Last week, Lloyd’s of London - the world’s leading insurer which sets the global standard for risk assessment - released a report warning investors not to rush in and invest in Arctic drilling. Looking at the industrial onslaught that is likely to hit the Arctic as the sea ice melts, the report covers the environmental impacts and financial risks of industrial fishing, shipping and mining. But it's most scathing on oil drilling, and in particular of the ability of oil companies to clean up after a major spill.
So I’ve put together a list of 10 reasons from the Lloyd’s report on why it’s not a great idea to drill for oil in the Arctic – in Lloyd’s own words.
1. Industrialisation will destroy vulnerable ecosystems
“It is highly likely that future economic activity in the Arctic will further disturb ecosystems already stressed by the consequences of climate change. Migration patterns of caribou and whales in offshore areas may be affected.”
2. Oil rigs can’t stand up to the harsh weather
“The harsh weather conditions in the Arctic raises questions over whether offshore drilling rigs can withstand its frequent severe storms... Weather could destabilise other installations that store significant quantities of oil… causing an environmental disaster.”
3. Melting permafrost can cause a blowout
“Drilling through permafrost in the rock… can cause the permafrost to melt… destabilising the well, and potentially leading to a blowout.”
4. Icebergs, sea ice and waves can damage rigs
“Damage caused by icebergs and offshore sea ice is a further risk for mobile drilling rigs and, with melting sea ice increasing the area of open waters, these rigs will need to cope with stronger waves.”
5. Remoteness makes accidents harder to reach – and more expensive to deal with
“Many parts of the Arctic are geographically isolated, bringing operational challenges, entailing substantial costs and amplifying the potential consequences of risk events.”
6. There are major communications challenges
“Magnetic and solar phenomena, interference and geostationary satellite geometry all mean that high frequency radio and GPS are degraded above 70°-72° North, a major issue for communications, navigation, and search and rescue.”
7. There is no credible solution for cleaning up spills in ice
"Cleaning up any oil spill in the Arctic, particularly in ice-covered areas, would present multiple obstacles which together constitute a unique and hard-to-manage risk… There are significant knowledge gaps in this area.”
8. Arctic drilling isn’t a guaranteed money spinner for investors
There is uncertainty over “the scale of hydrocarbon resources, the future location and predictability of sea ice, and the wider consequences of climate change. These uncertainties are the greatest risks to potential investors in Arctic economic development.”
9. The Arctic simply doesn’t have the infrastructure to mount a massive oil clean-up
“Existing infrastructure - buildings, bridges, roads, railways and pipelines – built on permafrost will become more expensive to maintain as the permafrost layer across northern Alaska, Canada and Russia becomes unstable.”
10. The public will have to pick up the bill for cleaning up an oil spill
“There is as yet no international instrument on liability and compensation resulting from spills from offshore oil rigs, pipelines and sub-sea wellhead production systems… In allowing investors without sufficient funds to pay for the clean-up and reparations for a large scale environmental disaster, the cap is essentially a transfer of risk to the public sector.”
Is investing in Arctic drilling still a good idea? I don’t think so – which is why we’re asking fund providers with environmental screens to drop Arctic drillers from their books, starting with Shell.