The battle for Arctic energy resources has begun, and Russia takes first place.
The battle for the Arctic’s energy reserves is now open: On the one hand, we have Russia clearly asserting its claims in the Arctic. On the other hand, we have the Western powers, in this case the Arctic countries, which are also part of NATO. Only now is it possible for countries like Russia to exploit energy resources thanks to a warming Arctic.
We see that Russia has taken the first step and other Arctic states are now following Russia in order not to lose their claims to territory and mineral resources in the region. But Russia is miles ahead of the other countries. No other country that owns or manages Arctic territory, as in the case of Denmark and Greenland, has a large part of its own population, including major cities, in the Arctic.
Canada is partly in the Arctic, but the majority of the population lives near the American border, so Canada cannot be compared to Russia when it comes to the ability of the people living there to face the climatic conditions of the Arctic. Russia is also much better prepared militarily. Thus, Russia has significantly expanded its Arctic armed forces, and has nuclear submarines and icebreakers. Building an icebreaker takes many years, and only a few shipyards are able to build icebreakers for the Arctic Ocean at all.
So the danger is that Western countries will fall behind Russia because they are already decades behind Russia in technological and economic terms in the Arctic, when it comes to their Arctic energy policy. Not even Canada is really able to defend its northern border militarily. But alliances and competitive situations are already forming. Canada and the United States cooperate closely, but there are also disputes here as to whether, for example, the Northwest Passage is an international waterway or Canadian territory.
Russia has much better starting conditions because Russia has the right logistics infrastructure in the Arctic and is better adapted to the Arctic than the other Arctic powers.
Energy deposits that have been recently discovered in northern Russia awaken fantasies of great riches. Large oil and gas deposits have also been discovered in Alaska. But I find that very few experts realize that, apart from Russia, no other country is truly capable of exploiting these energy reserves.
When we look at the map we find that only Russia and the United States are able to exploit their energy resources in the Arctic. Now one can argue against that and say that the oil sands deposits in Alberta are an example that Canada is also able to extract large energy reserves in the Arctic. But this does not seem plausible to me. Alaska’s energy reserves are much further north, and Russia’s recently discovered energy reserves lie much further in the Arctic than the energy reserves exploited by Canada.
We should also take into account that the settlements that were build around the oil sands are more or less work settlements for the workers working there for a few years. However, these are not settlements that have grown organically on their own, and the only reason for their continued existence is the ‘financial yield’ of oil sands in Alberta. Russia in particular is able to extract its energy resources over enormous distances. One must consider of course that with every kilometre the costs for the energy transport rise.
Energy transport costs can sometimes cost more than the value of the resource itself. This also explains why the energy reserves in the north of Russia are only now being mined. It is one of Russia’s existential problems, what one knows and understands from Russian agricultural practises. Russia has fertile soils, Russia can easily feed its population. The problem is supply chain management, it takes a long time to get pretty much anywhere, that lead to no profits being made in the end. I would say it is a similar situation with the energy industry in Russia. But Russia can cope with this better than other northern countries.
Russia’s and Norway’s Arctic strategy in relation to recoverable energy reserves of oil and natural gas
Potentially 7 and 15% of the world’s energy reserves lie dormant in the Arctic. It is difficult to ascertain how much oil and natural gas exists in the Arctic, because most of it is undiscovered. Russia already has the world’s largest energy reserves, most of it in Siberia, as I have said in another article. Not all energy reserves can be exploited, of course, but with the right technology it would even be possible to produce some of these energy reserves profitably.
Russia’s real goal, however, is not just to sell the energy reserves profitably in the global energy business. Rather, it is about using the profits from the energy business to secure Russia’s position as an Arctic superpower. Again, the Russian Federation attaches great importance to linking military and energy interests, which I had mentioned before.
When it comes to economic activities that serve specific nation interests in the Arctic region, smaller Arctic countries like Norway are in a much worse position vis-à-vis Russia. Norway administers the island of Spitsbergen, an island in the Artic Ocean where a large part of the working population hails from Russia. As Russia claims her territorial waters for herself, which is exactly where most Arctic energy resources are suspected, this may conflict with Norway’s interests. In practical terms, Spitsbergen is the entrance point to the Arctic Sea.
However, without NATO’s help, Norway would not be in such a good position to assert its claims in the Arctic Ocean. Norway also suspects that large energy reserves still lie dormant near the Norwegian coast. The situation is ever more complex. Norway may be able to prevent Russia from entering the North Atlantic. Norway can prevent Russia circumnavigate around Spitsbergen, Norway lies south of it. So Russia would find it difficult to ship energy resources to Europe.
The warming of the Arctic means container shipping becomes more energy-efficient.
Furthermore, the warming of the Arctic would make container shipping more energy-efficient. The distance between Japan and South Korea and North Europe would be a third shorter than the distance from North Europe around Gibraltar, through Suez, Yemen and past India, through the Strait of Malacca and then past the Chinese coast.
Atle Staalesen, The Barents Observer: Russia presents a grandiose 5-year plan for the Arctic, 2018, available at: https://thebarentsobserver.com/en/arctic-industry-and-energy/2018/12/russia-presents-grandiose-5-year-plan-arctic
Donald Gasper, South China Morning Post: China and Russia want to develop Arctic energy resources together, and US disapproval may not deter them, 2017, available at: https://www.scmp.com/comment/insight-opinion/asia/article/2163719/china-and-russia-want-develop-arctic-energy-resources
Eric Roston, Bloomberg: How a Melting Arctic Changes Everything, Part III, the Economic Arctic, 2017, available at: https://www.bloomberg.com/graphics/2017-arctic/the-economic-arctic/
Nunatsiaq News: How sewage could become an energy resource for Arctic communities, 2019, available at: https://nunatsiaq.com/stories/article/how-sewage-could-become-an-energy-resource-for-arctic-communities/
Many thanks for the shared interest in the energy world!
This article is just meant to inform the reader of recent developments in the energy industry at large and to share knowledge and insights with a wider audience. The author does not put forth investment recommendations.
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