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Melting ice will change the economics of extracting resources from the Arctic

The massive Goliat oil rig on calm waters in the Barents Sea
Vår Energi
The Goliat oil rig, owned by Vår Energi and Equinor, operating in the Norway-owned section of the Barents Sea.
  • Samanth Subramanian
By Samanth Subramanian

Looking into the Future of Capitalism

Published

The first successful oil drilling expedition in the Arctic nearly began in outright failure.

In the summer of 1944, US Navy engineers called Seabees sailed for Alaska to find oil. The trip was tough from the beginning—storms and ice-laden waters threatened their boats, sank a patrol plane, and threw men overboard. After the Seabees landed in August, the supply ships left quickly, to avoid being iced in.

In the winter, temperatures dropped to nearly -50 degrees Celsius, and blizzards raged over their settlement. The indigenous Alaskans living in the area predicted, as a book about the expedition recalls: “The big Seabee would bury the little ones, and then the Eskimos (sic) would bury the big Seabee.”

The Seabees did hit oil after all, becoming the first in a long line of prospectors to eye the Arctic hungrily. The appetite for the Arctic’s riches will only sharpen in coming years, as the land and ice thaw, potentially unlocking reserves of oil, gas and metal. Accessing these troves may not always be cheap or easy, and tapping them threatens to set back the fight against the deterioration of our planet.

Of the 90 billion barrels of oil and 1,700 trillion cubic feet of natural gas estimated to lie north of the Arctic Circle, 84% lies offshore. And while Arctic conditions can still be as harsh as they were on the Seabees, the infrastructure of oil and gas extraction has improved vastly. “If people aren’t drilling all over the Arctic now, I don’t think it’s because there’s a gap in technology,” said Stig-Mortean Knutsen, a petroleum geologist at the Arctic University of Norway. “It’s more to do with cost.”

Simply put, it’s feasible but expensive to drill for Arctic oil offshore—to float a giant, $5.5 billion rig like Goliat, for instance. Owned jointly by Vår Energi and the Norwegian state-owned Equinor, Goliat is a squat, 64,000-ton cylinder, and it squats 53 miles north of Norway’s coast, plumbing the Barents Sea for oil. But the oil that such rigs produce will have to earn back their huge investment. Speaking broadly, Knutsen said, the cost of such installations could be three or four times the cost of a similarly productive facility in the Middle East. For Goliat to break even over a 15-year life span, an analyst wrote, oil would have to sell at around $95 a barrel. In mid-May, the market price was around $65.

How icemelt will transform the Arctic oil enterprise

These dynamics will change in a melting Arctic, but not always in obvious ways. Less ice makes it easier to protect rigs from floating ice, or to run supplies to them in the depths of winter, or to ship oil and gas out. But the infrastructure on land is imperiled by softening permafrost, said Nic Craig, an energy expert at the Polar Connection, a London-based think-tank. “Foundations will crumble. Maintaining roads or rail or pipeline becomes harder. Icemelt doesn’t take away from the remoteness of it all, especially when something goes wrong.”

A warmer Arctic will make some areas easier to access than others. Russia’s oil and gas fields will open up earliest, Craig thinks. Some of these, such as the Yamal LNG field at Sabetta, in northern Russia, are already functional; Yamal produces 16.5 million tons of gas every year, the gas piped from a field just offshore to a port, where it is loaded into tankers to send to Europe or China. Yamal wouldn’t have worked 20 years ago, when there was more ice in those waters and less sophisticated ships to sail them. More gas projects are en route, with names like Arctic LNG 2.

Icemelt doesn’t take away from the remoteness of it all, especially when something goes wrong.

Norway is opening at least nine oilfields in the Barents Sea, having redrawn its notion of the “ice-edge” zone to permit new drilling. (Revenues will flow into Norway’s sovereign wealth fund, which has, ironically, divested billions of dollars from its fossil-fuel investments.) This year, Canada will review its five-year moratorium on licenses for offshore oil and gas exploration. Until president Joe Biden’s administration suspended drilling in Alaska, the US too was on track to wring new oil and gas out of the Arctic.

These extractive ambitions rub against the urgency of our environmental moment: the need to cut down, rather than pursue, fossil fuel use. As part of their sustainability goals, banks claim they’re now making it difficult for oil firms to get funds for new Arctic projects. Knutsen calls this decision to withhold financing an easy one to make, “like kicking down an open door,” because the upfront expense of a project is so steep today. If those expenses shrink in a warming Arctic, banks might well step up once again, he said. One sustainability executive at a London-based bank, who asked not to be named, pointed out: “In any case, China and Russia will be happy to fund new projects.”

Moreover, since so many of these offshore gas and oilfields lie in the extended economic zones of countries, no multilateral body can dictate the decision to leave these fuels in the ground. The Arctic Council, an independent forum made up of the eight Arctic-adjacent countries and several other observer nations and groups, has a hefty environmental mandate, but its powers are limited. “The Council does a lot of work on oil-spill response,” Craig said, “but they don’t touch this question of whether these resources should be exploited at all.”

The metals and minerals of the Arctic

Ironically, to best transition away from carbon fuels, the Arctic may first have to yield up another kind of resource: metals. The batteries, electric vehicles, and fuel cells of the future will need huge quantities of copper, nickel, manganese, rare earths, and other metals, said Gerard Barron, the CEO of The Metals Company, which hopes to mine the sea floor once the International Seabed Authority, a body within the UN, finalizes an undersea mining code. Barron’s miners are most actively studying the Clarion Clipperton Zone, a region just south of Hawai’i, where there is, Barron believes, enough metal to build 280 million EV batteries.

The Arctic Ocean bears nodules containing copper, nickel, and the rare earth scandium, often used to make strong alloys for the aerospace industry. Barron’s company hopes to scoop lumps up using a robotic rover jouncing along the sea bed. But in the Arctic, harsh conditions make these nodules difficult to collect at the moment; Barron singled out the Kara Sea, north of Siberia, where winter ice has grown to thicknesses of as much as four meters (13 feet).

We keep thinking: How long should we be doing this?

Even when this ice thins, he added, the sizes and “grades” (or purity) of these nodules make them economically unviable. “The nickel grades are of around 0.01%—very fractional,” Barron said. Similarly, there are crusts of cobalt, but “you’d have to grind them up, there’d be a lot of destructive rock cutting involved.” By the time these extractive activities become economically feasible, Barron said, “maybe the world will have moved on a bit.”

The World Wildlife Fund has called for a moratorium on deep sea mining, which companies like BMW and Google have backed. But Barron argues that, at depths of 4,000 meters (13,000 feet), the density of life is scantier than that on the planet’s surface—and, therefore, that collecting metals from the ocean floor is less disruptive of life than it would be at sea level. Statistics on deep sea life have been difficult to compile, though, because the environment is so remote and vast; by one estimate, less than a fifth of life forms in these parts of the oceans have been identified.

Barron also seems to recognize that his company’s extractive mission is one that must end soon. “We keep thinking: How long should we be doing this?” he said. “We have to move towards a circular economy, but we can’t do that until we inject a massive volume of these metals into the system that we can then keep recycling. We hope to be out of extraction in 30-40 years.”

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