• Subject Name : Management

Implications of Climate Change of Energy Extraction and Their Geopolitical Impacts

Introduction to Impact of Climate Change

Human activities are getting globalised rapidly in recent few decades. These developments have led to some exciting improvements in the wellbeing of humanity. On the other hand, it has also resulted in various global problems concerning the environment. Some of the global environmental problems which have been produced as a result of this globalisation are climate change which is now on the verge of challenging the future of the human population and their well being on the earth (Meier, et al. 2015). The impact of climate change hit the Arctic region where there is a rise in the temperature in comparison to the earth basically due to the polar amplification. These dramatic changes occurring in the Arctic will differently impact on various aspects concerning economic activities, the marine ecosystems and the lives of indigenous as well as local people. The present paper will analyse the impact of climate changes in the Arctic over energy extraction/ transportation. In furtherance of this research paper, an account of the effects of these implications concerning the geopolitical impact will be provided for a better understanding of this paper.

Climate Change in The Arctic and Impact on Energy Extraction/ Transport

The dramatic change in the climate of the Arctic is not only going to affect the global climate but will also have an impact on the different aspects of the human life outside this region (Rehdanz, et al. 2017). The changes which are occurring in the Arctic concerning the climate are manifested by the decline in the glaciers, permafrost and the Greenland ice sheet. It has been assumed that this climate change is likely to affect the multiple parts of the system which may be either simultaneously or separately. According to the various reports, climate change is leading to produce the biggest challenge to assess the overall impact and the way to deal with such changes (Arctic Council 2016). A large portion of the undiscovered oil and natural gas resources of the world has been presumed to be lying under the seabed of the Arctic region. Global warming has led to the improvisation of the accessibility to the Arctic Ocean which has the lead to the development of a ray of hope for the hydrocarbon producers who are investigating into the diversification of their portfolio away from the less politically stable or depleting source elsewhere.

Despite recent price declines (oil prices have remained close to 50 USD per barrel since 2014 in comparison to 100 USD earlier), the estimated cost of oil and gas production in the Arctic is still lower than current global oil prices and the average European gas price. The additional costs of providing local infrastructure in the largely developed Arctic are highly insecure, depending on location, and are unlikely to be fully addressed. The access to Arctic ocean has been facilitated with the reduction of sea ice, but it can also affect wave conditions in ice-covered areas, which can increase the cost of transportation and off-shore production. As provided to the ACCESS project, it has been suggested that the ice in the Arctic region is likely to be receded enough to develop gas production. Technology can be feasible for the European offshore Arctic under the most given emissions situations (Petrick, et al. 2017). It is also possible to develop probabilities of having the Arctic Offshore oil and gas cost to be not competitive in the near future as the recent gas price and oil developments suggest that there is the upper limit of the highest marginal production cost these days in the market.

Different Terms of Economic Benefit Vis a Vis Climate Change in The Arctic Region

The consideration of short- and medium-term economic benefits are associated with the Arctic change includes the possibility of oil and gas and mining exploration along with an increase in fishing, regional tourism, agriculture and commercial Shipping to the Arctic destinations (Lam, Sumaila and W.W.L. 2014). There is a potential concerning the medium to long term benefits from the Arctic routes transition concerning the commercial shipping as well (Yumashev, et al. 2017). Access for these resources demands substantial investment except in the few areas of the Western Russian Federation and Norway which are the regions remaining vastly undeserved by port, transportation and other critical infrastructure (World Economic Forum-Global Agenda Council on the Arctic 2014). As per the scenario-based study conducted by European Arctic seas, the oil and gas exploitation has been concluded to be possible from the technological perspective (Petrick, et al. 2017). It has been concluded that it is not logical from an economic perspective to have the fossil and renewable energy sources exploited concerning the current prices and the competition. The management of potential oil spills has been challenged as there is a lack of infrastructure along with the fact of the remoteness of the region (Nordam, et al. 2017). Moreover, it is possible to have greater area coverage and increase of shoreline exposure in the future of oil spill as there is an increase in the sea ice.

