Tag: LNG

Natural Gas: Make or Break National Policy Issue

Natural gas policy decisions in the next 30 years could make or break nations. They will be critical in the long-term health of the economy, a country’s geopolitical partners, and its energy security. Many developed countries are focused on moving as fast as they can toward renewable-energy sources and ignoring the risks of making this humongous bet on relatively unproven technology. Developing countries aren’t likely to move rapidly toward renewable sources, and will likely take advantage of the plentiful, low-cost natural gas that will be available for the foreseeable future. Progress toward having substantially more renewable-energy sources might be better achieved and faster if natural gas were the essential partner in every country’s energy strategy. Natural gas could be the great enabler: It could enable renewables to be developed more effectively; it could enable energy security for countries making the transition away from coal; it could enable a robust and resilient national economy in the next fifty years; and it could enable faster progress toward reducing climate-change emissions.

RECENT SIGNALS OF CHANGE

The new availability of low-cost natural gas has dramatically altered the economics of energy production and the strategies for combating global carbon emissions around the world.

  • Gas is turning into a better opportunity than oil for many producers. The technology of shale oil production continues to advance steadily in spite of or perhaps because of low hydrocarbon prices. Over the last five years, production well productivity has risen more than 400%, 40% in the last year. US exports of natural gas have just exceeded US gas imports for the first time in 60 years with most of the export increases going to Mexico and Canada. From 2000 to 2015, the percentage of total energy production of natural gas in Shell, Eni, Total, ExxonMobil, ConocoPhillips, and Chevron went up significantly. Only in BP did it go down slightly. In Shell, Eni, and Total the share of natural gas is almost 50 percent.
  • New environmental risks from natural gas 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.
  • Global oil supply has steadily risen—almost 20 percent—since the year 2000 to over 95 million b/d in 2016, with non-OPEC producers leading the charge, competing strongly with OPEC producers for market share. In 1995, proven oil reserves (i.e., oil discovered and economic to produce) in the world were 120 trillion cubic meters. In 2015, proven oil reserves were 187 trn cubic meters.

Shipping of natural gas is rapidly becoming global, not local.

  • A single global market for natural gas is emerging. Natural gas is starting to be bought and sold around the world just like oil and petrochemicals. Behind this revolution is improved technology for moving gas as a liquid, flexible contracts, and new global capacity for sending and receiving LNG shipments. The share of gas moving by sea reached 40 percent of total trades in 2015 and according to the IEA will account for a bigger share of trading than pipelines by 2040. Thirty-nine countries now import LNG compared to 17 ten years ago.
  • Qatar is the world’s largest supplier of LNG with a market share of nearly one-third. In 2016, Qatar shipped 77.2 million metric tons (mmt) for 30.0 percent share and Australia shipped 44.3 mmt for a 17.2 percent share. Australia is expected to overtake Qatar based on current development plans in 2019 with at least 80 mmt. Ironically, Adelaide, Australia, suffered recent power blackouts during a nationwide heat wave because lack of investment in the country’s natural-gas infrastructure. The next big exporters were Malaysia, Nigeria, Indonesia, Algeria, Russia, Trinidad, and Oman.
  • The world’s seas are becoming more efficient in moving natural gas. The major Panama Canal expansion, opened in June 2016, more than doubles the canal’s capacity and includes a third lane to accommodate ships large enough to carry 14,000 TEU. A key market of the future for the canal could be LNG carrier traffic. Also, 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.

China and India are reshaping their energy supply and demand mix and their foreign trade in energy commodities. China is proceeding faster than India.

  • In 2000 China and India didn’t have any LNG imports. In 2016 they are the third and fourth largest importers after Japan and South Korea. The United States and China are currently negotiating a trade deal that could involve US LNG shipments to China.
  • China Petroleum & Chemical, or Sinopec, is attempting to double domestic natural gas production in the next five years by rapidly expanding natural gas production from shale reserves in order to reduce coal usage in the country and reduce China’s need for imported liquefied natural gas. Many investors around the world were counting on sending natural gas to China.
  • Asia accounts for two thirds of the world’s coal demand, but that demand may be falling and sooner than everyone’s base-case scenarios show. In China in 2016, coal consumption fell 4.7 percent. This was the third year in a row of declining use. Coal currently supplies about 70 percent of China’s electricity, but the Chinese government is focused on cutting coal’s use, and succeeding. Coal-fired plant capacity in China is still being added—in November 2016, China’s National Energy Administration announced it is raising coal-fired power capacity as much as 20 percent by 2020, from 900 gigawatts in 2015 to as much as 1,100 gigawatts by 2020—but capacity utilization of coal plants has fallen steadily in China from around 60 percent in 2010 to around 50 percent in 2016. It appears coal will only provide 55 percent of China’s electricity mix in 2020.
  • Coal makes up 61 percent of India’s power-generating capacity, but India has announced it doesn’t need any new coal-fired power stations in the next decade beyond what it is currently building. Capacity utilization of coal plants has fallen steadily in India from over 75 percent in 2010 to less than 60 percent in 2016. Even with the rapid economic growth of the last decade, about 40 percent of India’s coal-fired power plants are now idle because of weaknesses in the distribution system and because government planners overestimated the growth in demand.

