Arctic sea ice extent on September 1, 2010 – both the Northern Sea Route and the Northwest Passage are clearly open. Image credit – The University of Illinois Cryosphere Today.
From North Pole to Growth Pole
The core reasons behind the Arctic Rim’s bright prospects are global macro-trends: climate change; peak oil and resource nationalism; overpopulation in the South. These “push” and “pull” factors will induce a decades-long Arctic boom, starting with shipping, energy and mining, and culminating in a fundamental northwards shift of the center of the world economy. Let’s examine each of these in turn.
Breaking Ice For Shipping
Ah, for just one time I would take the Northwest Passage
To find the hand of Franklin reaching for the Beaufort Sea
Tracing one warm line through a land so wild and savage
And make a northwest passage to the sea.
– Northwest Passage song, Stan Rogers, 1981.
Typically, the cryosphere – the frozen part of the world – remains stable, because its snow and ice reflect much of the Sun’s heat, thus cooling itself. This process is called the ice-albedo feedback.
However, when the high-albedo ice melts, it leaves behind darker-hued earth, flora or sea that absorb far more heat. Local air temperatures soar and inhibit the reformation of the ice during cold seasons. From working to keep the system stable, beyond a critical threshold the ice-albedo feedback begins to reinforce a runaway dynamic of melting and warming.
The ice-albedo feedback largely explains why the Arctic is warming about twice faster than in the world as a whole.
In summer 2007, Arctic sea ice extent fell 38% below average since records began – an area the size of six Californias. The next year saw both the Northwest Passage and the Northern Sea Route clear of ice for a short period in late summer. As of December 2010, sea ice extent was the lowest for the month on satellite record, even surpassing the 2007 melt.
While the relentless fall in sea ice extent over the past three decades is remarkable enough, what’s stunning is the 55% decline in summer sea ice volume. Once the thick, multi-year ice is gone, then it’s really gone – the low albedo of the ocean water will raise local temperatures, preventing all but a thin film of sea ice from reforming during the cold winters. It is thus a near certainty that Arctic sea ice is already deep in its death spiral.
Inland, earlier snowmelts enable the ground to absorb more heat, while dark-hued shrubs and boreal forests encroach on the tundra.
Many of the effects will be negative. The polar bears will probably go extinct, either drowning for lack of sea ice, or starving, or migrating south and merging with their grizzly cousins. Invasive species from the south will drive out Arctic flora and fauna off the top of the world. Global ocean and air currents will be interrupted as the temperature differential between the Arctic and the tropics shrinks.
But the new Arctic merchants will be making a killing.
Shipping routes during ice-free Arctic summer . Image credit – Laurence C. Smith.
In 2010, the Baltica became the first high-tonnage tanker to sail with petroleum products by the Northern Sea Route, steaming from Murmansk to China. This was followed by the voyage of the MV Nordic Barents, the the first vessel to sail from one non-Russian port to another through the Arctic, cutting 5,000km off the traditional Suez route. It carried 41,000 tons of iron ore from Kirkenes, Norway to feed the steel mills of China. One upping them all, the year ended with the first round-trip voyage without icebreaker assistance via the Northern Sea Route. The Norilsk Nickel-owned ship Monchegorsk carried the metal from the north Siberian port of Dudinka to Shanghai, taking just 41 days of steaming (the Suez route would have lasted as long as four months).
The opening of the Northern Sea Route and rising demand for metals and petroleum products from China and other emerging markets is set to continue spurring the development of Arctic shipping. In January 2011, a Sovcomflot executive said the Russian shipping company has already received 15 requests for icebreaker assistance in the Arctic for this year, compared to just four in 2010*. The governor of Murmansk, Dmitry Dmitriyenko, predicts that cargo transport through the Northern Sea Route will increase tenfold by 2020. This expansion will be sustained with private investment funding: both Sovcomflot and the Port of Murmansk are to be partially privatized in the coming years.
Similar trends are in play with the opening of the Northwest Passage across Canada. It has been conquered by cruise ship in 2006 and the commercial ship MV Camilla Desgagnés in 2008. Exploitation of the Northwest Passage will likely go slower than of its north Eurasian counterpart, because of lower demand and the (relative) underdevelopment of Canada’s icebreaker fleet. But there is still a wealth of opportunities there.
Black Gold or Fool’s Gold at the Top of the World?
Use it or lose it is the first principle of Arctic sovereignty.
– Speech by Canadian Prime Minister Stephen Harper, 2007.
