Arctic Oil and Gas: The Role of Regions

This article is based on a larger research report by the author, published by the Norwegian Institute for Defence Studies (IFS) which is available here. 

courtesy of Nordregio
By Andreas Østhagen The starting point for regional governments is a desire for economic development and prosperity. Whether the end-goal is economic independence or sustaining higher levels of income, this has led some Arctic regions pursuing natural resource development at a rapid  pace. How the regions promote such interests in their interaction with federal/national governments that are not always as pro-development, arguably determines  much of the actual pace of offshore oil and gas development in the Arctic.

Three cases of Arctic offshore developments in North America – the Chukchi Sea off the coast of Alaska; the Beaufort Sea off the Northwest Territories in Canada; and the waters  around Greenland of the Realm of Denmark – highlight the relationship between regional interests and their respective systemic constraints and can help us understand the role of regions,  an important dimension of Arctic oil and gas development.

Regions in the North American Arctic
Looking beyond overarching international trends related to price levels, technology and ice-melting, this study analyses what influences specific development of offshore oil and gas in the Arctic. A key dimension in focus was the interests of those actually  living in the areas in question, represented through their respective regional governments, as this factor is often neglected or understated in current Arctic research literature. Consequently, the following question must be asked: what role do regional interests have in theprocess of developing oil and gas in the North American Arctic?

With no current offshore production activity, yet with high expectations of a rapid pace of development in exploratory drillings in the near future, the North American Arctic was chosen as the focus area. The three cases studied here share relatively similar climactic conditions. However, they have seen different paces of petroleum development against the backdrop of rising Arctic oil and gas on the international agenda and increasing commercial interests in the North American Arctic. By looking at the processes surrounding the influx of new commercial interests and factors determining the development pace in each case, some important conclusions can be made.

Defining an Interest
First, the regions themselves need to have a clearly defined interest that is promoted and acted upon as development proceeds. The regions’ preferences are naturally a product of their own dependence on oil and gas revenues to support local and regional economies. Perceived future gains from such activities inevitably also come into consideration. Internal cohesion, however, is often lacking, and although all the regions in question favour oil and gas activities, their commitment and/or ability to promote such activities  vary in degree.

Interest in all three regions is undoubtedly influenced by the level of hydrocarbon resources in offshore basins, as outlined by the United States Geological Survey (USGS) and other geological surveys. Together with international price trends, accessibility, transport infrastructure and the cost of Arctic operations, this forms the basis of the commercial viability in each case. Commercial viability in turn determines the extent to which commercial actors, such as Shell, Statoil or Cairn, push for exploratory offshore drilling.

Yet this study has proven that case-specific development is also influenced by the interests of the regional actors engaged in the matter. The way regional governments define their interests in petroleum development constitutes the basis of regions’ participation in the development process.

Exhibiting strong regional interests, the State of Alaska continues to push for development in the Chukchi Sea, although the final decision is made federally by the Department of Interior in Washington, D.C. The State consequently acts as a facilitator, with local interest groups and environmental organisations attempting to halt development at every crossroad.

The Canadian Beaufort Sea is similar to the U.S. in terms of the locus of decision-making for outer continental shelf development. Regional interests, however, are not as strongly defined as in Alaska, and consequently the Territories are not as active in policy-making processes. Greenland, as the most autonomous of the three regions in question, has acquired self-governance over its offshore petroleum resources.

Similar to Alaska, the Greenlandic government has actively pushed for development: first by encouraging commercial interests in the region, then through the rapid pace of lease sales from 2006 onwards. While development of the Chukchi Sea has encountered domestic resistance in the U.S., Greenlandic offshore development has met with international resistance, notably from the EU and Greenpeace.

Regional vs. Federal
Second, the impact of regional interests is a function of how strongly these interests are enforced in the process of opening up areas for oil and gas activity. This relates to the unique and systemic context in which the regional governments operate – a context that in turn determines how regional interests are allowed to influence the decision-making process. First, the devolved decision-making competences and autonomy vary considerably throughout the regions in question. Second, in all three cases, regional interests are balanced against federal/national approval of Arctic drilling. The interests of the federal level come into play at this point, which often are linked with the formulation of national energy policies.

In the U.S. and Canada, the federal governments have the authority over the Outer Continental Shelf, and consequently the regional governments in Alaska and the Northwest Territories can only act as facilitators and promoters of their individual interests when a federal decision is underway. In these two cases, the locus of decision-making power lies outside of the Arctic Circle and a decision is the result of the respective federal governments striking a balance between different policy interests. In Greenland, however, the line of sight between regional interests and policy outcomes is substantially clearer, as decision-making competences are devolved to regional self-government. However, Greenland’s enduring relationship with Denmark and the EU is a systemic factor that still should be taken into consideration.

It is interesting to note that the Arctic often causes strong popular sentiment amongst people who do not reside in the region itself. Due to the usage of the Arctic as a symbol of pristine nature and the devastating effects of climate change, there is undoubtedly a strong desire present in capitals like Ottawa, Washington D.C. and Copenhagen to leave the Arctic untouched by industrial activity (Emmerson 2010; Williams 2011). Local inhabitants of the Arctic, however, do not always share such sentiments. Non-Arctic interference in matters of development for Arctic inhabitants has long been a source of conflict (Williams 2011). The Arctic is also jointly populated by different groups of indigenous peoples, with the possibility for tension to arise between non-indigenous regional populations and indigenous local populations over how to deal with the increased influx of commercial interests to the region.

Altogether, these comparisons show that international trends and commercial viability, while important, are not the only factors to consider when tracking and explaining development processes in the Arctic. Offshore activity takes place in the context of regions, both geographically and politically, and all three cases involve regional governments that interact with centrally located decision-makers,  besides commercial, environmental and social actors. Consequently, it seems that the relationship between the regional level, where specific Arctic offshore development is taking place, and the national level, often located far away from the Arctic, constitutes an important, and arguably also frequently neglected, determinant of the development of Arctic oil and gas.

This observation might hold relevance for other areas of the Arctic given the controversy surrounding offshore development in North Norway or in Northwest Russia. However, the Arctic is not the only part of the world facing this influx of commercial interests. Deepwater drilling has boomed in the last decade, and controversial offshore fields west of the Shetland Islands in the UK, off the coast of Brazil, and in ‘iceberg alley’ off Newfoundland in Canada, are currently being explored for recoverable resources. As soaring price levels, new technologies and increased market demands push companies towards new and challenging areas like the Arctic;the role of the regions  where these activities take place will only become increasingly important.