Tag: global trend

Who Will Do Well After the Global Commodities Glut?

FORESIGHT

Global commodity markets are beginning to turn around, but the industry leaders could be changing. For the last three years, the global economy has been severely impacted by the oversupply of commodities and dramatic price drops. The large multinational producers have been desperately trying to survive, and if they’re fortunate position themselves strategically for the long, slow recoveries. For commodity producers with money now is the best time to negotiate future commodity-extraction agreements. Countries with low-cost reserves to license will likely have to change their terms to attract new foreign investment. Chinese producers will likely become the new global leaders in many key commodity markets. Anti-trade/anti-foreigner sentiments have been increasing around the world, and these will influence where multinationals go. With the growth of developing-country multinational producers, the trend toward increased transparency of large government commodity agreements could reverse, and corruption levels could worsen. Multinationals from developed countries will be somewhat less active and this will reduce the influence of their countries’ foreign offices around the world.

RECENT SIGNALS OF CHANGE

While commodity cycles and their effects on multinational producers and developing countries are normal, the scale of changes in the down cycles and the reversal of so many large fortunes are catching much of the world by surprise. It appears most commodity markets have passed their worst moments and are now recovering, albeit very slowly: the new cycles are beginning.

  • Many commodity supply leaders—companies with the best-paid management talent—are in serious financial trouble. Why did they get the timing of so many large capital investments wrong? Why were they expanding supply capacity after many years of demand growth, right before the crash?
    • Severe commodity downswings can occur almost overnight. Exports of copper to China in 2015 were half of what they were in 2012, when copper demand was at its peak. In 2015 the equity shares of the large Anglo-Swiss miner and trader Glencore, who has been very active in copper, fell to a sixth of what their value was in 2011.
    • The Spanish renewable energy firm Abengoa SA is struggling to avoid what could be Spain’s largest-ever corporate bankruptcy. It announced in August 2016 that its latest action was to sell five of its US ethanol plants for $357 million.
    • Petrobras is implementing a divestment plan to sell $15 billion in assets to help pay off the company’s very high debt load of $126 billion. In the spring and summer of 2016, Petrobras sold stakes in Argentina and Chile subsidiaries, a large offshore oil field to Norway’s Statoil, and petrochemical unites to Mexico’s Alpek.
  • The global economic slowdown and global commodities slump is also severely impacting an array of large services and equipment supply companies.
    • The mega ocean shippers like the Danish Maersk Line, Dutch Hapag-Lloyd, and China Bulk Shipping have 30% more capacity in the water than cargo. UK marine data provider Vessels Value says that in the five years through 2015, ship owners ordered an average of 1,450 ships annually. This year through July orders fell to 292 vessels. It will take several years before the surplus capacity is scrapped and demand for shipping increases enough. Maersk recently announced it was replacing its chief executive and was looking at splitting the company up.
    • The Union Pacific railroad in the United States suffered an 11% decline in total freight volume in the first half of 2016. Coal volume was down 21%.
    • Samsung C& T, Samsung’s construction arm, has lost at least $700 million in the Roy Hill iron-ore mine in Australia in the last two years. Unfortunately in 2013 before commodity prices began falling, Samsung C& T agreed to take the risk for cost overruns, while committing to an aggressive timeline for when the iron-ore exports would begin.
    • In July 2016, oilfield services companies Hallliburton and Schlumberger announced another round of layoffs of 5,000 employees and 8,000 employees, respectively.
    • Both GE and Honeywell reported in July 2016 disappointing overall financial results because of weak sales of equipment into the energy sector.
  • Emerging-market economies are suffering. Many African countries are in serious turmoil because of the fall in commodity prices and some lessening of support by China, Africa’s biggest trading partner.
    • As of July 2016, 97.1% of Angola’s exports and 92.2% of Nigeria’s were petroleum; about 45% of Angola’s gross domestic product and 35% of Nigeria’s have come from the petroleum sector.
