Dr Dougal Goodman – Written Evidence (ARC0022)

Background

1. I am submitting this evidence to the Committee in a personal capacity.
2. I am the Chief Executive of The Foundation for Science and Technology.  Before I joined the Foundation I served as a Deputy Director of the British Antarctic Survey and before that I was employed by BP in a variety of roles including leadership of a research programme to estimate the design load for structures to be built offshore the North Slope of Alaska, as a manager of North Sea production operations and as the Head of Safety for the company.
3. I have travelled extensively and undertaken research in Alaska, Canada, Greenland and Svalbard.  My PhD and Post-doctoral research was on the mechanical properties of glacier and sea ice.

Change in the Arctic

4. Change in the Arctic Region is not a recent development. Since the Second World War new transport infrastructure has increased access for goods and services and export of products.  The recent widespread use of mobile phones and broadband access, has improved education and social and cultural exchange.  There has also been a shift to give power and land ownership to indigenous peoples.
5. The construction of the Distant Early Warning Line (DEW Line) in the 1950s and 1960s led to the construction of many airfields which provided new access to the Region and had a significant impact on the communities of Northern Alaska, Canada and Greenland.  The exploration for oil and gas in Alaska and the development of the Prudhoe Bay and Kuparuk oil fields and the construction of the Trans-Alaska Pipeline System (TAPS) in the 1970s and 1980s had a profound impact on the North Slope of Alaska and on the economy of Alaska as well as supplying a significant proportion of domestic oil production in the United States.  Similarly oil exploration in the Canadian Beaufort Sea in the 1980s had impacts on the Northern communities as well as spurring the development of new technology for offshore oil exploration.  More recently development of oil and gas projects offshore Sakhalin in the sub-Arctic has pushed the technology forward for offshore developments in ice infested waters, strong currents and severe weather.
6. The rising average temperatures and long-term reduction of the summer sea ice extent observed in the Arctic will have a significant impact on communities through wave erosion of beaches, melting of permafrost and increased shipping but there will continue to be frozen seas, extremes of low temperature in the winter, prolonged darkness, and limited access during long periods of the year.  The challenges for most communities, however, are not from climate change but from the social stresses suffered by isolated communities with few employment opportunities supported by welfare.
7. The search for economically viable mining opportunities to meet global demand has led to the development of major ore bodies and metal deposits in the Arctic Region.  Economies of scale and high grade ore offset the high costs of taking the ore to markets.  Greenland, until the mine at Ivigtut was worked out, was a significant exporter of cryolite which is used in the extraction of aluminium from bauxite.
8. While some features of the countries of the Arctic Region are similar – harsh climate, difficult to access, sparsely populated, ice covered seas for parts of the year – they differ in important respects politically and economically.  There is no one size fits all solution to the management of change in the Region.
9. The communities I have visited in the Arctic Region want better transport links, improved education for their children, health services, employment and access to the goods and services that people in most developed countries would expect to be available.   Development with respect to strong cultural traditions and history is a common message.  The World Economic Forum Report – Demystifying the Arctic[1] succinctly sets out the issues for the Region.

Future Prospects

Oil and Gas

10. In the medium term all economically attractive development opportunities are in state jurisdictions onshore or within Exclusive Economic Zones offshore.  Arctic Council discussions may influence the choices to be made but ultimately the Arctic States, regional and local authorities will decide which developments go ahead.  For example transits through the Northern Sea Route will be permitted by the appropriate Russian agency[2] not by an international body.
11. The US Geological Survey (USGS) in a report published in 2008[3] reviewed the hydrocarbon provinces in the Arctic Region.  The assessment concluded that approximately 90 billion barrels, 1,669 trillion cubic feet of gas and 44 billion barrels of natural gas liquids may remain to be found in the Arctic. 52% of these resources are in Russia, 20% in US, 12% in Norway, 11% in Greenland and 5% in Canada[4].  While Arctic oil and gas development is technologically, environmentally and politically challenging, projects can be economically very attractive through economies of scale and favourable tax regimes compared to developments elsewhere.  The Prudhoe Bay oil field and the Trans-Alaska Pipeline System were profitable developments for BP.
12. Royal Dutch Shell, ExxonMobil, Statoil, Chevron, Gazprom, Rosneft and other companies would not be investing in Arctic exploration programmes if they did not believe economic production opportunities would be discovered.  However, the time to first oil or gas for new prospects could be ten to twenty years away.
13. Arctic States want oil and gas developments for security of supply and revenue generation reasons particularly as oil supply from the Middle East may become less reliable.  The State of Alaska, Russia and Norway will become more dependent on revenue generated from oil and gas produced from the Arctic Region.
14. However, the development of shale gas and unconventional oil is changing the global supply balance putting some projects in the Arctic on hold such as the Shtokman Gas field development in the Barents Sea.  The potential LNG export market from the Barents Sea to North America has disappeared.  Nevertheless, Gazprom has tested use of the Northern Sea Route (North of Russia) for export to the East by shipping in November, 2012 a cargo of LNG from Hammerfest in Norway to Tobata, Japan[5].

