Arctic Oil and Gas

Sustainability at Risk?

Aslaug Mikkelsen, Oluf Langhelle

• Publisher: Routledge
• Year: 2008
• Print ISBN:
  9780415619820
• eBook ISBN:
  9781134068210
• Topic: Business
• Subtopic: Business General
• Index: Business

This book analyzes the expanding oil and gas activities in the Arctic from the perspective of Sustainable Development (SD) and Corporate Social Responsibility (CSR). The focus is on the territories of the Arctic rim where the current and future oil and gas activities in the Arctic are and will be located. The book raises a number of questions inclu

1 Introduction

Aslaug Mikkelsen and Oluf Langhelle

We like to think of the Arctic as pristine, untouched nature, but the Arctic has become part of the global economy. Large natural resources such as oil, minerals and fish are already depleted from the region and sent to the global market. In the modern Arctic, practically every aspect of life has been and continues to be influenced and shaped by both developmental needs and market demands for natural resources elsewhere. Simultaneously, the Arctic is suffering the consequences of pollution and human-created global warming owing to carbon dioxide (CO₂), other gas emissions influencing the climate, and environmental damage and the improper dismantling of military installations from the Cold War period.

On this background, the Arctic states (Canada, Denmark, Finland, Iceland, Norway, the Russian Federation, Sweden and the United States) established the Arctic Council¹ in 1996, which focused on sustainable development from the very start. In the Ottawa Declaration, they committed themselves to: ‘sustainable development in the Arctic region, including economic and social development, improved health conditions and cultural well-being’;‘. . . the protection of the Arctic environment, including the health of Arctic ecosystems, maintenance of biodiversity in the Arctic region and conservation and sustainable use of natural resources’; and ‘the well-being of the inhabitants of the Arctic, including special recognition of the special relationship and unique contributions to the Arctic of indigenous people and their communities’.²

The programme of the Russian Federation chairmanship of the Arctic Council in 2004–2006 states that the issues of social and economic development are lagging behind in the Arctic Council activities compared to the environmental component. The programme calls for the Arctic Council to take actions that will create a more balanced contribution to resolving the problems of sustainable development of the Arctic region. In 2006, Norway took over the chairmanship of the Arctic Council. The new programme statement confirms that there has been a greater emphasis on the environmental issues and that we now have a good knowledge base on this. However, the programme focuses on the fact that it will not be possible to maintain settlement patterns and to ensure growth and welfare in the Arctic without further economic activities. The programme suggests that protection of the environment, combined with sustainable utilization of natural resources, both renewable and non-renewable, should be the core areas of cooperation under the auspices of the Arctic Council in the years ahead. This statement might be seen as a door opener for further expansion of exploration and production of oil and gas in the area in line with worldwide oil dependency and for the economic, geopolitical and developmental interests of the main Arctic states, in spite of the vulnerability of the area.

The presence of hydrocarbons in the Arctic has already caused large-scale developments in the Arctic, such as: in the Alpine and Prudhoe Bay at the North Slope, Alaska; in the North West territories, Nunavut and Nunavik in Canada; at Melkøya in the Northern Norway; and in the Yamalo-Nenets and Khantyt-Mansii Autonomous Okrugs in Russia. The fact that there are few signals of a decline in either the demand for oil and gas, or for security of the energy supply has become one of the top political issues in the European Union (EU), the United States (US) and other nations in recent years, creating an expectation of a further expansion of oil and gas activities worldwide.

For many years, the International Energy Agency (IEA) has systematically overestimated how much new oil will come out on the market outside the Organization of the Petroleum Exporting Countries (OPEC).³ Most oil reserves are found in only a few countries, but estimates of their size vary widely. The most available and economical oil and gas fields in the world are already exploited. The main future oil and gas fields are situated in remote areas with vulnerable environments, where the costs of exploration and production are high, or within politically unstable countries. In contrast to the other areas, most Arctic countries are politically stable, but from a developmental perspective, there is uncertainty surrounding the requirements of technology that is currently (2008) undeveloped or untested.

The US geological survey (USGS) world petroleum assesment 2000 estimates, that approximately 25 per cent of the undiscovered petroleum reserves are in the Arctic, makes Arctic oil and gas an important economic and geopolitical issue. Map 1.1 shows assessed Arctic oil and gas provinces and potential Arctic oil and gas provinces. The yellow areas constitute the areas where USGS estimates that as much as 25 per cent of the world’s remaining undiscovered conventional oil and gas fields may be found. The areas marked in blue are some other potential Arctic areas, hi addition to the four countries with operating fields today, Alaska/US, Canada, Norway, Russia, Greenland/Denmark may also have huge oil and gas reserves.

