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07/12/2013

The Coming Arctic Boom

Scott Borgerson, Managing Director of CargoMetrics and Co-Founder of the nonprofit organization Arctic Circle, had a piece in the July/August 2013 edition of Foreign Affairs titled “The Coming Arctic Boom: As the Ice Melts, the Region Heats Up.”

Following are just a few excerpts:

The ice was never supposed to melt this quickly. Although climate scientists have known for some time that global warming was shrinking the percentage of the Arctic Ocean that was frozen over, few predicted so fast a thaw. In 2007, the Inter-governmental Panel on Climate Change estimated that Arctic summers would become ice free beginning in 2070. Yet more recent satellite observations have moved that date to somewhere around 2035, and even more sophisticated simulations in 2012 moved the date up to 2020. Sure enough, by the end of last summer, the portion of the Arctic Ocean covered by ice had been reduced to its smallest size since record keeping began in 1979, shrinking by 350,000 square miles (an area equal to the size of Venezuela) since the previous summer. All told, in just the past three decades, Arctic sea ice has lost half its area and three quarters of its volume....

“Most cartographic depictions conceal the Arctic’s physical vastness. Alaska, which U.S. maps usually relegate to a box off the coast of California, is actually two and a half times as large as Texas and has more coastline than the lower 48 states combined. Greenland is larger than all of Western Europe. The area inside the Arctic Circle contains eight percent of the earth’s surface and 15 percent of its land.

“It also includes massive oil and gas deposits – the main reason the region is so economically promising. Located primarily in western Siberia and Alaska’s Prudhoe Bay, the Arctic’s oil and gas fields account for 10.5 percent of global oil production and 25.5 percent of global gas production. And those numbers could soon jump. Initial estimates suggest that the Arctic may be home to an estimated 22 percent of the world’s undiscovered conventional oil and gas deposits, according to the U.S. Geological Survey. These riches have become newly accessible and attractive, thanks to retreating sea ice, a lengthening summer drilling season, and new exploration technologies.

“Private companies are already moving in. Despite high extraction costs, and regulatory hurdles, Shell has invested $5 billion to look for oil in Alaska’s Chukchi Sea, and the Scottish company Cairn Energy has invested $1 billion to do the same off the coast of Greenland. Gazprom and Rosneft are planning to invest many billions of dollars more to develop the Russian Arctic, where the state-owned companies are partnering with ConocoPhillips, ExxonMobil, Eni, and Statoil to tap remote reserves in Siberia. The fracking boom may eventually exert downward pressure on oil prices, but it hasn’t changed the fact that the Arctic contains tens of billions of barrels of conventional oil that will one day contribute to a greater global supply. Moreover, that boom has also reached the Arctic. Oil fracking exploration has already begun in northern Alaska, and this past spring, Shell and Gazprom signed a major deal to develop shale oil in the Russian Arctic.

“Then there are the minerals. Now, longer summers are providing additional time to prospect mineral deposits, and retreating sea ice is opening deep-water ports for their export. The Arctic is already home to the world’s most productive zinc mine, Red Dog, in northern Alaska, and its most productive nickel mine, in Norilsk, in northern Russia.  Thanks mostly to Russia, the Arctic produces 40 percent of the world’s palladium, 20 percent of its diamonds, 15 percent of its platinum, 11 percent of its cobalt, ten percent of its nickel, nine percent of its tungsten, and eight percent of its zinc. Alaska has more than 150 prospective deposits of rare-earth elements, and if the state were its own country, it would rank in the top ten in global reserves for many of these minerals. And all these assets are just the beginning. The Arctic has only begun to be surveyed. Once the digging starts, there is every reason to expect that, as often happens, even greater quantities of riches will be uncovered.”

Yup, it’s just getting started. The opportunities are immense. As to the politics between the various nations involved and rules for settling disputes, that has yet to be formally determined.

Wall Street History returns in two weeks.