Our first and main task is to turn the Arctic into a resource base for Russia in the 21st century.
– Speech by Russian President Medvedev in September 2008.
Global oil production has now either peaked or is close to peaking, and will now either continue on its present “undulating plateau” – or begin to decline at an accelerating pace. The specifics are intensely argued over and the debate is far too extensive to detail here. But suffice to say, the “cornucopian” position that technological ingenuity and market forces will always conjure more and more resources out of a finite planet is untenable.
Any number of factors – global production exceeding new discoveries since the mid-1980′s; the world’s inability to significantly ramp up oil production despite soaring prices for the commodity; the rising costs of oil production due to the falling EROEI of the remaining oil sources; massively inflated reserves numbers from OPEC members; growing resource nationalism – militate against a business-as-usual future of increasing production in the oil industry.
These mounting challenges are the reason the big oil majors are pushing into the deepwater drilling that produced the Horizon blowout in the Gulf of Mexico, and partnering with Russian state oil companies to develop offshore gas deposits in the Kara Sea, and sinking millions of US dollars on prospecting off Greenland despite no returns to date. They need to maintain their reserves numbers to prevent their stocks from tanking – but to do so, the oil majors are forced into taking escalating financial, environmental and political risks.
The Arctic’s natural resources. Image credit – Global Research.
In 2008, the US Geological Survey estimated that the Arctic may hold as much as 13% of the world’s undiscovered oil (90 billion barrels) and 30% of its undiscovered natural gas. Unsurprisingly, the Arctic is rapidly becoming central to oil exploration. That said, capitalizing on these resources – even assuming they are as big as estimated above – will be exceptionally difficult. For a start, some 84% of these sources are likely to be offshore. Second, according to more recent USGS calculations, developing them will be prohibitively expensive: “Assuming production costs of up to $100 per barrel, only 2.5 billion barrels of oil could be lifted… and only with a 50% probability.” For perspective, an average oil price of $92 per barrel broke the world economy in 2008.
Talk of the Arctic becoming the next Saudi Arabia is unrealistic. Its oil reserves are smaller, more dispersed, more remote, of worse quality, and far more challenging to exploit. But this isn’t to say that its black gold is fool’s gold. Technological progress on Arctic drilling, as well as a lack of better options elsewhere, will draw Western oil majors and National Oil Companies north.
The Arctic isn’t only of interest to shippers and oilmen. Confronted with inexorable rises in demand from China, the global mining industry is rushing to add metals and minerals production capacity wherever they can. Just to take a few Arctic examples, there are plans to start or expand iron ore production on Canada’s Baffin Island, Norway’s Kirkenes and the Kola Peninsula. Coal production is resuming at Svalbard. Just in case the whole oil thing doesn’t work out, Greenland is looking to exploit its potentially vast mineral resources. The Coeur d`Alene Mines Corporation recently opened a gold mine near Juneau, Alaska ahead of schedule. Though volumes remain small, this will change as depletion becomes as evident for minerals as it is now for oil.
Towards an Arctic Civilization?
… Before this century is over billions of us will die and the few breeding pairs of people that survive will be in the Arctic where the climate remains tolerable.
– James Lovelock, inventor of the Gaia hypothesis.
Beginning with the shipping and energy industries, the influence of the Arctic will eventually come to encompass the entire world. Assuming that efforts to quickly cut greenhouse gas emissions are unsuccessful, and that geoengineering is either not attempted or doesn’t work, then many of the middle regions will become too hot and dry for sustained agriculture (and maybe human survival), and masses of climate refugees will try to migrate north. The center of global economic growth, politics, and perhaps – in the far future – population, will come to rest within the Arctic Circle.
The North Pole may become the spatial center of the world. Image source – Trausti Valsson.
This process will likely be accompanied by mass upheavals, societal collapses, famines, border conflicts, maybe even bigger wars. But as usual misery contains the seeds of opportunity. It is not impossible that the farsighted individuals who are now buying up Hudson Bay territories or Siberian riverside lands are positioning themselves or their heirs for lordships and kingdoms in 2200.
But let’s focus on just the next three decades. The opening of the Arctic by various “push” factors (overpopulation, global warming) and “pull” factors (shipping routes, resources) will create demand for infrastructure, housing, associated services, etc. Buying up strategic lands, routes and infrastructure in the Arctic region offers one of the best, and most overlooked, rates of return in the world today. Take inspiration from OmniTRAX, a Colorado-based company that bought the derelict Port of Churchill and its railway from the Manitoba government for a bargain basement price of $10 in 1998. Now that Hudson Bay has become clear of sea ice during the summer, these assets are receiving tens of millions of dollars of investment from the Canadian government.