Figure 1.1 presents the volume of the undiscovered resources in the Arctic presented by the USGS 2000 assessment.⁴ The total estimate for the world is 268 billion Sm³ o.e., or 1690 billion barrels o.e. of the 70 billion Sm³ that is stipulated to be in the Arctic. The major reserves seem to be in Western Siberia on land, North Slope of Alaska offshore and East Greenland offshore. There has been no exploration in East Greenland: only a few seismic lines have been acquired, basically due to year-round sea-ice cover. Explorations conducted in West Greenland for several years have made no exploitable discoveries. The USGS estimates for the Lofoten area in Norway, which is equivalent to the Norwegian Sea area, are considerably higher than the Norwegian Petroleum Directorate’s estimate.

This shows that there is considerable uncertainty regarding how big the Arctic reserves are, which the USGS has also confirmed. In fact, the estimate included areas which lie entirely south of the Arctic Circle. If the East Siberian basin is deducted from the 25 per cent, the number is closer to 14 per cent (Bailey, 2007). Currently, USGS is undertaking a study of several of these basin areas and will publish a new estimate later in 2008.

Map 1.1Assessed Arctic oil and gas provinces, and potential Arctic oil and gas provinces. Source: The USGS World Assessment 2000.

Figure 1.1 The Arctic’s undiscovered oil and gas resources. Source: The USGS World Assessment 2000.

The challenges of Arctic oil and gas

This book is about the expansion of the oil and gas activities in the Arctic. Our focus is on Alaska, Canada, Norway and Russia, where the current and near-future oil and gas activities in the Arctic will be located. The expansion of oil and gas activities in the Arctic poses tremendous challenges. We believe, however, that many of the current and potential future conflicts in the Arctic can be addressed in a meaningful way within the framework of sustainable development. In this book, therefore, the overall question is what sustainable development entails and what it might imply for oil and gas activities in the Arctic. Will the desire for economic progress in both developing and developed countries put the sustainability of the Arctic, as well as the globe, at risk? The answers to the question are neither straightforward, as they depend upon a number of factors and additional information, nor are the challenges identical in different regions/countries in the Arctic.

This study is structured along three steps to answer the research question: The first step is to provide an initial understanding of the concept of sustainable development. Our approach places sustainable development within the processes of the United Nations Conference on Environment and Development (UNCED) and of the report from the World Commission on Environment and Development (WCED), Our Common Future (1987). Sustainable development is an ethical development goal that frames some global issues in a particular way and defines a global sustainability agenda in which the prominent issues are, among others, developmental concerns, climate change, biodiversity and indigenous peoples (Langhelle, 2000).

Although Our Common Future and the following UNCED process barely mention the Arctic, it is from these international processes that the concept of sustainable development was placed – and has further evolved – on the international political agenda (Lafferty and Langhelle, 1999). It is also from these processes that sustainable development has been transferred to the Arctic context, primarily through the auspices of the Arctic Council. The questions we attempt to answer are:

• how do the Arctic Council and its Working Groups understand the concept of sustainable development?
• what are the implications drawn from sustainable development for oil and gas in the Arctic? and
• how are the challenges from oil and gas conceived in the Arctic?

The second step is to focus upon the responsibilities of the oil and gas industry to address challenges of sustainable development in the Arctic. This is done theoretically by exploring the nature of the concept of corporate social responsibility (CSR), and by discussing the potential relationship between CSR and sustainable development. Most basically, business has an economic responsibility towards society, that is, to enhance value for shareholders, employees, local communities and society in general. However, business also has an institutional responsibility towards society, that is, to comply with both national and international laws and regulations, and politically sanctioned standards and guidelines aimed at promoting responsible business practice. Both Arctic public policy documents, and international standards and guidelines aimed at promoting responsible business practice in general, suggests that the oil and gas industry should support the goals of sustainable development through their decisions and actions. They should take into consideration not only the economic aspects of their operations, but also the social and environmental issues.

Alongside national governments and supranational bodies such as the EU, the multinational oil and gas companies are the main actors in the competition to gain control over the Arctic region’s natural resources. Although the oil and gas companies have financial power, they are dependent on access to oil and gas reserves and licenses to operate in order to satisfy their stockholders’ present and future targets for value creation. Managers have been willing to fake the size of the available reserves⁵ to prevent negative development in shareholder values.

