Lloyd’s of London takes a serious look at polar exploration
What will keep tomorrow’s Arctic developer awake at night? Might be something like: a world-class ore deposit, costing billions of dollars and years in the making, all halted when a key permit stalls in a political and regulatory stalemate…
Brown, toxic goo spewing for months from a deep-water oil well blowout, a kilometre beneath thick Davis Strait ice, shrouded in 24-hour darkness….
A 300-passenger cruise ship, pierced by an uncharted shoal, sinking slowly and waiting endless hours for the first rescue flight… from Ontario.
Now, imagine you’re the guy insuring these scenarios. That’s a wake-up call.
These are the situations cropping up at Lloyd’s of London, prompting the renowned insurer to issue a sober challenge to anyone venturing north to exploit Arctic riches: are you really ready?
“The Arctic remains one of the most remote, inhospitable and risky environments on Earth,” says Neil Smith, head of Lloyd’s Emerging Risk unit at its London, UK headquarters in a recent blog.
“As the new Lloyd’s Arctic report emphasises, there is very limited support infrastructure throughout the region, and if an accident were to occur in the Arctic… the consequences could be more profound than in other regions.”
Smith is referring to the 60-page report The Arctic Opening: Opportunity and Risk in the High North, released by Lloyd’s in April of this year on forecasts that the remote, but increasingly accessible, polar cap could attract $100 billion in investment in the next decade.
Lloyd’s, created over 300 years ago in Edward Lloyd’s London coffee house, today says it is recognized as the global specialist “in the risks that are the hardest to value and the trickiest to understand.”
Their study is not alarmist, but it makes plain that the level of risk, security and stability in Arctic investment is “challenging and often unpredictable.”
“One thing that stands out most clearly from this report is the significant level of uncertainty about the Arctic’s future, both environmentally and economically,” says Lloyd’s CEO Richard Ward in his introduction to the paper, authored by a blue-chip panel assembled in a London thinktank this January.
Heavily weighted toward the oil and gas industry – where a worst-case failure could indeed be environmentally catastrophic – the report says miners share similar perils and risks.
Weather or accidents can cripple a transportation link, energy system, or mine site. Take, for example, Agnico Eagle’s loss of its Meadowbank gold mine kitchen and office wing to fire last year, or in 2006, when a warm winter curbed critical ice road shipments to the NWT’s diamond mines. It cost $100 million for a massive airlift to fill the gap.
Arctic mining on a large scale will be dependent on ocean shipping, adding to risk, says Lloyd’s. Massive ore carrier/tanker ships will ply polar waters not yet equipped with comprehensive navigation systems, hosting unique polar sea creatures and where rescue and salvage support is days, if not weeks, away.
The report allows that with best practice and due diligence, accidents aren’t more likely in the Arctic than anywhere else in the world. But it zeros in on the consequences: far more complicated and costly clean-up and mitigation, plus international fallout and media scrutiny hurting the reputations and market value of hapless corporations.
The report also explores the risks of regions that are still growing their capacity – politically and legally – to manage big-dollar, high-stakes Arctic development.
“Though the prospects are significant, the trajectory and speed of Arctic economic development are uncertain,” the study observes in a carefully crafted comment on the maturity and efficiency of government permitting and support for resource developers.
Politically, Canada has been slow to get the message that industry can’t afford the time and delays caused by its volatile permitting process.
While the recent announcement that the federal government will slash permitting agencies from over 40 to just three has been lauded by miners, Natural Resources Minister Joe Oliver will no doubt be challenged in the courts.
Canada Not Ready
Diamond consultant Pierre Leblanc is an outspoken advocate of Canadian sovereignty and a former Canadian Armed Forces Commander in the North. He says Canada isn’t quite ready for the circumpolar world now at its doorstep.
Lloyd’s may be paying more attention to its Arctic exposure, he suggests, because the world’s biggest shipbuilders are building more double-hulled vessels – needed especially where ice is encountered.
Ships between Asia and Europe will take the Panama Canal at 12,000 nautical miles, or around Cape Horn for 22,000 nautical miles, versus the Northwest Passage for 7,600 nautical miles. Big vessels can cost $1 million a day at sea, so less time and distance make the NWP attractive, says Leblanc.
