CSIS report weighs Arctic economic opportunities, risks

In an age of uneven and uncertain global economic growth, the American Arctic—with energy resources in Alaska estimated at 29.9 billion bbl of crude oil, more than 221 tcf of natural gas, and 5.9 billion bbl of natural gas liquids—presents an attractive economic opportunity, a recent Center for Strategic and International Studies report concluded.

But infrastructure limitations and costs to construct new systems for mineral as well as energy development, along with potentially serious damage from an oil spill, make the American Arctic scales tip slightly toward environmental stewardship and protection, although not due to a formal governmental decision, according to Heather A. Conley, a senior CSIS fellow who directs the center’s Europe program.

Alaska’s state government is very interested in fully exploring Arctic economic opportunities and wants very much to formulate the necessary development strategy, she wrote in the report, “Arctic Economics in the 21st Century: The Benefits and Costs of Cold,” which also examines commercial fishing, shipping, and tourism.

But Conley added that such a plan would require national financial mobilization due to the extraordinary budgetary resources involved, an understanding of Arctic economic resources’ destination markets (e.g., the US for domestic energy consumption or Asia for export sales), and an equally robust and mutually reinforcing public–private sector relationship.

“All three conditions are not present today and will unlikely materialize in the near future,” she maintained.

High access costs

Costs to gain access to Alaska Arctic hydrocarbon and mineral resources could be staggering, Conley warned. Construction of a 100-mile road to bring Alaska North Slope resources to market could cost $400-600 million, and has generated opposition from communities in the area and environmental organizations, she said. Environmental groups also oppose building a 500-mile mineral transportation corridor from the Seward Peninsula to Fairbanks which could cost $2.3-2.7 billion, she added.

“Notwithstanding new infrastructure construction, Alaska’s existing road transportation infrastructure is vulnerable to thawing permafrost with an estimated 450 miles of highway susceptible to permafrost melt that will require relocation or rehabilitation as their foundations weaken,” Conley said.

“However, road infrastructure costs pale in comparison to the infrastructure costs related to sea and air,” she continued. The US will need to make significant long-term Arctic infrastructure investments, including deepwater ports, icebreaking capabilities and support vessels, ice-hardened transit vessels, improved satellites, [and] aviation assets, while maintaining airstrips, roads, and pipelines, she said.

“Although one can approximately tabulate the costs and benefits of Arctic economics, the ultimate cost of an oil spill that destroys the fragile Arctic environment or a catastrophic incident at sea that could cost hundreds of lives cannot be determined,” Conley wrote. “If a disaster took place, America’s Arctic scales would likely never achieve balance. This unquantifiable factor tips the American scales toward Arctic environmental protection for the foreseeable future.”

Contact Nick Snow at nicks@pennwell.com.

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