Brian Trumbore



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Wall Street History

07/12/2013

The Coming Arctic Boom

Scott Borgerson, Managing Director of CargoMetrics and Co-Founder of the nonprofit organization Arctic Circle, had a piece in the July/August 2013 edition of Foreign Affairs titled “The Coming Arctic Boom: As the Ice Melts, the Region Heats Up.”

Following are just a few excerpts:

The ice was never supposed to melt this quickly. Although climate scientists have known for some time that global warming was shrinking the percentage of the Arctic Ocean that was frozen over, few predicted so fast a thaw. In 2007, the Inter-governmental Panel on Climate Change estimated that Arctic summers would become ice free beginning in 2070. Yet more recent satellite observations have moved that date to somewhere around 2035, and even more sophisticated simulations in 2012 moved the date up to 2020. Sure enough, by the end of last summer, the portion of the Arctic Ocean covered by ice had been reduced to its smallest size since record keeping began in 1979, shrinking by 350,000 square miles (an area equal to the size of Venezuela) since the previous summer. All told, in just the past three decades, Arctic sea ice has lost half its area and three quarters of its volume....

“Most cartographic depictions conceal the Arctic’s physical vastness. Alaska, which U.S. maps usually relegate to a box off the coast of California, is actually two and a half times as large as Texas and has more coastline than the lower 48 states combined. Greenland is larger than all of Western Europe. The area inside the Arctic Circle contains eight percent of the earth’s surface and 15 percent of its land.

“It also includes massive oil and gas deposits – the main reason the region is so economically promising. Located primarily in western Siberia and Alaska’s Prudhoe Bay, the Arctic’s oil and gas fields account for 10.5 percent of global oil production and 25.5 percent of global gas production. And those numbers could soon jump. Initial estimates suggest that the Arctic may be home to an estimated 22 percent of the world’s undiscovered conventional oil and gas deposits, according to the U.S. Geological Survey. These riches have become newly accessible and attractive, thanks to retreating sea ice, a lengthening summer drilling season, and new exploration technologies.

“Private companies are already moving in. Despite high extraction costs, and regulatory hurdles, Shell has invested $5 billion to look for oil in Alaska’s Chukchi Sea, and the Scottish company Cairn Energy has invested $1 billion to do the same off the coast of Greenland. Gazprom and Rosneft are planning to invest many billions of dollars more to develop the Russian Arctic, where the state-owned companies are partnering with ConocoPhillips, ExxonMobil, Eni, and Statoil to tap remote reserves in Siberia. The fracking boom may eventually exert downward pressure on oil prices, but it hasn’t changed the fact that the Arctic contains tens of billions of barrels of conventional oil that will one day contribute to a greater global supply. Moreover, that boom has also reached the Arctic. Oil fracking exploration has already begun in northern Alaska, and this past spring, Shell and Gazprom signed a major deal to develop shale oil in the Russian Arctic.

“Then there are the minerals. Now, longer summers are providing additional time to prospect mineral deposits, and retreating sea ice is opening deep-water ports for their export. The Arctic is already home to the world’s most productive zinc mine, Red Dog, in northern Alaska, and its most productive nickel mine, in Norilsk, in northern Russia.  Thanks mostly to Russia, the Arctic produces 40 percent of the world’s palladium, 20 percent of its diamonds, 15 percent of its platinum, 11 percent of its cobalt, ten percent of its nickel, nine percent of its tungsten, and eight percent of its zinc. Alaska has more than 150 prospective deposits of rare-earth elements, and if the state were its own country, it would rank in the top ten in global reserves for many of these minerals. And all these assets are just the beginning. The Arctic has only begun to be surveyed. Once the digging starts, there is every reason to expect that, as often happens, even greater quantities of riches will be uncovered.”

Yup, it’s just getting started. The opportunities are immense. As to the politics between the various nations involved and rules for settling disputes, that has yet to be formally determined.

Wall Street History returns in two weeks.

Brian Trumbore