Matthew Lynn / Bloomberg Opinion – 2010-10-22 00:01:23

http://www.bloomberg.com/news/2010-09-27/arctic-grab-is-mad-fight-for-last-oil-frontier-commentary-by-matthew-lynn.html

LONDON (September 27, 2010) — If we didn’t already have the phrase Cold War, we’d have to invent it to describe the power struggle taking place for Arctic Ocean resources.

Companies such as BP Plc and OAO Gazprom are readying themselves for the last great energy frontier. Russia, the US, Canada and Iceland are vying for control of the wealth and power that exploitation of the Arctic will create.

It is all madness. Trying to bring the frozen wastelands around the North Pole into the global economy involves two huge risks: catastrophic climate change, and a major war.

It isn’t worth it. The world is making progress with alternatives to fossil fuels. It has enough growth opportunities already. There’s only one sensible response: a complete ban on the economic exploitation of the Arctic.

The melting of the polar ice cap is providing access to vast, untapped reserves of oil and gas. BP estimated in September last year that the region may contain about 200 billion barrels of oil-equivalent resources. That may be as much as half of the world’s hydrocarbons still to be discovered.

BP’s recent experience in the Gulf of Mexico might have slightly damped its enthusiasm for offshore drilling. But even if the company doesn’t want to tap the Arctic fields, plenty of its competitors will be happy to.

Sources of Wealth
It isn’t just oil. The melting of the ice cap may allow direct shipping between Europe and Asia, halving the journey time. New trade routes will mean new ports and transport hubs. Iceland, bruised from its recent attempts to become a global financial center, may find its future in trade instead as ships pass through the Arctic. Throughout history, trade routes have been a great source of wealth. This one won’t be any different.

The trouble is, opening up the Arctic to economic development is fraught with risk. There is already geopolitical conflict brewing in the region.

“It is important to maintain a zone of peace and cooperation in the Arctic,” Russian Prime Minister Vladimir Putin said at the International Arctic Forum in Moscow last week. “I have no doubt that all issues, including those of the Arctic shelf, can be resolved in the spirit of partnership.”

If you believe that, you’ll believe anything. In reality, Russia is pouring huge sums of money into assembling the scientific and geographical evidence that will allow it to push its territory as far into the Arctic as possible.

Power Politics
The world has seen how Putin’s Russia uses energy as a weapon of power politics. That Putin believes Arctic disputes can be resolved amicably is about as plausible as believing he has genuinely handed over power to President Dmitry Medvedev.

In truth, the Russians are planning to grab control of as much of the Arctic as they can. But so are Canada, the US, Iceland, Denmark and Norway. If the Chinese can think of some plausible reason for saying it is theirs, no doubt they will be there soon as well.

There are two good reasons to place a ban on Arctic mining.

First, climate change.

The logic of the energy industry appears to be this: Fossil fuels create global warming, which melts the polar ice cap, which is sort of handy — even though upsetting for the polar bears — because it means that with all that stupid ice out of the way we can start drilling for more oil. And once we get it out, and start burning it, it will melt the ice some more, and make even more oil accessible.

Stop Drilling
It’s crazy. If the polar ice cap is melting — and the bulk of scientific evidence suggests that it is at a rapid rate — the first thing you need to do is stop drilling for more oil.

True, not everyone is convinced that climate change is man-made. There is room for argument. The scientific consensus has been wrong before, and may have gotten this one tangled up as well. And yet, given the catastrophic consequences if the consensus is right, why take the risk?

Great progress is being made with alternatives to fossil fuels. Electric cars are on the verge of breaking into the mass market. Wind, solar and nuclear power are increasingly able to heat our homes and offices. They are better for the environment, and they don’t leave you dependent on people in Moscow or Riyadh to stay warm in winter. Why not press on with developing those rather than drilling for oil and gas in the Arctic?

Second, no one really knows who owns the Arctic. When it was just a big block of ice, no one really cared. Now that money is at stake, half the world is making claims. In the 19th century, the major European powers competed for control of the resources and trade routes of Africa and Asia. They ended up with World War I. There is a risk that a similar rush to control the Arctic may trigger another major conflict. Even if it doesn’t, competing ambitions will poison relations for years.

A ban on mining and drilling in the Arctic is the only way. For a few more barrels of oil, it’s not worth the risk.

Matthew Lynn is a Bloomberg News columnist and the author of “Bust,” a forthcoming book on the Greek debt crisis. The opinions expressed are his own.)

To contact the writer of this column: Matthew Lynn in London at matthewlynn@bloomberg.net

James Greiff: jgreiff@bloomberg.net

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