Arctic Meltdown

The Economic and Security Implications of Global Warming

Scott G. Borgerson

From Foreign Affairs, March/April 2008

Summary:  Thanks to global warming, the Arctic icecap is rapidly melting, opening up access to massive natural resources and creating shipping shortcuts that could save billions of dollars a year. But there are currently no clear rules governing this economically and strategically vital region. Unless Washington leads the way toward a multilateral diplomatic solution, the Arctic could descend into armed conflict.

SCOTT G. BORGERSON is International Affairs Fellow at the Council on Foreign Relations and a former Lieutenant Commander in the U.S. Coast Guard.

The largest deposits are found in the Arctic off the coast of Russia. The Russian state-controlled oil company Gazprom has approximately 113 trillion cubic feet of gas already under development in the fields it owns in the Barents Sea. The Russian Ministry of Natural Resources calculates that the territory claimed by Moscow could contain as much as 586 billion barrels of oil -- although these deposits are unproven. By comparison, all of Saudi Arabia's current proven oil reserves -- which admittedly exclude unexplored and speculative resources -- amount to only 260 billion barrels. The U.S. Geological Survey is just now launching the first comprehensive study of the Arctic's resources. The first areas to be studied are the 193,000-square-mile East Greenland Rift Basins. According to initial seismic readings, they could contain 9 billion barrels of oil and 86 trillion cubic feet of gas. Altogether, the Alaskan Arctic coast appears to hold at least 27 billion barrels of oil.

Although onshore resources, such as the oil in Alaska's Arctic National Wildlife Refuge, have dominated debates about Arctic development in Washington, the real action will take place offshore, as the polar ice continues to retreat. An early indication of the financial stakes and political controversies involved is a lawsuit that was filed against Royal Dutch/Shell in the U.S. Ninth Circuit Court. Filed jointly by an unusual alliance of environmental groups and indigenous whalers, the case has held up the development of Shell's $80 million leases in the newly accessible Beaufort Sea, off Alaska's northern coast. By 2015, such offshore oil production will account for roughly 40 percent of the world's total. The Alaskan coast might one day look like the shores of Louisiana, in the Gulf of Mexico, lit up at night by the millions of sparkling lights from offshore oil platforms.

POLAR EXPRESS

An even greater prize will be the new sea-lanes created by the great melt. In the nineteenth century, an Arctic seaway represented the Holy Grail of Victorian exploration, and the seafaring British Empire spared no expense in pursuing a shortcut to rich Asian markets. Once it became clear that the Northwest Passage was ice clogged and impassable, the Arctic faded from power brokers' consciousness. Strategic interest in the Arctic was revived during World War II and the Cold War, when nuclear submarines and intercontinental missiles turned the Arctic into the world's most militarized maritime space, but it is only now that the Arctic sea routes so coveted by nineteenth-century explorers are becoming a reality.

The shipping shortcuts of the Northern Sea Route (over Eurasia) and the Northwest Passage (over North America) would cut existing oceanic transit times by days, saving shipping companies -- not to mention navies and smugglers -- thousands of miles in travel. The Northern Sea Route would reduce the sailing distance between Rotterdam and Yokohama from 11,200 nautical miles -- via the current route, through the Suez Canal -- to only 6,500 nautical miles, a savings of more than 40 percent. Likewise, the Northwest Passage would trim a voyage from Seattle to Rotterdam by 2,000 nautical miles, making it nearly 25 percent shorter than the current route, via the Panama Canal. Taking into account canal fees, fuel costs, and other variables that determine freight rates, these shortcuts could cut the cost of a single voyage by a large container ship by as much as 20 percent -- from approximately $17.5 million to $14 million -- saving the shipping industry billions of dollars a year. The savings would be even greater for the megaships that are unable to fit through the Panama and Suez Canals and so currently sail around the Cape of Good Hope and Cape Horn. Moreover, these Arctic routes would also allow commercial and military vessels to avoid sailing through politically unstable Middle Eastern waters and the pirate-infested South China Sea. An Iranian provocation in the Strait of Hormuz, such as the one that occurred in January, would be considered far less of a threat in an age of trans-Arctic shipping.

Arctic shipping could also dramatically affect global trade patterns. In 1969, oil companies sent the S.S. Manhattan through the Northwest Passage to test whether it was a viable route for moving Arctic oil to the Eastern Seaboard. The Manhattan completed the voyage with the help of accompanying icebreakers, but oil companies soon deemed the route impractical and prohibitively expensive and opted instead for an Alaskan pipeline. But today such voyages are fast becoming economically feasible. As soon as marine insurers recalculate the risks involved in these voyages, trans-Arctic shipping will become commercially viable and begin on a large scale. In an age of just-in-time delivery, and with increasing fuel costs eating into the profits of shipping companies, reducing long-haul sailing distances by as much as 40 percent could usher in a new phase of globalization. Arctic routes would force further competition between the Panama and Suez Canals, thereby reducing current canal tolls; shipping chokepoints such as the Strait of Malacca would no longer dictate global shipping patterns; and Arctic seaways would allow for greater international economic integration. When the ice recedes enough, likely within this decade, a marine highway directly over the North Pole will materialize. Such a route, which would most likely run between Iceland and Alaska's Dutch Harbor, would connect shipping megaports in the North Atlantic with those in the North Pacific and radiate outward to other ports in a hub-and-spoke system. A fast lane is now under development between the Arctic port of Murmansk, in Russia, and the Hudson Bay port of Churchill, in Canada, which is connected to the North American rail network.

In order to navigate these opening sea-lanes and transport the Arctic's oil and natural gas, the world's shipyards are already building ice-capable ships. The private sector is investing billions of dollars in a fleet of Arctic tankers. In 2005, there were 262 ice-class ships in service worldwide and 234 more on order. The oil and gas markets are driving the development of cutting-edge technology and the construction of new types of ships, such as double-acting tankers, which can steam bow first through open water and then turn around and proceed stern first to smash through ice. These new ships can sail unhindered to the Arctic's burgeoning oil and gas fields without the aid of icebreakers. Such breakthroughs are revolutionizing Arctic shipping and turning what were once commercially unviable projects into booming businesses.

THE COMING ANARCHY