    • An interesting rivalry is developing among China, India, and Japan for relationships with African countries. India and Japan are suspicious of China’s presence and leverage on the continent and they are taking steps to improve their individual positions.
  • Social unrest is increasing in many countries because of the poor economic conditions brought on by the depressed commodity markets.
    • Since the Peruvian president Mr. Humala took office in 2011, 53 people have been killed and close to 1,500 injured in social conflicts in the country, mostly related to commodity-extraction industries.
    • In Nigeria, rebels and unhappy habitants in the Niger Delta are physically attacking oil facilities and crippling the Nigerian government that desperately needs the revenue of oil exports. Their attacks have cut production by 700,000 barrels per day since 2015.
    • In today’s environment, fair elections in Africa’s democracies are difficult to hold as presidents try to cling to power. In Uganda, Congo-Brazzaville, and Burundi the presidents all won flawed elections with the opposition being violently confronted. In Zambia, the loser of the recent election is disputing the result, after a contentious election run up.
  • In a severe downturn, the lowest-cost producers take advantage of their positions as much as possible. They want to keep their operations as busy as they can, not require any worker layoffs or reduced wages, drive competitors out of business or get them to close high-cost plants, and if the opportunities are right, purchase high-quality businesses from companies desperate to sell.
    • In the world steel industry with global oversupply, China, the world’s number one steel producer, has been producing steel at a record pace. China’s first-half exports are up 9% year to year. At the same time, US Steel Corp is unprofitable, cutting thousands of jobs, and idling plants. Germany’s Thyssen-Krupp AG has held talks with Tata Steel of India and others to merge various operations to strengthen themselves. Caparo Industries out of London declared bankruptcy in 2015 for 16 of its 20 businesses.
    • Saudi Arabian Oil (Aramco) is planning an initial public offering to sell as much as 5% of the company for an estimated $100 billion in the next three years.
    • Norway’s Statoil is cutting back its planned capital spending on the giant Johan Sverdrup offshore field to approximately $30 billion from approximately $38 billion so the field remains profitable even when oil prices are low. Statoil continued to push ahead with the project two years ago even after prices had fallen because the field will contribute approximately 40% of the country’s total crude output in the 2020s.
  • In this period of industry restructuring, the international investments of Chinese companies are very important, for the first time in 200 years.
    • Chinese firms have executed about $160 billion foreign takeover deals in the first seven months of 2016, more than any full year on record.
    • In August 2016 a US panel approved state-owned ChemChina’s planned purchase of Syngenta, which supplies about one-fifth of the world’s pesticides and about 10% of soybean seeds to US farmers. If the purchase is ultimately approved by the US and EU governments, it will be China’s biggest-ever overseas deal.
    • State-run State Grid Corp. of China, the world’s largest electricity provider by revenue with $312 billion, is pursuing a takeover of CPFL Energia SA, the Brazilian electric company, for $13 billion. This might be China’s biggest investment in Brazil.
    • On August 30, 2016, Zhongwang, one of China’s biggest aluminum producers, agreed to buy US-based Aleris Corp. for $1.1 billion. Aleris makes rolled aluminum for the aerospace, automotive, and construction industries. The US military is a client for its armored vehicles. There is a glut of steel, aluminum, and other metals in the world largely caused by an oversupply by Chinese producers. Metal exports from China are facing new tariffs and other barriers around the world.
  • As of the summer of 2016, it appears energy and materials commodity prices hit bottom in 2015 and are slowly recovering. The commodity fuel (energy) index of indexmundi.com is up approximately 45% since the beginning of 2016, although it’s still 23% down from the highs of a year earlier. Noticeably, private equity firms are beginning again to invest in oil opportunities. The metals price index of indexmundi.com is up 10% for the year, but still down 15% from a year ago.
  • For the last twenty-five years, the international activities of multinational corporations have been growing rapidly and transforming the global economy. Multinational affiliate sales as a share of world GDP more than doubled from close to 25 percent in 1990 to more than 50 percent in 2014, according to the UNCTAD, World Investment Report (2015).