US electricity generation from natural gas now exceeds that from coal.

  • In 2016, natural gas’s share of US electricity generation at 33 percent exceeded coal’s share at 32 percent for the first time. Coal’s share has steadily fallen from a high of over 55 percent in the mid-1980s, while natural gas’ share has steadily risen from about 10 percent then. Nuclear remains steady at 19 percent, while renewables, not counting hydro, have risen from zero in the mid-1980s to 8 percent in 2016.
  • The Tennessee Valley Authority historically has been a major user of coal plants, but that has changed radically since 2007 because of environmental agreements to reduce coal emissions, the lower prices of natural gas, and increased production from nuclear. In 2007, over 55 percent of TVA’s energy mix was coal; in 2017 a little over 20 percent of the mix will be coal. Since 2011, TVA has shut down 24 coal-fired units out of 59 in its network.

LNG supplies are changing some countries’ dependence on pipeline gas that comes from other countries, that runs through unfriendly countries, or both. Poland’s new LNG import terminal reduces its reliance on gas from Russia.

In developed countries, wind and solar renewables are beginning to change radically the energy supply mix.

  • In 2015 5.5 percent of the world’s electricity came from wind and solar. Hydropower, wind, and solar together produced 9.4 percent of the electricity. The International Energy Agency said in July 2017 that for the first time the amount of renewable capacity commissioned in 2016 almost matched that for other sources of power generation, such as coal and natural gas. In some countries, solar photovoltaics are cheaper than coal and gas.
  • An interesting example of where wind and solar renewables are becoming a significant energy source is 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 accounted for 16%. One night this past winter, nearly 50% of the power flowing into the Texas grid came from wind turbines in the state. Federal subsidies for Texas renewables have been a big factor, but equally big have been the falling costs of solar and wind technology.

 The electricity system around the world is fundamentally changing because of the orchestrated growth in the use of renewables largely with subsidies. The costs of these subsidies were modest when the renewables contribution to overall energy supply was marginal, but that’s changing. Since 2008, public subsidies for renewables have been $800 billion. In 2014, the IEA estimated that decarbonizing the global electricity grid will require $20 trillion in investment in the next 20 years, and that still leaves much to be done. A new economic system for electricity is required, but the ecosystem of energy and the economy is too complex for anyone to know what that should be and how to make the changeover efficiently. Source: The Economist, “A world turned upside down,” February 25, 2017, pp. 18-20. Other risks of investing in renewables include the new technology uncertainty and costs, and the many, many land-use, energy, and environmental regulations in place that are just as big hurdles for renewables as they are for the other energy supply investments.

Nuclear energy plants are progressing in many parts of the world, but not in the United States and Germany. Electricity from US nuclear plants at about 1.5 mega-watt hours per year is expected to decline very slowly over the next 25 years as reactors close and aren’t replaced. Toshiba’s subsidiary, Westinghouse, recently declared bankruptcy over escalating costs involving billions of dollars to finish two nuclear power plants in South Carolina and Georgia. Both plants might not be completed. 

The International Energy Agency (IEA) report on CO2 Emissions from Fuel Combustion highlighted that the growth in global CO2 emissions was slowing down. In 2014, the IEA indicated the global CO2 emissions were 32.4 gigatons of carbon dioxide (GtCO2), an increase of 0.8 percent over 2013 levels. The growth in 2013 over 2012 levels was 1.7 percent, while the average annual growth rate since 2000 has been 2.4 percent. Work by the Intergovernmental Panel on Climate Change (IPCC) shows that holding warming to 2°C typically requires global annual emissions to peak sharply around 2020, fall steeply by 50% before 2040, and be close to net zero towards the end of the century. The EIA’s International Energy Outlook 2016 reference case has global energy-related CO2 emissions growing about 1 percent/year from 2012 to 2040, but will CO2 emissions peak much sooner than anyone expected? 

Governments around the world are already adopting major plans to transition to renewable energy in spite of major uncertainties about the costs and plausibility of those plans. In a June 2017 paper in the Proceedings of the National Academy of Sciences, 21 energy researchers rejected in no uncertain terms Stanford Professor Mark Jacobson’s 2015 study that made a case for 100 percent renewable energy by 2050. They wrote Jacobson’s plan “can, at best, be described as a poorly executed exploration of an interesting hypothesis. The study’s numerous shortcomings and errors render it unreliable as a guide about the likely cost, technical reliability, or feasibility of a 100 percent wind, solar, and hydroelectric power system.” In other words, it was crap. The problem is that governments around the world— Germany, California, and Portland, Oregon—are already implementing extensive plans to transition to renewable energy. Germany’s goal is 80 percent renewable by 2050; California is trying to set a goal of 60 percent by 2030; Portland wants to be using 100 percent clean power by 2035. 

