Mikkelsen A., Langhelle O. (eds.) Arctic Oil and Gas. Sustanability at Risk?

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of the defined sustainable development issues for oil and gas companies that want

to expand their activities in the Arctic?

The content of the book

The book has three parts. Part I outlines the Arctic context, the background for

the research questions, the theoretical approach of the project and the methodol-

ogy. Part II consists of a comparative chapter on the institutional framework

across countries and four case studies of Alaska, Canada, Norway and Russia.

Their aim is to identify the main conflicts and framings of oil and gas activities

in the different countries. Part III consists of cross-country studies and compar-

isons. It includes a chapter on human rights, a comparative analysis based on the

four case studies from Part II, and a chapter on the implications of the research

conducted for managers of the oil and gas companies.

This chapter has addressed the Arctic context and the background for the

research questions. In Chapter 2, Langhelle, Blindheim and Øygarden present an

understanding of the concept of sustainable development, based on Our Common

Future (WCED, 1987), also referred to as ‘the Brundtland report’ after the

Chairman of the Commission, former Prime Minister of Norway, Gro Harlem

Brundtland. The first part of the chapter explores the concept and its core

elements. It also answers the question of whether it makes sense to talk about

‘sustainable’ extraction of non-renewable resources. The second part explores

how sustainable development has been interpreted and conceived in an Arctic

context by the Arctic states in the Arctic Council and its Working Groups. The last

section explores the specific framing of oil and gas within the Working Groups of

the Arctic Council.

In Chapter 3, Bilstad focuses on the issue of climate change in general and

climate change in the Arctic, and discusses both the causes and effects of these

changes. Climate change and global warming are considered major environmen-

tal and economic threats to the global community. Commitments to prevent and

minimize causes and to mitigate adverse effects are continuously on the political

and scientific agenda. Strategies are implemented to achieve reductions in CO

considered to be the major human-induced greenhouse gas. While the Arctic is

rich in hydrocarbons (HCs), and production of oil and gas will improve global

energy security, burning of HCs irrespective of where they are mined advances

global warming. Changes in climate influence not only snow and ice, but also the

way of life in the Arctic.

In Chapter 4, Blindheim discusses both the nature of the concept of CSR and

its potential relationship with and effect on sustainable development. The chapter

starts out with presenting four broad approaches to CSR: the classical, stake-

holder, social demanding, and social activist approaches. Based on an analysis of

the contemporary discourse and agenda of CSR, it is argued that the contempo-

rary conceptualization of CSR largely falls within what may be called a ‘social

activist’ approach to CSR, suggesting corporations as complementing and some-

times replacing states as the primary structures and shapers of the world. Such an

6 Aslaug Mikkelsen and Oluf Langhelle

Introduction 7

understanding of CSR, it is argued, implying that corporate managers take on the

roles as moral, social and political leaders, will not necessarily promote a sustain-

able development path. A concept of CSR – heavily emphasizing the advantage

of voluntary action instead of political solutions to developmental questions and

societal challenges – may do the opposite, that is, to undermine a sustainable

development path.

On this background, a limited conceptualization of CSR is proposed, and the

companies’ institutional responsibility towards society is stressed. This implies

that corporations have a responsibility to adapt their activity to the constraints

and opportunities set by political institutions and processes of public policy,

and, as such, should not undermine the capacity of these institutions’ to perform

their fundamental mission in society (e.g. framing and regulating the activity

of the oil and gas industry in the Arctic). Based on this conceptualization of

CSR, some implications for the oil and gas industry operating in the Arctic are

briefly discussed.