  • Many commodity producers are reluctant to start new ventures today, even to secure low-cost reserves. Governments facing years of economic difficulties are struggling with how much effort should they apply to save existing ventures (and the jobs), mitigate the impacts of the closed or canceled ventures, and change the incentives to attract new multinational and local investments.
    • Exxon Mobil is not continuing its involvement in a venture to build a new LNG export terminal in Alaska. The project is not forecast to be very competitive in the world. Just a year ago, the Alaska state government paid $65 million for TransCanada Corp.’s 25% share in the overall project that was expected to cost between $45 billion and $65 billion. BP and ConocoPhillips, other shareholders in the venture, are also expressing concerns about the project.
    • An article in the Wall Street Journal on August 31, 2016 about commodity mining in Indonesia highlighted the recent mining asset sales by Newmont Mining Corp. and BHP to local companies and the significant decrease in total mining exploration spending in the country since 2012. In 2012, spending on mining exploration in Indonesia was approximately $450 million and in 2015 it was about $100 million. These changes stem from the heavier government regulations of mining operations and restrictions to foreign investment that Indonesia implemented several years ago when the commodity markets were strong.
  • At a time of a global oversupply of hydrocarbon products, China is reshaping its energy supply and demand mix.
    • China Petroleum & Chemical, or Sinopec, is attempting to double domestic natural gas production in the next five years in order to reduce coal usage in the country and reduce China’s need for imported liquefied natural gas—that many investors around the world were counting on. Sinopec is counting on rapidly expanding natural gas production from shale reserves.
    • US coal exports to China have recently shrunk to almost nothing. They were almost 6 million short tons in 2011, 10 million tons in 2013, and about 300 thousand todate in 2016. Out of seven West Coast export terminals proposed in the past five years, none has opened.
  • In developed countries, wind and solar renewables are really changing the energy supply mix. Will this momentum change with lower hydrocarbon prices?
    • A key signal is that wind and solar renewables are becoming a significant energy source in Texas, the center of the US oil and gas industry. In 2001, renewables (wind, solar, and hydro) accounted for 2% of Texas energy; in 2016 they will account for 16%. One night this past Winter, nearly 50% of the power flowing into the state grid came from wind turbines in the state. Federal subsidies for renewables have been a big factor, but equally big have been the falling costs of solar and wind technology. Besides plentiful hydrocarbon resources, Texas also is rich in wind and sun.
  • While closing or selling high-cost operations, some producers are looking toward technology to help them dramatically reduce their costs. But they need a relatively strong financial balance sheet to do.
    • Shale 2.0. The technology of shale oil production is rapidly advancing despite current cost constraints. Over the last five years, production well productivity has risen more than 400%, 40% in the last year. BP PLC is pushing hard into fracking in the United States to increase its oil and gas, attempting to leverage its capabilities to apply new technologies at large scale.
    • Risk-averse large mining conglomerates, like Rio Tinto and BHP Billiton, are investing heavily in automation technologies to help them go to more remote places, dig deeper, and move minerals and metals to the market faster, including very large motorized conveyor-belt systems; supercomputers, drones with fancy remote sensors, and software for building three-dimensional maps of a mine in real time; driverless trucks and trains; and autonomous drilling systems.
    • Mining companies are investing in technology to reduce the costs of producing titanium dioxide and to make this material suitable for 3-D printing. Powdered forms of materials like titanium dioxide are melted layer by layer with a laser to create 3-D objects. The value of the global 3-D printing market is expected to grow to about $6 billion in 2016, up from about $1 billion in 2010.
  • New environmental risks from commodity operations are coming to light.
    • Recent figures indicate that around a third of the annual methane emissions in the United States can be traced to the natural gas industry. While methane doesn’t remain in the atmosphere as long as carbon dioxide (12 years compared to 500 years), it is about 25 times more potent as a cause of global warming. The Environmental Defense Fund, an American NGO that often works with industry, estimates 2-2.5% of the gas flowing trough the supply chain leaks out.

