Arctic governments and fossil fuels

Home to some 230 drilling operations, the Arctic’s reserves have the potential to produce 240 billion barrels of oil and natural gas. NICOLAS GAULIN explains how national governments and financial institutions are giving oil and gas companies the financial, technical and legal means to accelerate the climate crisis.

In 1911, a trapper named Karkassee who came from a Dene tribe—one of the First Nations Peoples of Yukon and Alaska— was hired by the Northern Trading Company to locate the source of an oil slick that had been observed on northern Canada’s Mackenzie River. The subsequent discovery of large seeps of oil on the riverbed caught the attention of Imperial Oil, which successfully drilled its first oil well in 1920.

The site came to be known as Tłegǫ́hłı̨ in the local Slavey language, meaning “where there is oil.” More commonly known today as Norman Wells, the settlement became the remote birthplace of the Arctic oil and gas industry.

Measures to prevent oil extraction

There are several ways to prevent the extraction of fossil fuels. These include launching lawsuits to revoke land leases and drilling operations, blockading extraction sites, and passing legislation to suspend (temporarily or permanently) fossil fuel activities in a given area. The Arctic has long been the theatre of such initiatives, particularly in countries where polar fossil fuel activities are most active: Russia, the US and Norway.

From 1990 to 2021, the US was subject to 10 civil society lawsuits that challenged the permits issued for oil and gas operations in offshore Alaska. The Biden administration introduced a moratorium on drilling in the Arctic National Wildlife Refuge in 2021 and then a ban on offshore drilling in the Beaufort Sea in 2023 (as an offset measure for approving the Willow Project).

Across the frozen ocean, Russia saw its oil rigs boarded by Greenpeace activists four times between 2005 and 2014. Canada and Greenland, with significantly smaller industries, had similar experiences. Canada introduced an indefinite moratorium on offshore oil and gas drilling in the Arctic in 2016. In 2021, Greenland banned offshore oil and gas exploration and exploitation. It cited repeated disappointments in the output of exploratory drills, but the policy was equally motivated by environmental and climate change concerns.

Yet oil and gas operations in the Arctic have seen a resurgence in the past few years. In 2022, Russia’s Rosneft announced the discovery of a massive 82 million tonne oil deposit in the southeastern Barents Sea. A year later, Norway introduced a record number of Arctic oil and gas exploration blocks, while in the US, the Biden administration approved more than 250 new oil wells—known as the Willow project—in Alaska’s North Slope. In addition to the more than 220 sites currently operating across the Arctic, around 350 are being explored for further development by major oil giants, such as Russia’s Gazprom, the US’ ConocoPhillips, and France’s TotalEnergies.

Money talks—but what is it saying?

Arctic drilling is expensive because of the region’s difficult climate and remoteness. The average Arctic oil barrel typically costs $75—far more than conventional oil, which hovered around $48.5 between 2015 and 2020. As a result, the decision to drill relies in part on capital input, anticipated market prices, and favourable regulatory circumstances. Serious investments have been secured from financial institutions, such as banks, insurance companies and investment firms. These institutions bankrolled a staggering $314 billion in loans, bonds and shares from 2016 to 2020 to the benefit of polar fossil fuel operations.

National and local governments also play critical roles in the proliferation of Arctic extraction. The activities of oil and gas companies have traditionally been supported by a variety of direct and indirect subsidies, technical assistance, and beneficial regulatory circumstances. For instance, in 2022, Russia allocated 1.4 billion roubles (roughly USD$15.5 million) to interest rate subsidies for five national oil and gas projects.

Government subsidies also lower operating costs through tax exemptions and reduced fees. For example, in light of the COVID-19 pandemic, Norway adjusted its tax regime to offer a tax break on new exploration projects and introduced tax rebates set at 100 per cent of capital expenditure for oil and gas infrastructure. In Alaska, the state government forwent USD$7 billion in oil tax credits throughout the 2010s.

Where the industry is less developed, capacity-building programmes have sought to improve the likelihood of successful oil and gas ventures. For example, prior to Greenland’s ban on oil and gas activities, its national oil company, Nunaoil, partnered with the University of Copenhagen on a research project designed, in part, to train future fossil fuel workers.

Finally, in some cases, oil-friendly political parties in power have enabled the stacking of regulatory and oversight bodies with oil and gas executives despite evident conflicts of interest. In the face of a looming electoral defeat in 2015, then-Canadian Prime Minister Stephen Harper prematurely renewed the terms of several National Energy Board appointees with ties to the oil and gas industry.