In Chapter 5, Heitmann Hansen, Langhelle and Anderson present the method-

ology used for the different case studies from Alaska, Canada, Norway and

Russia. The first part introduces a ‘framework’, or an analytical tool based on

regulation theory, which is used to identify the main actors influencing develop-

ments in the Arctic. The second part outlines discourse analyses as a research

strategy and methodology and explains the core concepts used in our study. We

define a discourse, in accordance with Hajer, as ‘a specific ensemble of ideas,

concepts, and categorizations that are produced, reproduced, and transformed in

a particular set of practices and through which meaning is given to physical and

social realities’ (Hajer, 1995: 44). Discourse analysis is the main tool for identi-

fying how actors construct and frame oil and gas activities in the Arctic.

Chapter 6 is the first chapter in Part II of the book. In this chapter, Bankes gives

a comparative analysis of the legal and institutional framework of Alaska,

Canada, Norway and Russia. The chapter serves as an introductory chapter to the

case studies and is organized around three main themes or sets of questions. The

first part poses a set of questions about the form of government in each of the four

jurisdictions, where three are federal states (Canada, Russia and the United

States), while Norway has a unitary form of government.

The second set of questions deals with the ownership of land and resources,

particularly the division between public ownership and private ownership. The

premise here is that the bundle of rights associated with ownership provides both

an important source of power or authority within society, and a place where the

owner may have not only a greater degree of protection from state authority, but

also a space within which to exercise autonomy. The oil and gas sector will always

need to know who the owner of the resource is and with whom the industry must

negotiate for a lease or concession. The third set of questions deals with the legal

status of indigenous peoples and their land and resource claims in each of the four

jurisdictions. Here, the sorts of questions that are posed focus upon the recogni-

tion of indigenous rights to land and resources, and the implications of this for the

oil and gas sector.

In Chapter 7, Mikkelsen, Haley and Øygarden present the Alaskan case

study. It is argued that the oil and gas activities in Alaska are expanding in the

Arctic, not to the Arctic. While the Alaska economy has always centred on

resource extraction, the discovery of Prudhoe Bay oil in 1969 was worth seven

times more than all previous resources combined. The main conflict lines in

Alaska are on how oil and gas activities can be combined with the subsistence

activities that the indigenous people have defined as the foundation of their iden-

tity and culture. At the same time, the communities are highly dependent on

revenues from oil and gas. With the advent of oil wealth, the North Slope society

was modernized and increasingly integrated with the global cash economy.

To maintain new infrastructure and to afford modern equipment and life-

styles – like using computers and satellites in bowhead whaling – declining

revenues must be shored up with industrial expansion. In this situation, onshore

oil and activities have broad support. The oil and gas industry now, however, want

to expand their activities into offshore areas. As noise from this activity may deflect

the whales and other mammals, and spills are a risk to the marine environment,

expansion offshore is perceived as a threat to subsistence activities, and local

opposition is strong. The regional authorities and corporations, however, need the

revenues and business to maintain the present infrastructure and socio-economic

standard, and to cope with modern lifestyle problems, such as diabetes, mental

health problems, drug abuse and unemployment. The oil and gas companies are

challenged to take responsibility for the situation and to mitigate the negative

impacts and provide a positive future for the coming generations.

In Chapter 8, Mason, Anderson and Dana present the Canadian case study.

Canada is a major oil and natural gas producer and exporter. Exploration and

production have been centered in Alberta, with significant additional activity in

the neighbouring province of Saskatchewan. More recently, the Hibernia field in

the Atlantic Ocean offshore of Newfoundland has been brought into production.

Exploration continues offshore on both the east and west coasts.

Oil and gas activity in the Northwest Territories and Nunavut, the portion of

Canada north of 60 degrees, has centred on the Beaufort Sea in the Western

Arctic, where vast proven reserves exist. The challenge is to get the product to

market. The preferred solution has been a pipeline down the Mackenzie River

Valley, a route that crosses the traditional land of four indigenous groups: the

Inuvialuit, the Sahtu, the Gwich’in and the Deh Cho. In the context of the petro-

leum industry in Canada, this chapter details the events surrounding the Beaufort

Sea field and the ongoing efforts to build the Mackenzie Valley pipeline. There

are four interwoven themes finding expression in the ongoing pipeline saga. First

is the oil and gas exploration development and supply agenda as part of the drive

to increase North American supply for the US market for security and other

reasons. Second is the issue of indigenous rights to land and resources, and the

modern land claim and treaty-making process in Arctic Canada. Third is the

ongoing struggle to improve the socio-economic circumstances of the people of

Canada’s Arctic through development. Finally, the fourth is the issue of sustain-

ability, the traditional economy and alternative development strategies.