PLAUSIBLE DEVELOPMENTS IN THE NEXT FIVE YEARS

From my recent blog, Predicting Future Commodity Developments, I noted commodity markets act like complex social-physical environment systems: Most of the time the markets are relatively stable with modest increases and decreases in prices, demand changes, and supply changes around the world. But severe shocks or disturbances to the systems, such as from natural disasters and severe market disruptions can push the systems across their thresholds into different dynamics, often with unwelcome surprises. The recent large downward swings in commodity prices and demand may have pushed many commodity markets over their “stability” thresholds. We can expect in the upcoming few years more disruption and chaos, and new market dynamics to develop. Then a new “stable” market will be the norm. We should look for the signs of new market dynamics and understand them.

Chinese Companies

  • China companies will be the industrial leaders around the world in commodities. They will be the biggest, invest the most money, and generally be aggressive to capture the most market share.
  • The Chinese government will likely support Chinese companies moving abroad with various means of support to help them penetrate foreign markets and avoid trade and tariff costs.
  • In general, transparency of commercial transactions between governments and commodity producers will go down worldwide; corruption levels will increas

Producer and Country Restructurings and Bankruptcies

  • Restructuring of most of the commodity supply chains is not done, not by a long shot. Many operations/countries have just used up their cash and will have to borrow extensively to pay their bills.
  • Sovereign-wealth funds will continue to sell assets to cover national-government expenditures.
  • State-owned companies will continue to add large amounts of debt to pay for large projects that were already underway and to continue selling their high-priced reserves at a loss because prices haven’t recovered enough.
  • Some countries will stop paying on their international loans and require bailouts and restructuring plans from international monetary agencies like the International Monetary Fund
  • International loans for large commodity projects and developing countries will become more expensive.
  • US courts of law will be involved more often in the settlement of large disputes among governments, international companies operating in their countries, and NGOs representing local community interests.
  • EU authorities will attempt to impose a strong rule of law on multinational producers. A number of EU member countries will undermine EU actions to attract foreign investment to their countries and support local interests.

Developed Countries

  • Since many materials are strategic resources for a developed country, dealing with the changes in foreign ownership of commodity producers is a constant challenge because of the political firestorms that accompany them. In the future many cases will involve producers from China and Russia.
  • As the influence of the developed countries’ multinationals wanes, the influence of the developed-countries’ foreign offices/state departments will also wane. The connection points into the developing countries will be fewer.

Developing Countries

  • Many developing countries will reverse many of the foreign-ownership restrictions and contract, royalty, and tax limitations they imposed at the height of the commodity markets and offer new terms to attract foreign and domestic investment.
  • Some countries will try to maintain the tougher conditions on multinationals because of nationalist political pressures and local interests in controlling the country’s resources and spoils.

Arctic by Russian Rules

Many of my blogs will focus on an emerging global issue—in this case the Arctic and Russia’s actions there—and provide insights on  possible developments we might see in the next five years. The blog format will be Foresight Summary, Recent Signals of Change, and Plausible Developments in the Next Five Years.

Foresight Summary

Development of oil and gas resources and other mineral deposits in the Arctic will start increasing again now that commodity prices have started to recover. Confrontations with NGOs and local communities over environmental and social problems in all Arctic countries will begin to increase. Russia will continue to strengthen its dominant Arctic position and as commodity prices rebound will exploit the new economic and political opportunities in the region afforded by Russia’s large search and rescue and security resources in the region, the warming climate, and new technologies for overcoming the hazards of the region. The United States is not building economic and security capabilities in the region and will struggle to influence future outcomes. For the foreseeable future Russia will define the rules and ways in which human activities evolve throughout the region. For Norway, the Arctic will continue to be strategic; Norway will continue to invest in the region, led by Statoil the state-owned oil company, and remain the West’s most active operator and negotiator with Russia in the region. As NATO reinforces its capabilities in Eastern Europe, Russia will exert its presence in the Arctic. While China is not an Arctic nation (with land bordering the Arctic Ocean or above the Arctic Circle), the Chinese government and Chinese companies will increase their presence in Russia, Canada, and Greenland. Specialized shipments of oil, gas, and minerals extracted from Arctic deposits will start flowing regularly along the Russian Arctic coast to Asia countries.

Recent Signals of Change

The key to recognizing new trends, anticipating possible developments in the future, and identifying the strategic implications is to focus on recent signals of change in the world—big, disruptive, out of the ordinary changes—in whatever part of the world, physical or societal, they occur. Recent changes related to the Arctic that indicate new trends or developments may be emerging include:

  • As of July 2016, it appears energy and materials commodity prices hit bottom in 2015 and now are steadily recovering. The commodity fuel (energy) index of indexmundi.com is up approximately 45% since the beginning of 2016, although it’s still 23% down from the highs of a year earlier. Noticeably, private equity firms are beginning again to invest in oil opportunities. The metals price index of indexmundi.com is up 10% for the year, but still down 15% from a year ago.
  • According to NASA, the Earth is getting greener in the rapidly warming northern regions. The amount of leaf area per ground area is increasing as a result of warmer northern temperatures and longer growing seasons. Some unknown amount of greenhouse gases is being pulled out of the atmosphere. It’s probably unlikely this will reduce the Arctic warming trends in a major way.
  • The non-governmental organizations (NGOs) with activities above the Arctic Circle are rapidly expanding, except in the Russian sector. The Arctic continues to be getting warmer, and environmental change research in the region continues to expand. At the same time, as social problems don’t seem to go away, particularly among the indigenous groups, NGO activity expands and media coverage increases.
  • Automation technologies and more data will be good for jobs, economic development, and better environmental management. Digital data about the Arctic is expanding very quickly because of increased human activities in the area for environmental, navigation, and economic purposes and the deployment of drones and commercial sensing satellites with large data collection capacities. The Arctic is one location where new automation capabilities and vast quantities of more data will lead to economic growth and job increases.
  • A large luxury cruise ship, the Crystal Serenity, will traverse the Northwest Passage for the first time in August 2016. The trip could be a turning point for Arctic tourism in Canada. Iceland, Greenland, and Norway already promote Arctic tourism. Some NGOs and insurance companies are concerned about the safety and environmental risks.
  • However, Arctic sea routes won’t become major shipping lanes for many years, if ever. It is clear the routes won’t reliably ice free during the summer and late fall for many years, if ever. Shipping traffic on the more navigable Northern Sea Route (NSR) along the Russia coastline has fallen significantly since the high point of 70 ships in 2013. The likely biggest use of the routes will be the movement of Arctic resources (like Russian LNG) to growing Asian markets.
  • Russia continues to develop key infrastructure in the far north. Russia just announced construction beginning in 2017 of another 170 km of rail across the Yamal Peninsula to support the development of natural gas reserves and a new port in the area. President Putin highlighted the railway in his 2016 annual press conference. Russia also just launched in June 2016 its largest and most powerful nuclear-powered icebreaker, the Arktika, for the Arctic. Russia now has six reactor-driven ships for the Arctic; the United States has none. Finally, Russia announced the first of its kind floating nuclear power station has started tests in advance of its deployment in October 2017 in the Arctic.
  • Ship transport of Russian Barents Sea oil along the Norwegian Arctic coast in the first part of 2016 reached new highs because of cumulative oil-development and port infrastructure investments over the last decade in the Russian sector above the Arctic Circle. While US Energy Information Administration in its 2016-published energy outlook shows oil production from Alaska decreasing to less than half its current level after 2030.
  • Russia’s US$27 billion Yamal LNG project within the Arctic Circle will begin operation in 2017. This remarkable project will use West-designed and Far East-built ice-class LNG tankers to enable year-round export shipments from northwest Siberia to European and Asian markets. The LNG tankers are intended for navigation both westbound and eastbound along the Northern Sea Route (NSR), the Arctic seaway along Russia’s coast linking the Atlantic and Pacific. The Russian company, Novatek, has a 50.1% interest in Yamal LNG; China National Petroleum Corporation and France’s Total Group both have a 20% holding; and the Chinese state-owned Silk Road Fund has a 9.1% interest.
  • Russia threatened by NATO in the Arctic. In Vladimir Putin’s July 2016 visit to Finland, he strongly advised the country to stay out of NATO. Both Sweden and Finland are increasing their military cooperation with NATO countries and having debates about joining the organization. The Russian Defense Ministry recently announced the deployment in 2017 of its Podsolnukh beyond-the-horizon radar system in the Arctic. In June 2016 a new law in Russia, aimed at strengthening security along the NSR, gave the Federal Security Service (FSB) responsibility for law enforcement along the Russian Arctic shipping passage. Before, law enforcement responsibilities in the area were distributed among the courts and various government agencies.
