Gaps in Arctic strategy leave room for trouble

  • Russian President Vladimir Putin, left, walks with Chinese President Xi Jinping during a welcome ceremony outside the Great Hall of the People in Beijing on June 8, 2018. China and Russia partnered on the Yamal LNG project now supplying natural gas from the Arctic to the world's most populous nation as it transitions from coal to cleaner fuels. (Photo/Greg Baker/Pool via AP)

The shortcomings in U.S. Arctic policy only start with the country’s feeble icebreaking “fleet,” according to Mark Rosen, an Arctic expert with the Washington, D.C.-based policy think tank CNA.

Rosen spoke Aug. 15 in Anchorage during a lunch presentation put on by the Alaska policy nonprofit Commonwealth North. He was also in Alaska to attend a U.S. military Northern Command, or Northcom, conference at Joint Base Elmendorf-Richardson.

“Almost to a person, there seems to be unanimity among all the people at the conference — very senior officers and so forth — that we are really behind in terms of as a nation in recognizing the enormous resource potential of the Arctic as well as some of the challenges that are occurring today in other parts of the Arctic because the legal structure in many respects is not sufficiently robust,” Rosen said.

A retired U.S. Navy captain, Rosen is a vice president and general counsel for CNA.

He stressed that Arctic waters, though referred to as an ocean, are ostensibly a “closed sea,” making it much more likely for the happenings in one portion of the Arctic to impact the entire region.

Rosen said he finds some of the environmental standards of other Arctic nations particularly worrisome as well as a lack of enforceable shipping standards for the icy region.

The U.S., he noted, generally has stringent environmental standards for remote developments.

He referenced a remote drilling platform, part of the Russian Prirazlinloye oil field in the country’s waters of the Barents Sea, and others like it, as being a potential source for an Arctic-wide ecological disaster.

Oil produced from the field, which is about 35 miles offshore and roughly 1,000 miles from the nearest major port according to Rosen, is stored on the platform until it can be transferred to a tanker.

“When you have those types of activities 1,000 miles to nowhere — I think there’s a song like that — you’ve got to wonder, well, what happens if something goes wrong? What happens if that caisson springs a leak?” Rosen wondered.

(Dwight Yoakam’s country hit 1,000 Miles from Nowhere reached No. 2 on Billboard’s country chart in 1993. Yoakam also sports an amazing pair of painted-on orange leather pants while standing atop a moving train in the accompanying music video.)

“Russia has the right to develop those resources but again, the Arctic is a closed sea and so there needs to be, in my judgment, some accounting for the fact that what happens in the Russian Arctic can affect the U.S. Arctic, can affect Alaskan waters,” he said further.

As a result, Rosen advocates for Arctic-wide development standards based off of U.S. requirements to use current technologies and practices for oil drilling at least, that could be developed and implemented fairly simply by each of the five nations with Arctic coasts.

The European countries surrounding the North Sea and its significant offshore oil and gas fields have such modern and reciprocal development standards, liability provisions and infrastructure inspection protocols through the 1998 OSPAR Commission, and could be used as a model in the Arctic, he suggested.

While the Law of the Sea says individual nations are to regulate development activities and responsible parties are expected to compensate those impacted by an offshore incident, the procedures can be much more difficult to execute when something occurs, according to Rosen.

“The duty to monitor and cooperate in the event of an incident does not equal the duty to pay damages,” he said. “At the end of the day, as a lawyer, if something goes wrong, I want to figure out who’s going to pay and are there enough resources to be able to satisfy the immediate claims for cleanup and the claims of those that might be adversely affected, such as fishermen.”

On Arctic shipping, Rosen does not foresee Canada’s Northwest Passage or Russia’s Northern Sea Route becoming “maritime superhighways” for transit shipping. For one, he said containership operators that fill major U.S. ports such as Long Beach and SeaTac work on tight, space-available schedules and generally cannot afford to be delayed by any of the many variables added by shipping through the Arctic.

Rather, he believes most of the long-term Arctic shipping growth will be destination-based and focused on serving a growing number of resource development and infrastructure projects.

Rules of the road

The requirements for large vessels operating in the Arctic are difficult to enforce in situations where they are prescribed and virtually nonexistent in other cases, Rosen said. That’s because the Law of the Sea with few exceptions delegates shipping requirements and subsequent enforcement to the “flag state” of a vessel, or its country of origin.

The Polar Code has detailed vessel capability and equipment requirements for ships operating in the Arctic. However, it only applies to vessels built after the code was implemented and still relies on flag-state enforcement. Rosen said there have been talks about adding inspections in a vessels last port of call before embarking on an Arctic voyage, but such heightened scrutiny is not yet mandated.