The conclusion of a study which has been conducted to analyse the impact of Climate Change on the fisheries sector project of the Arctic region suggest that the total revenue is likely to increase by 39% in the year of 2050 in comparison to 2000 (Lam, Sumaila and W.W.L. 2014). This in turn has been expected to have a positive multiplier effect of three on the whole Arctic economy. There have been reports of positive impacts such as unexpected arrival of the Atlantic mackerel in 2011 in Greenland which increased from representing a figure of zero in 2011 to a significant figure of 23% of its export in 2014 (Jansen, et al. 2016). The fisheries in the region of Arctic is likely to benefit from the climate change but depends on various factors such as social-economic repercussions because of the exploitation of the new species composition and the risk associated with the and sustainable fishing practice specifically considering the fact that some non-optic fishing countries which have more division in higher power fishing plates may play in such region (Christiansen, Mecklenburg and Karamushko 2014).

The consideration of medium to long-term advantages concerning the Arctic change also include difficulty in the transit shipping routes which may have a positive effect on the trade between Europe and Asia along with the East and West Coast of United States (Countryman, Francois and Rojas-Romagosa 2016). Additional income can be generated for many Asian and European countries as it has been estimated that approximately 5% of the trade of the world could be shipped through the route of Northern sea route particularly in the region of Arctic with unhampered navigability and hypothetical year-round (Bekkers, Francois and Rojas‐Romagosa 2018). There are chances of the delay in investment in large scale operations along the northern sea route by the shipping companies until the time the conditions regarding profitability are made for these companies. This will lead to pushing the onset of this large-scale commercial operations through the northern sea route to the second half of the 21st century even if there is a situation of sea ice loss following the year.

The changing Arctic and its consequent effect on the extraction of energy and its transmission has a great potential to enhance the significant revenue figure. The extent to which such extraction of energy can be implemented is subject to the consideration of various uncertainty. An elastic approach where different aspects of economic development on the Arctic ecosystem and the communities associated is significant to ensure the energy extraction along with the sustainable development of the Arctic region (Crépin, et al. 2017).

Geopolitical Impacts of Such Implications

The Arctic region has significant difficult investment decisions as it is restricted geographical access and environmental concerns with highly contrasting seasons and markets which are constrained along with the fact that most of the projects are transborder in nature as they are including various Arctic states which further give rise to the sensitive geopolitical issues (World Economic Forum-Global Agenda Council on the Arctic 2014). The significance of geopolitical impact of the climate change is considerable for the oil and gas importers of Asia and Europe who are looking for ways for the reduction of dependence on the traditional suppliers of such resources like the nation of Russia, Africa, the Middle East who have been perceived now as a geopolitically risky Nations. The resultant fluctuation of the prices of energy resources will have a crucial impact on energy development along with the level of international cooperation and climate policy (Overland, et al. 2015). It is also significant that the relevance of the Arctic concerning the international gas markets are likely to decline and will not increase at least for the oil markets.

The number of Arctic countries is 8 where five of these countries, Denmark, Canada, Russia, Norway and the United States have an outlet to the Arctic Ocean. The three of the Arctic Nations including Russia, Canada and the United States have natural gas and oil production in the Arctic region and the other three of them Russia, Norway and United States have production in Offshore. Basically, Norway and Russia are showing interest in developing these resources in recent days.

Role of Arctic Countries and Geopolitical Impact with Energy Extraction/ Transport

Since there is a rising global demand for the oil (IEA 2017), the natural source of the earth has even found their path into the debate on Arctic affairs. One of the most unexplored sources of hydrocarbon has led to the propagation of a debate to finalize if the Arctic will be an area of conflict between the nations were competing with each other or will lead to having cooperation based on mutual interest among the competent Arctic countries of this zone. The debate has been characterized to have two aspects by Malene Laurelle (Laurelle 2014). He proposed to have the two different perspectives of this debate as resource nationalism versus the pattern of cooperation.

The cooperation on the international platform is becoming significant and desirable concerning the unilateral exploration and development in the Arctic which is expensive as well as complicated. The logical and technological challenges for the extraction in the remote and climatic areas of Arctic have laid various reasons to seek business and technological cooperation with European and American companies. After the Ukraine crisis, many of the Western Oil Companies have found it difficult to work with Russian companies in the exploration of the Russian Arctic. Russian counter-sanctions and western Sciences has prevented the Western forms from involvement in the large-scale extraction and exploration efforts in the Arctic region. Recently, the United States has also targeted the Russian gas industry where the sanctions have disturbed the partnerships as well (Slav, New Sanctions On Russia Anger EU, Oil & Gas Industry 2017).