  • Sanctions by Western countries against Russia are also impacting Russia’s future development plans for the Arctic region. Russia’s economic development and business ambitions for the Arctic region call for more large investments in oil and gas and civil infrastructure that need international financial and technical support. Sanctions by Western countries, including Norway, Russia’s northwestern neighbor and a non-member of the EU have stopped most Arctic plans from moving forward. The remaining large project with Western capital involvement that was initiated several years ago is Yamal LNG, where the French energy company Total holds a 20 percent stake. Finland was a key supplier to Russia’s building nuclear icebreakers, but the ship equipment orders from Russia have stopped.
  • Despite the sanctions, on some multilateral Arctic matters cooperation with Russia has continued. From 2014 to 2016, a polar code for maritime activity was adopted, an agreement on fishing in the Arctic among the Arctic nations was signed; and an Arctic Coast Guard Forum was started.
  • But on other matters and at the bilateral level, cooperation with Russia has broken down. Russia is restricting Russian NGOs and international NGOs operating in Russia. Russia recently blocked the EU obtaining Arctic Council observer status. Russia recently refused permissions for Norwegian scientists to conduct research in Russia’s Arctic areas, while Norway suspended military to military cooperation with Russia.
  • In contrast to Russia’s commitment to the Arctic, the United States and Canada do not have grand ambitions for economic development in the area; instead they are largely trying to constrain the economic opportunities. At a recent summit between President Obama and Prime Minister Trudeau, they issued a statement pledging to develop low-impact shipping corridors, work toward a ban on all commercial fishing in the Arctic until research can determine sustainable levels, and protect 17 percent of land areas and 10 percent of marine areas by 2020. In April 2015, the United States assumed chairmanship of the Arctic Council for a two-year term and outlined the three priorities of its term: improving economic and living conditions for Arctic communities; Arctic Ocean safety, security, and stewardship; and addressing the impacts of climate change. Neither the United States nor Canada is expanding its navigation and infrastructure investments, including building any new icebreakers. The US Coast Guard has a total of two operational (old) icebreakers compared to Russia’s fleet of approximately forty. China—a nation without any territory above the Arctic Circle just commissioned its second icebreaker.
  • Since Russia’s incursions in Crimea and Ukraine, Norway has assumed a more confrontational approach to Russia’s aggressive behavior in the Arctic. The Norwegian government also recently announced plans to modernize the country’s armed forces and increase its military capital spending. Norwegian Prime Minister Erna Solberg was quoted as saying, “we have an increasingly unpredictable neighbor to the east which is strengthening its military capacity and showing willingness to use military force as a political tool.” Norway’s recent award of a new exploration license to Statoil in disputed waters of the Barents Sea around Svalbard also upset Russia, which claims equal access to resources in the “Svalbard Box,” an area around the archipelago. The Svalbard Act of 1925 gives the Kingdom of Norway full and absolute sovereignty over Svalbard, but provides other countries that signed the treaty with economic rights on Svalbard.
  • As the technological and operational leader in the Arctic region, the partially state-owned Norwegian oil company, Statoil, continues to pursue opportunities throughout the region, including in Russia despite the strained political ties between Russia and Norway and the EU. Statoil’s strategic cooperation with Rosneft involves joint exploration in the Russian Barents Sea and Sea of Okhotsk, as well as pursuing interests in a license in the Norwegian Barents Sea. Statoil plans to drill two wells in the Sea of Okhotsk in the far east of Russia in the summer of 2016. “We are pleased to have entered a key stage in our long term cooperation with our partner, Statoil . . .,” said Igor Sechin, chief executive of Rosneft and an ally of Russian president Vladimir Putin in July 2016. On the other hand, Norway and Statoil would like to continue selling natural gas extracted from Norwegian waters to Europe. But replacing the aging gas fields in Norway has been difficult, and Statoil and other energy companies haven’t yet made the next big discovery in Norwegian waters that would justify building the large necessary gas export infrastructure.
  • China’s support to Russian energy and infrastructure projects in the Arctic is critical but fragile. Russia desperately needs capital for expensive development projects in the Arctic abandoned by western firms due to the sanctions, and China has stepped up to help. For example, the Yamal LNG project and Chinese lenders recently signed a $12 billion loan agreement after two years of talks. But many other agreements signed in the last two years haven’t yet led to firm contracts, and the perception is China has been able to take advantage of Russia’s weak negotiating position. Also, China’s goal of building land and sea routes that will enable Europe to connect more easily with China will effectively reduce Russia’s role as a key trading partner of Europe.