8 Aslaug Mikkelsen and Oluf Langhelle

The Norwegian case is presented by Heitmann Hansen and Midtgard in

Chapter 9. Norway has enormous ocean areas in the North where few petroleum

resources have been detected, where the environmental tensions have been high,

and where economic depression characterizes the coastal communities. The

Snøhvit gas field is the first petroleum project in the Barents Sea. The Norwegian

government has also opened up for exploration in the Barents South, and the oil

project Goliat is in the phase of being developed. The discussions about expan-

sion of the oil and gas activities to Arctic Norway can be separated into four main

discourses: the environmental, the regional economic, the rights and situation of

the Sámi minority and the international. The environmental issues have domi-

nated historically, but lately this dimension has shifted increasingly to a combina-

tion of regional economic benefits and how to utilize renewable and

non-renewable resources and opportunities in a sustainable way.

The different fishermen’s federations have been relieved by, and seem confi-

dent with, the general opinion that oil activity is compatible with fishing. In this

context, the Norwegian Sámi people have recently raised their voices to claim a

right to participate in the decision-making process and a right to benefits from oil

and gas revenues. In the debates about how to manage Norwegian oil and gas

resources, we have a link to international obligations and responsibilities, and the

foreign policy about oil and gas in Norway contains elements of cooperation with

Russia and Europe. Through collaboration with Russia, Norway is seeking a

comprehensive and coherent development of the Barents Sea as a petroleum

province. In this region, Norway wishes to address both the sustainable develop-

ment of living resources, including some of the world’s most precious fish stock,

and the impact of climate change. And it is here that Norway seeks to develop the

new petroleum province of Europe.

In Chapter 10, Andreyeva and Kryukov present the Russian case. It is an

embedded case study devoted to the large changes that the country is undergoing

now: changes in administrative and resource policy; changes in the interaction

between business and federal structures; changes in regional opportunities to use

money from resource development; and changes in the attitudes of indigenous

peoples regarding the struggle for their rights to land and natural resources. These

processes are very similar to those that occurred in many countries over the last

two centuries. For Russia, the point is that the timeframe for such changes has

tightened, and all – from government and legislative bodies to social and business

groups – must adapt quickly to the new rules and requirements while simultane-

ously building new relations and responding to all the changes.

The large-scale transformation of Russian society is not without contradic-

tions. Business groups are the most active part of society, and they must develop

their operations in a very complex and tense social environment. Oil and gas are

seen as key strategic resources and play an extremely important role in modern

Russia. These companies’ activities are under the close scrutiny of different

parties, as is their cooperation with foreign partners.

The legislative process on key questions of resource use is not completed

yet, which creates some uncertainties for stakeholders. Issues of sustainable

Introduction 9

development are steadily being included in governmental policy and have become

the key questions for regional authorities in their programmes of social and

economic development. Unfortunately, there are huge obstacles to the actual

implementation of sustainable approaches to resource development and to

regional policies regarding aboriginal peoples and their vital interests. Two sub-

case studies exemplify this development. One case is from the Murmansk region;

the other case is from the Yamal-Nenets Okrug. A new state law, effective in 2007,

that will concentrate all income from oil and gas activities to the federal level

adds to the uncertainties in Russia. Although money is to be distributed among all

regions and spheres of national economy, the unknown effects of this new law

create new worries. In addition, the formation of a legislative basis for oil and gas

activity is not completed yet, which causes many problems for all stakeholders,

including foreign companies.