Oil and gas companies seem to adjust their behaviour and definitions of corporate social responsibility in response to unexpected criticism of their activities by the media and non-governmental organizations (NGOs). When these activities develop into critical incidents and become the sustained focus of public attention, they also attract the attention of corporate management and can influence their strategic decisions, corporate activities and institutional transformation (Flanagan, 1954; Dutton and Dukerich, 1991; Hoffman and Ocasio, 2001), as well as a collective definition or redefinition of social problems (Pride, 1995). How vulnerable the same companies are to damage to their reputation is illustrated by such critical incidents as the Brent Spar, the Ken Saro Wiwa execution in Nigeria and the Exxon Valdez accident (Mikkelsen, Engen and Grønhaug, 2008).

The third step is to map out and analyse the main disputes and conflicts within and between different Arctic regions/countries – in our case, Alaska, Canada, Norway and Russia – from a discourse perspective. How do stakeholders in the oil and gas industry perceive and frame the expansion of oil and gas activities in the Arctic? What are the main conflicts? How do these conflicts eventually relate to ideas about sustainable development and corporate social responsibility? How disputed are Arctic oil and gas activities, and what are the main concerns of–and conflicts between – indigenous peoples, local people, governments and oil and gas companies? Can the interests of these different groups be reconciled and combined with an expansion of oil and gas activities? Or do some stakeholders perceive sustainable development in the Arctic to be at risk from further expansion of oil and gas activities? And finally, what are the managerial implications of the defined sustainable development issues for oil and gas companies that want to expand their activities in the Arctic?

The content of the book

The book has three parts. Part I outlines the Arctic context, the background for the research questions, the theoretical approach of the project and the methodology. Part II consists of a comparative chapter on the institutional framework across countries and four case studies of Alaska, Canada, Norway and Russia. Their aim is to identify the main conflicts and framings of oil and gas activities in the different countries. Part III consists of cross-country studies and comparisons. It includes a chapter on human rights, a comparative analysis based on the four case studies from Part II, and a chapter on the implications of the research conducted for managers of the oil and gas companies.

This chapter has addressed the Arctic context and the background for the research questions. In Chapter 2, Langhelle, Blindheim and Øygarden present an understanding of the concept of sustainable development, based on Our Common Future (WCED, 1987), also referred to as ‘the Brundtland report’ after the Chairman of the Commission, former Prime Minister of Norway, Gro Harlem Brundtland. The first part of the chapter explores the concept and its core elements. It also answers the question of whether it makes sense to talk about ‘sustainable’ extraction of non-renewable resources. The second part explores how sustainable development has been interpreted and conceived in an Arctic context by the Arctic states in the Arctic Council and its Working Groups. The last section explores the specific framing of oil and gas within the Working Groups of the Arctic Council.

In Chapter 3, Bilstad focuses on the issue of climate change in general and climate change in the Arctic, and discusses both the causes and effects of these changes. Climate change and global warming are considered major environmental and economic threats to the global community. Commitments to prevent and minimize causes and to mitigate adverse effects are continuously on the political and scientific agenda. Strategies are implemented to achieve reductions in CO₂, considered to be the major human-induced greenhouse gas. While the Arctic is rich in hydrocarbons (HCs), and production of oil and gas will improve global energy security, burning of HCs irrespective of where they are mined advances global warming. Changes in climate influence not only snow and ice, but also the way of life in the Arctic.

In Chapter 4, Blindheim discusses both the nature of the concept of CSR and its potential relationship with and effect on sustainable development. The chapter starts out with presenting four broad approaches to CSR: the classical, stakeholder, social demanding, and social activist approaches. Based on an analysis of the contemporary discourse and agenda of CSR, it is argued that the contemporary conceptualization of CSR largely falls within what may be called a ‘social activist’ approach to CSR, suggesting corporations as complementing and sometimes replacing states as the primary structures and shapers of the world. Such an understanding of CSR, it is argued, implying that corporate managers take on the roles as moral, social and political leaders, will not necessarily promote a sustainable development path. A concept of CSR – heavily emphasizing the advantage of voluntary action instead of political solutions to developmental questions and societal challenges – may d...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Contributors
• Preface
• Acknowledgements
• 1 Introduction
• Part I The Arctic: Context, Framework and Methodology
• Part II Legal and Institutional Framework: Case Studies
• Part III Comparisons and Managerial Implications