The Polar Code was ratified in 2014 and took effect in January 2017.

“If you have a Liberian-flagged vessel that’s going through Arctic waters you have to rely on the government of Liberia in order to ensure this particular ship meets all the requirements of the Polar Code,” Rosen described.

“The Polar Code is good but we need to layer cake it. We need to have insurance requirements and there needs to be a system to ensure that somebody’s inspecting the ships’ papers before they go into the Arctic to make sure they’re complying with the Polar Code.”

Established in 1996 as a working body for the eight Arctic nations to collaborate on policy and social issues, the Arctic Council deliberately wasn’t formed to be a regulatory enforcer, according to Rosen, out of a collective fear for layering further international oversight on a given country’s activities.

Sea ice and extremely harsh water and weather conditions necessitate additional requirements for Arctic-bound vessels, but so does the simple lack of information regarding the ever more popular area, he said.

The luxury cruise liner Crystal Serenity’s Northwest Passage voyages in 2016 and 2017 underscore the need for oversight in a portion of the world that can take days for emergency responders to reach, depending on conditions, Rosen added.

“If you look at a chart of the Northwest Passage it’s downright scary, because there’s an awful lot of white space (where nothing has been mapped) and there’s also places in the Northwest Passage that have a tendency to get blocked up because of ice,” he said. “What happens if one of those ships runs aground or loses propulsion because the screw hits a block of ice?”

Foreign investment

Finally, Rosen said there are also potential issues surrounding foreign direct investment in the Arctic, particularly in regards to areas currently lacking a strong economic foundation.

Norway’s laws on foreign direct investment, or FDI, are similarly stringent to the U.S. and Canada has good requirements in that realm, he said, noting that Canadian researchers and press reports indicate China is interested in developing ports through the Northwest Passage. Rosen characterized the Chinese interest in Canada as “a little bit concerning.”

He added that China is growing its investment presence in Iceland and has a 500 or-so person research team dubbed “Northern Lights” located there.

Iceland and Greenland are particularly vulnerable to the side-effects of foreign investors who do not have a stake in assuring local people or environments are protected, he said, because they are focused on growing their small economies.

Greenland is seeking FDI to indirectly help offset the growing costs of social programs, according to Rosen.

“Are you going to allow foreign mining and foreign investment for a mine, for an offshore oil project — there are a couple on the books in Greenland that are being developed — and how heavily are you going to regulate that activity, and then on the other hand deprive yourself of the revenue? So, it’s sort of a classic case,” he said.

Adhering to strict environmental standards can also push money to where the regulatory burden is the lowest, he added.

“Everybody’s going to try to game the system so that they have an advantage over the other state in terms of attracting inbound investment,” Rosen said.

He noted that current U.S. sanctions on Russia haven’t helped the Arctic investment scene either, as they have simply pushed Russia and China into “a marriage of convenience.”

China National Petroleum Corp. and China’s Silk Road Fund provided 30 percent of the investment needed for Russia’s $27 billion Arctic Yamal LNG project, which started exports in 2017, according to French oil and gas giant Total, which also has a stake in Yamal LNG.

According to a November 2017 CNA report co-authored by Rosen and titled, “Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security,” often nationalized Chinese companies and development banks have invested roughly $90 billion in Arctic infrastructure and resource projects since 2012. The report additionally estimates that China has invested upwards of $1.4 trillion in the economies of Arctic countries since 2005.

He highlighted concerns about state-owned Chinese companies taking projects or properties over when finances fail, but also said some Chinese investors take the remove the potential to default when lending in order to be more attractive to borrowers.

The move of eliminating default risk, along with investments in Arctic resource projects that seemingly don’t pencil out raise questions as to whether China is making its investments for strictly commercial reasons, Rosen said.

He suggested the Arctic nations should look at forming an international Arctic development bank to give those in the region and looking for major chunks of capital another option that could also ensure the projects are built responsibly and with fair lending practices.

“You can debate about who would be members but I see the charter members as being the five countries that have Arctic coastline,” Rosen elaborated.

“They would form a bank and they would provide investment capital to enterprises that may want to develop a mine in Greenland, Iceland, and then the financing terms need to be sufficiently robust that they can compete with the Chinese.”

He said such a bank could be started with private lending supported by loan guarantees to lessen the immediate need for direct appropriations by the founding countries.

Elwood Brehmer can be reached at [email protected].

08/22/2018 - 10:58am