As there is a majority of Arctic hydrocarbon with probability to be found in the energy Economic Zone of Russia, there have been recently many instances of partnership which has been moving forward where the foreign companies are showing interest in the exploration of the Russian Arctic apart from the sanction. British petroleum frame worked the joint venture with Rosneft in order to assess the various prospects of the extraction in Yensey-Khatanga basin and western Siberia (Rosenft 2016). Following this joint venture, Rosneft and BP came together for another joint method for the extraction of gas in Yamal- Nenets region in 2017 (Slav, BP, Rosneft Team Up On Arctic Gas Exploration 2017). Even Norway and Russia have recently come together to share seismic data on the region of the Barents Sea to enhance the actual Exploration for the oil and gas in the Arctic region (Maritime Executive 2016).

Russia has chosen the development of the Arctic as one of its key priorities as there are geopolitical as well as commercial benefits associated with this which can be gained only by the control of vast swaths of the region. One such example is that to Moscow has recently made a statement that it has an interest in the attraction of commercial cargo ships which took them away from the Suez Canal and to use them in the Northern sea route as an alternate trade passage for Moscow. Apart from this, one of the Russian companies has also the objective to build path facilities at both the ends of the shipping route to ensure the facility of better trade in the future. With respect to the geopolitical terms, the increase in the activities of Russia in the Arctic has two main objectives: develop a strategic military position with strike capabilities and defence against the potential adversaries in the region and to proclaim the claim of Russia to around 1.3 million square kilometres of the geographic strategic and resource-rich territory of the Arctic region. Significantly, the activities of Russia in this region is not worthless as it has the potential to be a conflict hotspot in the coming years as the melting ice has made the region attractive in both geopolitical and commercial terms in a rapid manager.

Concerning the economic interest of one of the other nations, China, the Arctic policy paper has provisions for sovereignty rights and stewardship of the Arctic but along with that, there is a special significance provided for the right of China to navigation scientific research fishing laying of submarine cables and pipelines in the high sea and other relevant sea areas of the Arctic Ocean along with the right to exploration and exploitation of the resources in the area (Chinese State Council Information Office (SCIO) 2018). China has demonstrated its intention to be an active stakeholder of the Arctic region and have a group over the after-shipping governance and resource development. This can be signified by the investment of the nation in Arctic mining in Greenland the growth in shipping along with the Ice Silk Road, the development of the liquefied natural gas and the scientific research and diplomacy of the nation concerning the Arctic region (The Economist 2018). It has been found that there is reservation concerning the increasing influence of China on the various smaller states and entities in the Arctic region along with the increasing dependence on investment and trade from China an increase of exposure to fluctuation in the economy of China. The 2019 US Department of Defence Arctic Strategy as highlighted and increase in the presence of Russia and China in the Arctic as one of the threats to the interest of the nation in the region. The particular document has been calling for enhancement in the capabilities of the nation in the North Atlantic and Arctic region as a response to these concerns (US Department of Defense 2019).

Conclusion on Impact of Climate Change

The Arctic region has been facing various climate change and it has affected the process of energy extraction transportation along with providing a geopolitical impact of such implications. The climate change in the Arctic region has for ciliated and lead to the development of having a hope of better energy extraction and transportation from these reason by the various after countries which has been either in conflict or cooperation with each other to maximize their exploration and exploitation of these energy present in the Arctic region. The reason has various potential concerning the long term, medium-term and short-term benefits from the energy extraction. The changing climate of the Arctic region has a major impact on the extraction of energy as well as the transmission and has even posed a potential to increase the significant revenue figures for the different nations. The extension of such extraction and its implementation is a matter of various uncertainty. Since most of the projects of energy extraction across the Arctic region is trans-border, it has led to an increase in the tension between the different Arctic countries concerning the geopolitical issues and the impacts with the climate change in the Arctic region. The considerable impact is regarding the oil and natural gas importers as well as the hydrocarbon producers who are looking forward to having a maximum of extraction from the Arctic region. This resulted in the fluctuation of the price of these energy resources leading to an impact on the energy development along with the level of international cooperation and climate policy. 

References for Impact of Climate Change

Arctic Council. 2016. "Stockholm: Stockholm Environment Institute and Stockholm Resilience Centre." Arctic resilience report.

