Lloyd's wary of hunt for Arctic oil

Julia Kollewe, Terry Macalister April 13, 2012

LLOYD'S of London, the world's biggest insurance market, has become the first major business organisation to raise its voice about huge potential environmental damage from oil drilling in the Arctic.

Lloyd's estimates that $US100 billion of new investment is heading for the Arctic over the next decade, but believes cleaning up any oil spill there, particularly in ice-covered areas, would present ''multiple obstacles, which together constitute a unique and hard-to-manage risk''.

Richard Ward, the chief executive, urged companies not to ''rush in [but instead to] step back and think carefully about the consequences of that action'' before research was carried out and the right safety measures put in place.

The main concerns, outlined in a report drawn up with the help of the Chatham House think tank, also based in London, come just two years after the devastating BP blowout in the Gulf of Mexico.

The far north has become a centre of commercial attention as global temperatures rise, causing ice to melt in a region that could hold up to a quarter of the world's remaining hydrocarbon reserves.

Cairn Energy and Shell are among the oil companies that have either started or are planning new wells off the coasts of places such as Greenland and Canada while Total - currently at the centre of a North Sea gas leak - wants to develop the Shtokman field off Russia.

A series of onshore mining schemes are also planned, with Lakshmi Mittal, Britain's richest man, wanting to develop a new opencast mine 480 kilometres inside the Arctic Circle.

But the new report from Lloyd's says it is ''highly likely'' that future economic activity in the Arctic will further disturb ecosystems already stressed by climate change.

''Migration patterns of caribou and whales in offshore areas may be affected,'' it says.

''Other than the direct release of pollutants into the Arctic environment, there are multiple ways in which ecosystems could be disturbed, such as the construction of pipelines and roads, noise pollution from offshore drilling, seismic survey activity or additional maritime traffic as well as through the break-up of sea ice.''

Unclear legal boundaries posed by a mosaic of regulations and governments are an additional challenge.

The Lloyd's report notes that there is no international liability and compensation regime for oil spills.

It says the ''inadequacies'' of both company and government in the event of a disaster were demonstrated after BP's Macondo blowout. Lloyd's argues that ''full-scale exercises based on worst-case scenarios of environmental disaster should be run by companies''.

The Arctic's vulnerable environment, unpredictable climate and lack of a precedent on which to base cost assessments have led some environmental organisations to argue that no compensation would be worth the risk of allowing drilling in pristine offshore areas.

Others are campaigning for more stringent regulations and the removal of the liability cap for investors.

The Guardian

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