Investment in the Arctic could reach $100bn in ten years
Thu 12 Apr 2012
A report released today by Lloyd’s, in conjunction with Chatham House, has found that investment in the Arctic could reach $100bn within ten years.
Sustained high commodity prices are driving renewed interest in Arctic projects across the board, raising the prospect of a transformation of the Arctic’s role in the global economy. But, the report warns, the efforts of governments and businesses must be redoubled to ensure that development of the region does not lead to irreparable damage.
Arctic opening: Opportunity and Risk in the High North, says that research to consider the substantial and unique risks businesses will face in the region, must start sooner rather than later. The potential environmental consequences of any disasters and difficulty and cost of clean-up there are likely to be significantly greater than in other regions.
Richard Ward, Chief Executive of Lloyd’s, said:
“Business activity in the Arctic region is undeniably increasing, and the impact of climate change means that this is likely to grow significantly in the future. But as new opportunities open up, decisions on exploiting them need to be made on the basis of as full an understanding of the risks as possible.
“So businesses, governments and industry must start to think now about how they will manage the substantial, and unique, risks they will face when doing business in the Arctic region.”
The report says that:
- Governments should provide strong and transparent oversight in the region and establish procedures for monitoring future activity in the area.
- Businesses need to start strengthening their risk management plans, including risk mitigation and rigorous insurance policies for their future activity there.
- Industries with an interest in the region have a responsibility to start establishing industry-wide standards for future Arctic activity now.
- All parties should begin considerable further research and analysis to fully assess the range of hazards of Arctic operations and the vulnerabilities of technical systems, equipment and the Arctic environment to disruption and harm.
The report puts in check the widely quoted estimate of 90 billion barrels of undiscovered Arctic oil. While some major projects are already underway, future oil price volatility, ecological limits and a changing political and legal environment presents serious investment risks.
Whilst the report notes that particular risk events, such as an oil-spill, are not necessarily more likely in the Arctic than in other extreme environments, it finds that they would have a much greater impact there, given the ecological environment and lack of developed infrastructure to deal with them.
Four years ago, researchers predicted that 2008 would be the first ice-free summer(a); whilst that did not materialise and the Arctic remains frozen, the report finds that the average number of ice-free days in the Beaufort Sea has recently increased to 105 from 63 in the 1990s. This is opening up new shipping routes. However, the report warns that seasonal changes in ice cover will still be unpredictable, while built infrastructure in the Arctic will need to be adaptable to a potentially far wider range of possible future environmental conditions.
Lead author Charles Emmerson, from the Energy, Environment & Resource Governance Programme at Chatham House, said:
“The Arctic region is changing more rapidly than anywhere else on Earth. More research into the unknowns is essential to ensure that the risks and incentives of further exploration in the region are better aligned. Given the Arctic’s fragile ecosystem, it is vital that policy-makers and businesses take into consideration worst-case scenarios.”
The report can be downloaded from www.lloyds.com/riskinsight.
Notes to editors:
- Oil and gas exploration, mining and the shipping industry are predicted to be the biggest drivers, and beneficiaries, of economic development in the region. But tourism, fisheries and scientific research are also expected to take advantage of the economic prospects of the Arctic.
- Lloyd’s is the world’s leading specialist insurance market, conducting business in over 200 countries and territories worldwide – and is often the first to insure new, unusual or complex risks.
- Lloyd’s is a member of ClimateWise, the global collaboration of leading insurers focused on reducing the risks of climate change.
- The report was produced in co-operation with Chatham House.
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(a) National Geographic, North Pole May Be Ice-Free for First Time This Summer, news.nationalgeographic.com/news/2008/06/080620-north-pole.html.