Bekkers, Eddy, Joseph F. Francois, and Hugo Rojas‐Romagosa . 2018. "Melting ice Caps and the Economic Impact of Opening the Northern Sea Route." The Economic Journal 1095–1127.

Christiansen, Jørgen S., Catherine W. Mecklenburg , and Oleg V. Karamushko. 2014. "Arctic marine fishes and their fisheries in light of global change." Global Change Biology 352-359.

Countryman, Amanda M., Joseph F. Francois, and Hugo Rojas-Romagosa. 2016. "Melting ice caps: implications for Asian trade with North America and Europe." International Journal of Trade and Global Markets (IJTGM), 356.

Crépin, Anne-Sophie, Asa Gren, Gustav Engström, and Daniel Ospina . 2017. "Operationalising a social–ecological system perspective on the Arctic Ocean." Ambio 475–485.

IEA. 2017. "Oil Market Report." International Energy Agency.

Jansen, Teunis, Saren Post, Trond Kristiansen, Guðmundur J. Óskarsson, Jesper Boje, Brian R. MacKenzie, Mala Broberg, and Helle Siegstad. 2016. "Ocean warming expands habitat of a rich natural resource and benefits a national." Ecological Applications 1-12.

Lam, V.W.Y, U.R. Sumaila, and Cheung W.W.L. . 2014. "Marine capture fisheries in the Arctic: Winners or losers under climate change and ocean acidification?" Fish and Fisheries.

Laurelle, Malene. 2014. Russia’s Arctic Strategies and the Future of the Far North, Armonk. New York: M.E. Sharpe.

Maritime Executive. 2016. Russia and Norway to Exchange Seismic Data. October 26. Accessed October 26, 2020. http://www.maritime-executive.com/article/russia-and-norway-to-exchange-seismic-data.

Meier, Walter N., Marika Holland, Tatiana Pavlova , Mark Serreze, Andrew Barrett , Vladimir Kattsov, and Julienne C. Stroeve . 2015. "Trends in Arctic sea ice extent from CMIP5, CMIP3 and observations." Geophysical Research Letters.

Nordam, Tor, Dorien A. E. Dunnebier, CJ Beegle-Krause, Mark Reed , and Dag Slagstad . 2017. "Impact of climate change and seasonal trends on the fate of Arctic oil spills." Ambio 442–452.

Overland, Indra, Bambulyak Alexei, Bourmistrov Anatoli, Ove Gudmestad , Frode Mellemvik , and Anatoly Zolotukhin. 2015. "International Arctic Petroleum Cooperation: Barents Sea Scenarios." Barents Sea oil and gas 2025 : Three scenarios.

Petrick, Sebastian, Kathrin Riemann-Campe, Sven Hoog, Christian Growitsch, Hannah Schwind, Katrin Rehdanz , and Rüdiger Gerdes. 2017. "Climate change, future Arctic Sea ice, and the competitiveness of European Arctic offshore oil and gas production on world markets." Ambio.

Rehdanz, Katrin, Rüdiger Gerdes, Hannah Schwind, Christian Growitsch, Sven Hoog, Kathrin Riemann-Campe, and Sebastian Petrick. 2017. "Climate change, future Arctic Sea ice, and the competitiveness of European Arctic offshore oil and gas production on world markets." Ambio 410-422.

Rosenft. 2016. "i BP zavershili sozdaniye sovmestnogo predpriyatiya po razrabotke perspektivnykh resursov Vostochnoy i Zapadnoy Sibiri” [Rosneft and BP have completed the creation of a joint venture to develop promising resources of Eastern and Western Siberia]." Rosneft Press Releases.

Slav, Irina. 2017. BP, Rosneft Team Up On Arctic Gas Exploration. Dec 21. Accessed October 28, 2020. https://oilprice.com/Latest-Energy-News/World-News/BP-Rosneft-Team-Up-On-Arctic-Gas-Exploration.html.

Slav, Irina. 2017. "New Sanctions On Russia Anger EU, Oil & Gas Industry." Oil Price.

World Economic Forum-Global Agenda Council on the Arctic. 2014. "Demystifying the Arctic."

Yumashev, D, Karel van Hussen, Johan Gille , and Gail Whiteman . 2017. "Towards a balanced view of Arctic shipping: Estimating economic impacts of emissions from increased traffic on the Northern Sea Route." Climatic Change 143–155.

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