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Financial Times: Lex Column: Arctic oil

Published: August 6 2007 14:04 | Last updated: August 6 2007 14:04

At the height of the Cold War, the US stuck a flag on the Moon. In the midst of a new East-West standoff, Russia has gone in the opposite direction: planting its tricolour in the sea-bed beneath the North Pole.

That Russia has adopted a tactic resonant of imperial land grabs might raise a wry smile were the implications not so serious. In a dreadful circularity, global warming, helped along by the burning of fossil fuels, is causing the Arctic’s ice sheet to recede – making any oil and gas there easier to access. The potential prize is huge: Bernstein Research says a quarter of the world’s undiscovered reserves may lie beneath the region.

Green activists will protest, but for many politicians and energy companies starved of access to new exploration areas, an opening of the Arctic, although years away, would be irresistible. Outside any Russian zone, the technical challenges involved would favour those majors with extensive offshore operating experience, such as BP, Royal Dutch Shell and Norway’s Statoil. It should mean more business for seismic data gatherers.

Within any Russian area, Total might hope to expand on its recent entry to the offshore Shtokman gas field. Ultimately, though, Gazprom and Rosneft would assume pole position on any projects. Given their relative lack of experience, that might slow development.

The geopolitical implications are gloomier. Canadian and US officials quickly dismissed the dive as a stunt, but both countries are also interested in the Arctic’s potential riches. An updated US geological survey of the region is due out next year. And despite the growing clout of the green movement, US energy policy still prioritises expanding supply over curbing demand. In that context, the Arctic may remind some on Capitol Hill of the West’s sudden enthusiasm for the North Sea in the 1970s. Unlike the Cold War experience, the Arctic’s thaw does anything but promote détente.

Copyright The Financial Times Limited 2007

 

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