How can you benefit from the coming Arctic boom? In the coming years, Russia is going to partially privatize lucrative state assets, such as shipping company Sovcomflot and the Port of Murmansk (which handles 60% of shipping across the Northern Sea Route). New ports, roads, railways, pipelines, mines, dams, oil and gas fields, aluminium smelters, LNG plants, etc. are springing up over the entire region.
Enter the ARCS of Progress: Why Alaska, Russia, Canada, and Scandinavia are Positioned to Dominate the Polar-Centric World
Идут на Север срока огромные,
Кого ни спросишь – у всех указ…
В глаза мои суровые,
Взгляни, быть может, в последний раз.
– Soviet GULAG song, 1947.
Our home and native land!
True patriot love in all thy sons command.
With glowing hearts we see thee rise,
The True North strong and free!
– National Anthem of Canada.
Watching the economic news these days is a sure path route to depression. Anywhere you seem to look in the developed world there are awning budget deficits, soaring debts, depressed output, and stagnation. We’ve established that putting your money into the PIGS (Portugal, Italy, Greece, Spain) isn’t such a good idea. But the US is the “safe haven,” right? Unfortunately, its fiscal sustainability indicators are actually worse than the PIGS average. In 2009, the US got $0.6 in tax revenue for every $1 of outlays, or a receipt-to-outlay ratio of 0.6; the equivalent ratio for the PIGS was 0.78. Maybe Japan? With a 0.52 receipt-to-outlay ratio, it makes the US look like a paragon of fiscal discipline.
But within all that mess there’s a few, sparkling gems. Not only are they at the heart of the opening Arctic, but they are all excellent investment destinations on their own merits. They are the ARCS countries: Alaska, Russia, Canada, and Scandinavia.
In contrast to the rest of the US, Alaska was barely dented by the economic crisis, its GDP declining by just 0.3% in 2009 and recovering 0.6% in 2010. Employment is lower than the US average. While states like California and Illinois flirt with state bankruptcy, Alaska has accumulated $40 billion in its Permanent Fund. Finally, it is – along with Greenland – the most demographically vigorous of the Arctic states, with a total fertility rate of 2.32 children per woman in 2006. It won’t be afflicted by the First World’s looming aging crises any time soon. Alaska is well set to fulfill its motto: “North to the Future!”
Though the poorest of the ARCS, Russia is also its fastest growing one, with 5% annual GDP growth during 2001-2010. Its high level of human capital (around 70% of Russians continue to higher education, a First World rate), vast resource wealth and decent macroeconomic management set it on a promising path to convergence with developed countries.
Additionally, Russia has a predominant population, economic and military presence in the Arctic. The Murmansk region by itself has more people than all of Alaska, while the Russian Northern Fleet is by far the strongest Arctic force. State policy is to transform the Arctic into Russia’s “strategic resource base” within the next decade.
Criticisms of Russia’s prospects typically center on allusions to its “Zaire with permafrost”-like corruption levels, plummeting population, crumbling infrastructure, “legal nihilism” and Putinist authoritarianism. While each of these has a grain of truth, taking them as gospel fundamentally misrepresents the country. For a start, if Russia really was more corrupt than Nigeria or Zimbabwe – as implied by Transparency International’s Corruption Perceptions Index – then it would still be deep in debt as in the late 1990′s, and its $480 billion foreign currency reserves would be in Cayman Islands accounts instead of the Central Bank’s vaults.
What about Russia’s demographic “death spiral”? A quick glance at Rosstat will show that its population grew in 2009, and that its total fertility rate, at 1.6 children per woman, is now higher than the European average.
One can spend pages upon pages unraveling the double standards, misrepresentations and outright lies which the Western media and political class use to attack Russia. But if you’re unconvinced, and refuse to buy into Russia’s undervalued market on principle, it’s your loss.
As t he professional Russia investor Eric Kraus wrote in Business Week in July 2010, “Russian markets are fashion victims, and are currently both unfashionable and cheap. You can own them now, or wait and buy the next time they surge back into vogue. And I will be selling out just about then.” I’d trust him – that’s exactly what he did in 2008!