Chapter 11 is the first chapter in Part III of the book. In this chapter, Fred

Hansen and Bankes give a broad introduction to human rights and the indigenous

people of the Arctic. It examines the interplay between the human rights of

indigenous peoples and the interests of the oil and gas industry in being able to

carry out exploration, production and transportation of oil and gas within the

traditional territories of those indigenous peoples. The chapter focuses on the

human rights of indigenous peoples under international law. It also tries to assess

how these rights in international law form part of the discourse within the domes-

tic legal and political systems of each of the four states, Canada, Norway, Russia

and Alaska (US), and how these discourses may influence the commitments of the

oil and gas industry towards ideas of corporate social responsibility.

Within the field of international human rights law, the focus is on the rights of

indigenous peoples in relation to the lands and resources within their traditional

territories. As a starting point, it is acknowledged that there is a close relationship

between the right of all peoples (including indigenous peoples) to self-determination,

and that the two International Covenants also recognize the inherent right of all

people to their natural wealth and resources and their right not be deprived of their

own means of subsistence. While the focus is not on the right of self-determination

and its implications for claims to autonomy within the nation state, it is recog-

nized that states party to the International Covenant on Civil and Political Rights

have a duty to report on their implementation of this right, especially as it applies

to indigenous peoples.

Chapter 12 brings together the material from the four countries – Alaska,

Canada, Norway and Russia – in a comparative context and structures the analy-

sis from the perspective of sustainable development. This chapter by Langhelle

and Fred Hansen, identifies, highlights and discusses differences and similarities

in more detail within the overall research questions raised in the introduction:

What is sustainable development believed to entail, and what does it imply for oil

and gas activities in the Arctic?

From the country studies, it is evident that little of the debate is explicitly struc-

tured in terms of sustainable development. At the same time, it is clear that sustain-

able development has become fairly widespread and accepted in the political

10 Aslaug Mikkelsen and Oluf Langhelle

vocabulary in all the countries, although there are noticeable differences – and

similarities – between the countries. Development concerns are strong in all

countries, and the main story line identified is the perception that the key sustain-

ability challenge seen from the Arctic is how to ensure that more of the profits

from resource extraction actually remain in the Arctic.

The issues of biological diversity (conservation, sustainable use) dominate the

environmental debate in all countries. Climate change is an issue in all countries,

although to a varying degree, and primarily from the perspective of impacts from

climate changes in the Arctic. In Canada and Norway, however, Arctic oil and gas

production is also seen as a cause of climate change. Expanding oil and gas activ-

ities in the Arctic will only continue a development path based on fossil fuels.

Fossil fuel production should therefore be constrained. Norway is probably the

country with the most opposition towards oil and gas in the Arctic. In Canada and

Alaska, opposition is primarily to be found amongst some indigenous groups and

environmental NGOs. In Russia, there is hardly any opposition to oil and gas

activities, except from some indigenous groups and some small NGOs. State

control of oil and gas resources is a major concern and policy goal. The last

section in the chapter discusses the implications from the comparative study for

future Arctic oil and gas.

In the last chapter (Chapter 13), Mikkelsen, Camp and Anderson set out the

major contextual forces that managers should consider when deciding on strategy

and actions with respect to oil and gas operations in the Arctic and, more gener-

ally; it then makes suggestions as to effective responses to these contextual forces.

This is done in three sections. After the introductory section, the second revisits

corporate social responsibility and proposes a matrix of four possible approaches

(classical, social demand, stakeholder and sustainable development) from the

viewpoint of the strategic importance of socially responsible behaviour and the

nature of that behaviour. Section three addresses the different and often conflict-

ing expectations of the different actor groups about appropriate corporate behav-

iour from the perspective of the community, the state and the environmental

actors. Then in section four, the managerial implications of the preceding sections

on the oil and gas industry at the various geographic scales, with a primary focus

on the Arctic, are discussed.

