Insurance market joins environmentalists in highlighting risks of drilling in fragile region as $100bn investment is predicted
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.
The City institution estimates that $100bn (£63bn) of new investment is heading for the far north over the next decade, but believes 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”.
Richard Ward, Lloyd’s 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 thinktank, come as the future of the Arctic is reviewed by a House of Commons select committee and 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.
Shtokman is the largest single potential offshore Arctic project, 350 miles into the Russian-controlled part of the Barents Sea, where investment could reach $50bn.
Without any history of damages to cover in the Arctic-drilling enterprise, Lloyd’s has only projections like this to pad its premiums ahead of actual experience. Behavior like this in the private sector is what leads, time and again, to the lowering of the cost of a product as competition gains real cost information and access to a market.