Plausible Developments in the Next Five Years

The signals of change above suggest a number of possible developments and outcomes in the next five years that could affect the well-being of people, organizations, countries, and the environment. For any issue, the possible developments and outcomes in the future could vary significantly given the ranges of uncertainty of the major forces involved. The developments and outcomes listed below are those that could severely impact the people, organizations, governments, and countries engaged in the Arctic.

  • United States and Canada policy positions toward the Arctic
    • US and Canadian priorities for the Arctic are unlikely to change. The focus will be on protecting the environment and limiting exploitation of natural resources.
    • Infrastructure investments are unlikely to increase even though economic activity could expand if the climate continues to get warmer.
    • No new icebreaker for Canada or the United States will be built and deployed in the foreseeable future.
  • Indigenous populations
    • Indigenous groups will continue to receive widespread social services, healthcare, and educational aid.
    • Interesting experiments for using new automation technology to deliver that aid will be implemented.
    • Better outcomes for the groups won’t be achieved in the next five years; most indices in fact will likely continue to remain low.
  • Maritime activity
    • Luxury cruises through Arctic waters will be a major success.
    • But Arctic sea routes won’t become major shipping lanes in the next five years. It is clear the routes won’t be reliably ice free during the summer and late fall for many years, if ever.
    • However, transport of commodities extracted above the Arctic Circle, principally in Russian territory, to Asia along the NSR could become regular.
  • Oil and gas and mining ventures
    • Oil and gas prices won’t rise much beyond current levels ($45/barrel to $65/barrel oil) in the next five years.
    • International oil companies will renew efforts in all countries to find and develop new large oil and gas fields in the Arctic. But except in Norway and Russia, no new exploration will begin.
    • New mining ventures in Greenland, Canada, and Russia will become attractive again.
    • Chinese companies will continue to be major players in the new mining ventures and in Russian oil and gas.
  • Russia
    • Russia will continue to push development of its Arctic territory, build the civil and security infrastructure to support expansion of Russia’s economic activity in the region, and exert Russia’s effective security control over the international navigable waters.
    • Russia could respond with physical action to any further NATO encroachment in the area, including Finland or Sweden joining NATO, deployment of non-Norwegian forces in Norway, etc.
    • Russia may demand different terms for the control and administration of Svalbard and its surrounding waters. Russia will not likely accept Norway’s licensing of disputed oil and gas licenses in waters surrounding Svalbard.
    • As long as the sanctions remain in place, Russia could limit non-Russian trade shipments between Asia and European along the NSR.
  • Norway
    • Like Russia, Norway will continue encouraging development of its northern region. The Arctic region with its social and civil infrastructure needs will receive budget priority.
    • Norway will continue to promote oil and gas development in the Norwegian Barents Sea.
    • Norway will likely expand its security capabilities above the Arctic Circle to remain NATO’s northern leader and limit the coast guard assistance required from Russia.
    • Norway recognizes NATO likely won’t confront Russia over Arctic incursions not involving the mainland. Norway will attempt to mend its political fence with Russia, and seek opportunities for civic and business collaboration.
  • China, South Korea, Japan, India and Russia cooperation
    • Because of western sanctions, Russia will continue focusing on developing Asian nations as trading partners and financiers. The Arctic region will provide multiple opportunities for developing long-term economic relationships.
    • LNG transport from Russia’s Arctic region to Asian countries using the Arctic sea route, NSR, along Russia’s coast could open up the route to other shipments of mined commodities from Greenland, Norway, and Russia to Asia.
    • But Russia will only be moderately successful in attracting investment monies and knowhow from China and other countries that do not support the sanctions. For the non-Arctic states of Asia—China, South Korea, India, and Singapore— the Arctic is not strategic and their long-term commitment to the region is iffy.
  • Environmental research and insights
    • Increased Arctic activity by NGOs will lead to confrontations over oil and gas developments in Arctic waters and with Russian authorities over almost every maritime operation they have in Arctic waters.
    • Confrontations will also increase related to other mineral developments and a host of social, environmental, and business issues.
    • Large increases in the environmental data gathered about the Arctic region will occur because of advances in automation technology, easier access to the area because of warmer temperatures, and more economic assets deployed in the Arctic.
    • The cost of acquiring all this new data and analyzing it will dramatically increase. Major budget fights over Arctic priorities—wellbeing of indigenous populations, new civil infrastructure, security, or more environmental information gathering—likely occur.