles by 2035, this will put a major cut in demand for Alaskan crude that is already in the pipes, and makes any Californian need for future peak supply from ANWR in 2040 practically irrelevant. Washington has net zero targets and plans to adopt the California mandate on electric vehicles. Hawaii was the first state in the US to set net zero targets back in 2018 and while they currently are very dependent on fossil fuels mainly for air transport, they are adding incentives for consumers as well as for charging stations, to get more electric vehicles on the road. South Korea is pledging to be carbon neutral by 2050 and is actively phasing out coal and fossil fuels. Where will all this extra ANWR oil go, especially when peak production will come in the midst of market wide decrease in demand? 

Posted in

Sally Barr

Leave a Comment





Categories

Subscribe!