Still, it’s no panacea: it forces super-size ships – which prefer straight lines and steady speeds – to make several slow turns; the Arctic lacks good mapping; and just like in the movie, those ominous ice bergs keep bobbing around.
Leblanc says Canada could increase its control and reduce risk by choosing just one of the NWP’s six recognized transits, and modernize mapping, monitoring and search and rescue assets.
But shippers have other options: Leblanc notes the Northeast Passage, above polar Russia, is already more attractive, and a transit directly over the North Pole is a long term possibility.
On the mainland, he encourages Canada to improve frontier access with roads, which means more certainty, economy and opportunities for mines. “The old saying, ‘build a road and they will come’ – it’s true.”
“What we have in the North are fragmented interests that are in a sense competing with one another,” while trying to shield their own interests, says Leblanc. For instance, demanding exclusive business contracts to support project approval creates political fences and capacity risks that discourage developers.
Building fences, Leblanc points out, works both ways. It protects those inside the fence, but it also prevents them from reaching out, especially if the next neighbour builds a fence too.
“I think the North still has time to mature, but the expectations are still very high. We are literally in a global village, and if this neighbourhood is not welcoming enough, businesses will move to the next.”
International teamwork
Work on consensus for a sustainable, safer and a more liveable Arctic is actually alive on a number of fronts, as shown by the hundreds of events and projects during the once-in-a-generation International Polar Year (2007-2009). But progress is cumbersome.
The Arctic Council is a high-level forum of eight polar nations and six international aboriginal bodies with a sweeping, non-binding mandate for circumpolar collaboration on everything from culture to science to sustainable development. It has made progress on search-and-rescue protocols and a response plan for oil spill emergencies. The Council was launched in Ottawa in 1996; member states rotate as chair every two years, and Canada’s second term begins in 2013.
Another venue is the International Maritime Organization, a United Nations agency of 167 nations formed to hammer out global shipping law. But it has lagged on a mandatory “Polar Code” to govern Arctic shipping, said a panel at the recent Montreal wind-up conference for the IPY. It will be 2013 at the earliest before it might be able to wrangle agreement.
Bernie Funston is chair of the Canadian Polar Commission, created in 1991 as Canada’s lead agency for polar awareness and science. He says such a code would benefit Arctic miners, even i
f it compels them to invest in new shipping to meet new standards and satisfy insurers.
“It is an important step, particularly for those that require a capacity to ship bulk cargo in or out.”
Funston says Canada already has a long history of bulk shipping in the Arctic, as evidenced by the annual community sealift program, and now closed mines like Nanisivik and Polaris.
But climate change is creating a longer season and opening up new routes, and that’s where Lloyd’s gets it right, he say, by flagging that these routes are at the bottom of the curve for the infrastructure and baseline knowledge.
But Funston, an NWT-born constitutional lawyer, worries that positions taken by Lloyd’s can have “a chilling effect…they can say the risk is too high, and that we don’t know enough about the Arctic. We do know a fair bit and we’re a politically stable and technically savvy country.”
He’s also concerned that the hype around a worst-case Arctic oil disaster detracts from the more likely scenario: mining ventures, not oil wells, will be the vanguard of major, sustained Arctic development.
“Canada, and indeed the international community, is more focussed on the North now than at any time during the past 50 years,” he says, citing the Geomapping for Energy and Minerals (GEM) program that’s helped advance mineral discoveries.
“But have we built any Arctic ports or docking facilities yet? How are we doing on the satellites for surveillance above 70°N? Where are we on ice breakers or northern patrol ships? So there’s always room to do more.”
Funston says that after decades “of allowing bad weather to be our foreign policy in the North (blaming the cold and dark as the reason to do little), it appears Canada and other Arctic states are now beginning to step up and invest, incrementally, to bolster the capacity in the region.
The challenge, he says, will be finding the right balance.
“To some, the whole circumpolar region is a frontier for new resources industries. For others it is a laboratory where scientific research should come first. Still others see it as a wilderness that should be preserved for future generations.”
But above all, Funston says it is home to some four million peoples who have lived, worked and played there for millennia. “Lloyd’s is in the business of assessing and costing risk. Let’s not forget that the people who inhabit the circumpolar North assumed the risks a long time ago and have been doing just fine.”
Comments