The chapter explores possible approaches to CSR and sustainable develop-

ment, for example: (i) whether to lead or lag relative to competitors and demands

from other actors; (ii) whether to treat CSR as a constraint or a potential source

of competitive advantage; and (iii) whether to treat the demands of actors as

elements of a key strategic issue or as tactical issues differing by geographic scale

and actors. In general, we conclude that it is better to lead than lag, and by doing

so, to treat CSR as a source of competitive advantage, while simultaneously

encouraging collaboration across companies to allow for integrated management

planning in vulnerable areas. To do this, CSR and sustainable development must

be treated as a key strategic issue and not a tactical one, although the corporate

approach must, of course, be in response to the particular issues at the national,

regional and local levels.

Introduction 11

Notes

1 The Arctic Council is an intergovernmental forum for addressing many of the common

concerns and challenges faced by the Arctic States: Canada, Denmark (including

Greenland and the Faroe Islands), Finland, Iceland, Norway, the Russian Federation,

Sweden and the United States. The Council is a unique forum for cooperation between

national governments and indigenous peoples. Six international organizations repre-

senting many Arctic indigenous communities have the status of Permanent Participants

of the Arctic Council and are involved in the work of the Council in full consultation

with governments.

2 The Declaration on the Establishment of the Arctic Council, signed at Ottawa, Ontario,

Canada, on September 19, 1996 (the ‘Ottawa Declaration’).

3 Dagens Næringsliv, August 8, 2006.

4 The numbers should be used with caution. The figure is based only on areas that are

assessed by the USGS, and several areas are not part of the analysis. This is the case for

the Norwegian part of the Barents Sea, for example.

5 As Shell did in 2004. About one-fourth of the oil and gas reserves reported in Shell’s

books did not exist. Komp, L. (2004) Enron, Parmelat, Shell Oil: Who will be next?

Executive Intelligence Review, May 7.

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12 Aslaug Mikkelsen and Oluf Langhelle

Part I

The Arctic

Context, framework and

methodology

2 Framing oil and gas in the

Arctic from a sustainable

development perspective

Oluf Langhelle, Bjørn-Tore Blindheim and

Olaug Øygarden

Introduction

Sustainable development has become the core idiom framing international and

national debates about environment and development. From the release of the

report Our Common Future (1987) by the World Commission on Environment

and Development (WCED), sustainable development has been endorsed by world

leaders on several occasions, most importantly at the Rio Earth Summit in 1992,

and at the Johannesburg Summit in 2002. Sustainable development has also

become a part of the conceptual framework of international organizations like the

Organisation for Economic Co-operation and Development (OECD), the World

Trade Organization (WTO) and the World Bank, and achieved a near-constitutional

status in the European Union. In the countries we are studying, sustainable devel-

opment has figured prominently on the political agenda, especially in Norway

and Canada, and to some lesser extent in the United States (US) and Russia.

However, even in the US and Russia, there are signs of an increasing focus on

sustainable development.

The focus on sustainable development is especially visible in the cooperative

efforts between the Arctic states in the Arctic Council. In fact, sustainable devel-

opment constitutes the objective of the Arctic Council: ‘The Arctic Council is a

regional forum for sustainable development, mandated to address all three of its

main pillars: the environmental, social and economic’. The Arctic Council estab-

lished a Working Group on Sustainable Development (WGSD) in 2000, at the

Ministerial Meeting in Barrow, Alaska. At the same meeting, the Arctic Council

also approved a strategic framework document on sustainable development. In

the ‘Programme of the Russian Federation Chairmanship of the Arctic Council in

2004–2006’ (Arctic Council, 2004c), the Arctic Council is seen as a mechanism

of implementing sustainable development in the Arctic:

... the Arctic Council has demonstrated that as far as the Arctic region is

concerned it is the main mechanism for implementing the principles of

sustainable development set forth in the Program of Action on the

Implementation of the Agenda 21 adopted by the UN Conference on

Environment and Development in 1992 in Rio-de-Janeiro and the decisions