Even if oil demand peaks in the foreseeable future and the world achieves a net-zero emissions state, oil and natural gas will continue to be key energy sources. Shell’s scenario group in May 2016 highlighted that for the future global population of 10 billion people to have a decent quality of life, the global energy needs would have to double by the end of the century. Oil and natural gas would have to remain important energy sources for the next forty years, until solar, wind, and nuclear sources can assume the burden of meeting the global economy’s needs. If the net-zero emissions state is reached, let’s say by the end of the century, the share of oil and gas in the overall energy mix will have fallen from 57 percent to around 15 percent, while the non-fossil-fuel share would be just under 80 percent. 

ORACLE MUSINGS ABOUT ENERGY, ECONOMIC, AND SECURITY OUTCOMES

Depending on what natural gas policy decisions are made, world economic, political, security, and environmental outcomes in the next twenty years could be very different.

For the next 20 years the demand for natural gas is likely to explode.

  • Natural gas production could grow even more than base case scenarios because of technology innovation, rapid development of LNG shipping infrastructure, new government restrictions around the world on use of coal in power generation, and high costs of clean coal technology.
  • Technology innovation will likely continue to lower the costs of shale gas development. China and Argentina could see rapid expansion in their natural gas productions.
  • Global shipments of LNG will expand rapidly as more infrastructure for receiving LNG is built in countries around the world. Since most of the shipments will be headed toward Asia, issues around the security of shipping lanes in Asian waters will develop.
  • Russia leverage will both increase and decrease because of natural gas. Many traditional buyers of Russia’s gas will strive to reduce their dependence on Russian piped gas by investing in LNG. At the same time, Russia will be able to serve the new LNG markets.

Future of coal: Global coal demand could begin to fall soon.

  • The momentum to substitute natural gas for coal in electricity generation will likely accelerate.
  • Coal use will likely continue to decline in the United States. It’s uncertain how Trump administration policies could affect that decline, but in general the trend won’t likely reverse.
  • The biggest changes in coal usage could be in China and India. If natural gas prices remain low, coal demand will most likely keep falling. In fact, China and India could struggle to keep up with the forces driving those declines.
  • Clean coal technologies will likely struggle to become commercial. Consequently, in a couple of years, new coal plants may never be built again in a large industrial economy.

The biggest economic winners of using more natural gas could be the rapidly growing Asian economies, particularly China.

  • Natural gas supplies could help meet the extensive energy growth needs throughout Asia, and enable Asian countries to move faster away from coal.
  • China companies will likely continue to be industrial leaders in all commodities, including oil, gas, and coal. The Chinese companies will continue to be the biggest, invest the most money, and generally be aggressive to capture the most market share.
  • China could bet big on natural gas for its economy. It could expedite LNG receiving facilities and new natural gas burning power plants.
  • China’s changing policies toward improving the country’s air quality and energy supply in the next ten years could have the greatest impact on global CO2 emissions and the world’s goal of reaching a net zero CO2 emissions state as soon as possible.
  • China will likely ride the wave of coal use reduction and assume a much large leadership role on environmental issues in international forums, like the IPCC.
  • In many respects, India’s accomplishments will be greater, but they will follow China’s.

National energy plans in developed economies may not fit with reality.

  • Germany and California and others focused on making a complete transition to renewable sources as fast as possible could struggle with their goals. Physical and financial barriers could be too large to reach 50 percent of power from renewable sources. Disruptions in power services could increase. The goals will likely stay in place, but the old energy systems could remain critical.
  • Nuclear power could gain more advocates and expand, but not likely unless major problems with renewables appear.

Renewable power could expand more rapidly than projected in rapidly developing economies.

  • For many countries, in ten years more than 50 percent of new power capacity will be from renewables sources. Major investments in infrastructure for using more renewable technologies will be made.
  • Chinese corporations will likely continue to invest heavily toward becoming global leaders in renewable-energy technologies, like solar electricity generation and electric cars.
  • If net CO2 emissions per year start falling, societies could struggle to maintain their commitments toward renewables.

The battles over the development and use of fossil fuels could become even more intense.

  • Greenhouse gas emissions will likely continue to accumulate in the atmosphere and ocean for the foreseeable future. CO2 emissions from gas will continue to grow because of the growth in natural gas production.
  • NGO’s will likely continue to object to natural gas and oil development and production activities and the companies that conduct them.
  • Gas companies are unlikely ever to be viewed as good world citizens.
  • Large private oil and gas companies could experience more protests wherever they operate.
  • Russian and Chinese companies will likely be singled out more and more by NGOs.

New economic system for electricity will emerge over the next 15 years: But no one can predict the dynamics of that system because there are too many uncertainties in technology, geopolitics, human behavior, climate change, energy supply sources, energy demand, and economics. The wide range of possible outcomes include:

  • A very unreliable electricity delivery system, with major disruptions, could develop in major industrial economies, particularly those with the biggest commitments toward renewables.
  • On the other hand, an integrated system of diverse power sources with higher electricity prices could develop that is much more efficient and robust than current systems.

 

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.