Shipping

15. The decline in sea extent since the 1970s has allowed sea traffic to move more easily along the Northern Sea Route in the summer season.  The Northern Sea Route has always been important for the resupply of Russian settlements on the Northern coast and the export of resources such as nickel ore.  Norilsk Nickel for example operate a fleet of ice strengthened ships year-round to export nickel ore from Dudinka on the Yenisei river to Murmansk.
16. The Russian Northern Sea Route Information Office[6] has a list of all the transits and a plot of the transits by month and the corresponding ice extent for each month.  There were 71 transits in 2013.  Although the Northern Sea Route offers advantages of shorter voyage distances from Europe to SE Asia or vice versa not many ship operators are taking advantage of the option probably because the ice conditions can be very variable from year to year, the high cost of fees to transit the route, the few places of refuge if a mechanical problem develops and water depth limits along parts of the route. 
17. Multi-year sea ice in the Arctic Ocean has declined and tends to be carried away from the Northern Sea Route by the prevailing winds although there is always a possibility that it can be present on the route.  Nataliya Marchenko[7] catalogues ship incidents on the Northern Sea Route including an event when many ships were caught out by a large area of multi-year ice in the Chukchi Sea moving towards the coast trapping them in the ice.

Metals and Minerals

18. The Arctic region is a rich source of metals, minerals and coal.  For example coal has been mined in Spitsbergen for many years, an iron ore mine began operating in September, 2014 at Mary River, Baffin Island and the London Mining Company is seeking finance for an iron ore mine at Isua, Greenland.

Fishing

19. Fish and crustaceans form an important food supply for many settlements in the Arctic region and are also an important export product.  Greenland’s economy is underpinned by the export of shrimps, cod, halibut and salmon.  Limiting catches to create sustainable fisheries is a major challenge.

Tourism

20. Adventure tourism has grown rapidly and represents an important income stream for settlements that can easily be accessed by sea in the summer by tour ships.  Longyearbyen in Spitsbergen and Nuuk in Greenland are popular destinations.  A small number of tour ships have transited the Northern Sea Route and the North West Passage and even fewer have been to the North Pole.

UK interests in the Arctic

21. The UK has extensive interests in the above sectors through oil and gas companies with interests in Arctic projects or through trading oil and gas exported from the region, metals and mining companies, equipment and service supply companies, engineering consultancies, fish processing companies, tour operators, naval architecture practices and defence contractors.
22. London is a global centre for legal firms (many contracts are under English law), finance (particularly project finance), insurance and reinsurance (Lloyd’s of London) and ship broking (The Baltic Exchange) who are all involved in Arctic projects.
23. A significant proportion of the Protection and Indemnity (P&I)[8] reinsurance cover for global shipping and insurance cover for well control are placed in the London market.  A major insurance loss in the Arctic region would be partly paid out from companies underwriting in the London market.

