FT Energy Source The race for Arctic oil and gas gathers pace, despite Gulf accident

By Andrew Ward, Nordic bureau chief

Deepwater Horizon may have raised questions over the future of offshore drilling. But there is no sign so far of the disaster slowing the rush for access to potentially massive untapped reserves beneath the Arctic Ocean.

Two stories in the FT this week highlighted the continued jostling for position in the Arctic and the contrasting approaches being taken by different countries.

In the first one Jens Stoltenberg, Norwegian prime minister, said his country’s recent maritime border deal with Russia – involving a 175,000 sq km area of the Barents Sea and Arctic Ocean that had been disputed for decades – was a model for international co-operation.

What he really meant was a model for the five countries with Arctic coastlines – Norway, Russia, the US, Canada and Denmark – to divide the seabed among themselves under rules set out in the UN Convention on the Law of the Sea. “The important thing is to apply the Law of the Sea in this region,” he said. “The North Pole is not land. The North Pole is sea with ice on, so it falls under international law.”

His remarks were clearly aimed at countries outside the Arctic “big five” that have been casting covetous glances at a region estimated by the US Geological Survey to hold a quarter of the world’s undiscovered oil and natural gas. Some have tried to argue the Arctic should be treated as a shared international asset with its own dedicated treaty, in much the same way as Antarctica.

But, while there is plenty of grumbling over the “big five” monopoly, there is little sign of a serious push to overhaul the system. Even China, which has made clear its strategic interest in the Arctic, has backed the Law of the Sea as the best way to settle sovereign rights.

In the absence of its own Arctic coastline, China is looking for alternative ways to win access. Which brings us to the second FT story: a $500m currency swap deal between China and Iceland announced on Wednesday. It was hard to find a plausible economic rationale for why China would want to swap its renminbi for a bunch of Icelandic kronurs – suggesting its motives were geopolitical.

Olafur Ragnar Grimsson, Iceland’s president, told the FT in March that China had expressed interest in Iceland as a potential logistics hub if global warming makes it possible to ship Chinese exports across the Arctic to Europe – cutting 6,000km off the current route through the Suez Canal. “You really have to have your eyes closed not to see the importance of the [Arctic] north for the development of global trade and energy and when you look at the map you find Iceland in the middle of it,” he said.

In fact, China’s more immediate interest in Iceland may be the country’s world-leading expertise in geothermal power. But the currency swap fitted a pattern of active Chinese engagement with Iceland – Beijing has the biggest foreign embassy in Reykjavik – far beyond what would seem natural between an emerging superpower and a tiny island nation of 320,000 people.

China is not the only country fretting about being locked out of the Arctic. The US position is also far from secure because of its failure to ratify the UN Law of the Sea 16 years after it came into force – putting it in the company of Iran, North Korea and a few dozen other non-ratifiers. The past four US administrations, including President Barack Obama’s, have supported ratification but the treaty has been held up in the Senate, amid opposition from some Republicans who fear it would undermine US sovereignty.

Mark Begich, Democratic senator for Alaska, has warned that the foot-dragging will make it harder for the US to stake its claim to offshore mineral reserves. “By failing to ratify this important treaty, we deny ourselves a seat at the table at a time of great change in the Arctic,” he said.