Canada combines the American spirit of free enterprise, with a greater safety net and social mobility. It is also on far better fiscal footing. In 2010, its cyclically adjusted primary budget deficit was -2.7% of GDP (US: -7.0%), and its net debt was 32.7% of GDP (US: 65.2%; Japan: 104.6%). Possessing huge energy, mineral and freshwater reserves, as well as a well-educated and growing population, it is surely one of the better investment bets in the developed world.
Scandinavia (and Nordic)
The Nordic region is one of the richest, most educated and socially cohesive on Earth, frequently coming at or near the top in any global index of freedom, social mobility, environmental sustainability, and technological modernity.
In 2010, Sweden’s GDP grew the fastest in Europe at a blistering 5.2%, while maintaining a balanced budget throughout the crisis. Norway’s fortunes are far more directly tied to its oil industry, but peak oil, excellent state management of reserves and a low population make for bright prospects. Norway is the second richest European country after the banking center of Luxembourg.
Even apparent basketcases like Iceland may be a good investment to buy up on the cheap. While its international banking career might be over, it still has massive freshwater and geothermal energy reserves, that make it an attractive center for energy-intensive industries such as aluminium smelters.
Finally, contrary to right-wing depictions of social democracies as retirement homes full of effete, aging liberals, all the Nordic states have fertility rates that preclude major aging crises (they range from 1.8 children per woman in Finland to 2.2 in Greenland).
The Arctic when all the ice melts.
From an Ultimate Dim Thule…
By a route obscure and lonely,
Haunted by ill angels only,
Where an Eidolon, named Night,
On a black throne reigns upright,
I have reached these lands but newly
From an ultimate dim Thule —
From a wild weird clime, that lieth, sublime,
Out of Space — out of Time.
– Dreamland by Edgar Allen Poe.
Even in our day, science suspects beyond the Polar seas, at the very circle of the Arctic Pole, the existence of a sea which never freezes and a continent which is ever green.
– The mystic H. P. Blavatsky.
Before the rise of the world economy, spatial perspectives were local, at most extending to the boundaries of their cultural sphere or world-empire: The Ecumene for the Ancient Greeks and Romans; Dar al-Islam for the Muslims; Christendom for the Franks; the Great Wall for the Chinese. Medieval European geographers referred to any lands beyond the borders of the known world as Ultima Thule.
Globalization from the 19th century bound the entire world together, for the first time in history, but its flows and links of labor, capital and commodities passed the Arctic by. Unattractive to sustained private investment, the region’s development was always fitful and unbalanced, from the Yukon Gold Rush that petered out almost as suddenly as it flared up; to the penal camps, subsidized settlements and military bases of the Soviet Arctic, now decaying away except where hydrocarbons extraction has thrown them a lifeline.
But now the world is changing. No longer will opening the Arctic have to be a hubristic project, as with the chiliastic visions of Soviet planners; or a costly and unprofitable strategic necessity, as with the Cold War submarine patrols beneath the Arctic sea ice or the bomber flights over it. Today, it is global macro-trends such as global warming, resource depletion and overpopulation that will ensure the rapid but organic development of the Arctic.
With the growing human presence, the Arctic will inevitably begin to lose its luster of mysticism, foreboding and darkness. As the years turn into decades, and 2050 approaches, the polar-centric view of the world will become increasingly central to human spatial consciousness. The world’s trade, energy and capital flows will have been largely rerouted north.
The ARCS of Progress, their numbers swelled by climate refugees, and their economies bolstered by a flood of capital investment, will be amongst the leading Powers in the world. This assumes they retain their present political configurations. For instance, could an independent Greenland, with just 56,000 people today, retain its own national identity? Facing resource shortages and droughts in the south, would China encroach on the Russian Far East? Would the US try to assimilate Canada?
Whatever the answers to these questions, one thing is near certain. The vision of a northern Ultima Thule is dissipating, and will soon dissolve altogether (thought teh concept may be resurrected to describe a desolate, uninhabitable South many hundreds of years into an extreme AGW future). In its place there will emerge a polar world-economy of open seas, farms and growing cities by 2050.
There will arise an Arctic ecumene.
* According to more recent data, there were 34 transits of the Northern Sea Route in 2011, up from just 4 in 2010; with 820,000 tons of goods transported relative to 111,000 tons in 2010. Volumes are predicted to double again this year. This goes in tandem with record breaking sea ice melt in 2012.
Edit Jan 28, 2013: There were a record-breaking 46 vessels making the transit through the NSR this year.