Risk Management

24. The Arctic littoral states, flag states of ships, certifying authorities and companies doing business in the Arctic Region have to decide what is an acceptable risk to take a project forward. All operators know that the Arctic is a particularly sensitive environment and that the ‘licence to operate’ could be easily lost.  One mistake and the licence is lost for the operator and other companies in the sector.
25. For example a cruise ship operator intending to visit Ilulissat (formerly Jacobshavn) in Greenland knows that tourists would like to go there to see the icebergs calving into the bay but has to decide whether the design of the ship can cope with sea ice in the bay, a collision with an iceberg (particularly a growler – a bergy bit washed over by the sea that is difficult to detect on radar in fog) and whether the charts are sufficiently accurate to avoid grounding.  The operator also has to judge whether the remote location, limited search and rescue support and lack of ocean going tug capacity, port of refuge and supply facilities are too great a risk for vessel operation.  The Flag State for the vessel, the insurers, the Greenland authorities and the Certifying Authority for the vessel will all be interested in verifying the operator has undertaken a thorough risk assessment and that the vessel is properly equipped and maintained for the voyage.  Once a permit has been agreed with the authorities and the insurers and certifying authorities are satisfied that the vessel is capable of making the voyage it is up to the operator to decide whether the risk is acceptable.
26. Certifying Authorities[9] are organisations such as ABS, BS, DNV GL, Lloyd’s Register, RS or NK who provide a classification service to independently review designs and an inspection service to operators intending to supply ships or other offshore facilities in the Arctic region.
27. The International Maritime Organisation has been negotiating for a great many years a mandatory International Code of safety for ships operating in polar waters (the Polar Code), to cover the full range of design, construction, equipment, operational, training, search and rescue and environmental protection matters relevant to ships operating in the inhospitable waters surrounding the two poles.  This will be introduced as a new chapter of the Safety of Live at Sea (SOLAS) Convention.  A prudent operator is likely to have already exceeded the requirements set out in the Polar Code.  
28. There are interesting parallels with the response of the US to the 2004 loss of the M/V SELENDANG AYU.  The vessel lost power and went aground in the Aleutian Islands spilling a large quantity of bunker fuel and soya beans.  Sadly six crew of a rescue helicopter were also lost.  The Aleutian Islands have many similar characteristics to the Arctic Region – bad weather, remoteness, lack of facilities, sensitive environment, etc.  The authorities asked the Transportation Research Board of the National Academies (equivalent to The Royal Society and Royal Academy of Engineering in the UK) to undertake an independent review of the risk assessment process for the risk to people and the environment from shipping operating near the Aleutian Islands.  The report was published in 2008 – Risk of Vessel Accidents and Spills in the Aleutian Islands, Designing a Comprehensive Risk Assessment, US Transportation Research Board of the National Academies (Special Report 293)[10].  The report recommended a two stage analysis of the risks.  An initial scan of all the potential risks and then detailed analysis of the top few risks (which is still in progress[11]).  The review was funded by the fines paid by the operator of the vessel.  The time taken from the accident to the final risk management plan of over ten years is substantial but the lessons learned could be valuable for regulators and ship operators in the Arctic Region.
29. Oil and gas companies and mining companies recognise the special risks of exploration and production in the Arctic Region.  They will reduce the risk to as low as reasonably practicable by eliminating a risk (e.g. no longer using heavy fuel oil) or mitigating the risk (putting in place contingency plans for a well cap system and oil spill response).  Their plans will also be under intense scrutiny by national, regional and local regulators and NGOs.  Most regulators will require publication of safety cases, risk assessments and environmental impact assessments.
30. To support the writing of these documents the oil and gas industry is funding joint-industry research programmes to address critical issues such as how to respond to an oil spill under ice – e.g. the Arctic Oil Spill Response Technology Joint Industry Programme (JIP)[12].  Governments and other bodies are also funding research into this topic - for example the US Corp of Engineers report Oil Spills in Arctic Waters Report[13] summarises many projects researching how to respond to oil spills in the Arctic.
31. Best practice in risk management is to put in place effective management processes starting with leadership from the top.  The outcome of the process will be the best that can be achieved in the circumstances.  DNV GL market a process audit scheme to help companies review and test the management processes they have in place[14].  Safe companies have well developed ethical and safety policies and a strong culture of risk awareness.  They also have well developed scenarios for low probability, high severity events, which can be used to test the capability for management to respond and whether they have the right hardware and systems in place.
32. The systems for the certification and training of individuals such as drilling engineers or merchant marine officers who are to work in the Arctic Region could be improved.

Research

33. The UK has a significant resource in universities and research institutions that can be applied to understanding the risk exposures from Arctic development projects and how to respond to them.  The Natural Environment Research Council and its component institutions, the British Antarctic Survey and the National Oceanography Institute should take the lead to co-ordinate research.  The Engineering and Physical Sciences Research Council also has an important role to play.  Many of the risk reduction actions require engineering solutions or statistical analysis.  For example, the estimation of the design load for offshore production structures in ice infested waters or the statistical analysis of ice extent data.

Conclusions

34. The Arctic States want development to go ahead provided the environmental risks can be effectively managed.  Many UK based companies particularly in the oil and gas, mining, finance, legal, engineering consultancy and insurance sectors will be involved and could provide leadership in risk management.
35. The Foreign Office Adapting to Change: UK Policy towards the Arctic[15] document has the right balance between recognising that development decisions are in the hands of the people of the Arctic States but advocating responsible development with policies based on sound science with full regard to the environment.
36. The pace of change in the Arctic Region is probably slower than elsewhere in the world.  The consequences of high rates of economic growth in China and India, resource development in Africa (particularly of LNG projects), shale gas and unconventional oil development, and the failure of states in North Africa and the Middle East are likely to have a far greater impact on the UK than Arctic developments.
37. The ‘licence to operate’ is difficult to obtain in the Arctic Region and can be lost for ever through one mistake.

September 2014