By Michael A. Moore

A year ago at this time, the Arctic was a hot spot for the world’s oil-and-gas majors to be involved in billion-dollar exploration-and-development projects. The price of oil hovered around $120 per barrel and the economics of going after oil in dark, deep, icy places penciled out – especially since the oil companies had the cash. There was oil and gas to find, and money to be made in the rapidly thawing lands and seas of the Arctic. These days, oil’s red-hot ardour for the Arctic has cooled. A polar vortex of unforeseen factors swept across global oil markets at the end of the summer of 2014. Global oversupplies and plummeting prices combined with a weakening appetite for oil to freeze the Arctic rush in its tracks. Knowing oil’s wide-swinging nature, is it just a matter of waiting for the cycle to return to previous levels of activity?

The downturn began last summer when long-planned projects began to be postponed or cancelled. Canada was hit hard last December when Chevron announced it was putting its Arctic drilling plans in the Beaufort Sea – about $2 billion in commitments – on hold indefinitely. Soon after, Conoco-Philips retreated from Canadian offshore as well. Last fall, Exxon blamed U.S. sanctions against Russia as the reason for backing out of its Kara Sea partnership with Rosneft just before the billion-dollar well struck oil.

In total, some $2.6 billion in energy-related capital projects have been impacted in the Northwest Territories, according to David Ramsey, head of the NWT’s oil and gas sector. Similar stoppages have unfolded across the rest of the Arctic, from Norway to Alaska.

The ripple effect has reverberated all the way down the supply chain. Manufacturers and suppliers of oilfield and gas equipment received order cancellations, offshore drill rigs and support ships became idle, and logistics providers and shipping companies serving the industry went from full speed ahead to idling in neutral almost overnight. The one ray of light shining on Arctic oil exploration in 2015 is in Alaska. Shell announced plans to return to exploration drilling in the Chukchi, provided its revised environmental impact statement and lease extension is approved. Conoco Philips is also forging ahead with plans for a drill site on Kuparuk oilfield on Alaska’s North Slope.

Rosneft would like to follow up on its Kara Sea success, but the drilling platform it used belongs to Exxon, and is no longer available due to the U.S. economic sanctions imposed on Russia. More light may be on the horizon as winter slips into spring and oil prices inch up. The U.S. Energy Information Administration reported that “crude oil prices moved higher toward the end of January and into the first week of February. North Sea Brent front month futures price settled at $70.22/bbl on Feb. 5, up only $0.18/bbl from Jan. 2. Prices will need to rise much higher to jump start Arctic exploration.

“The long term view we’re hearing is that the price needs to be in the $87 to $99 per barrel range for the Arctic exploration market to recover,” said Tom Hendrix,

Executive Vice-President of Carlile Transportation, a provider of logistics and trucking services with operations in Edmonton and Alaska.

The question for Canada is how much of that renewed oil exploration will find its way back to the Beaufort and other parts of the Canadian Arctic, onshore and off? The answer to that question may partly depend on the area’s infrastructure, or lack of it. Many Arctic experts believe Canada carries a huge disadvantage in the financial and logistics calculus of oil majors trying to decide where to allocate exploration-and-development funds and resources. Others point to the past when high oil prices provided the justification for development, even though often essential infrastructure was not available, and needed to be provided by the resource developers themselves.

“The Canadian government has done very little to improve the infrastructure of its Arctic regions,” said Michael Byers, Canada Research Chair (Tier 1) in Global Politics and International Law at the University of British Columbia and an expert on law and politics of Canadian jurisdiction on the Arctic Ocean seabed. “It’s almost inexplicable why there has been such a long delay on this after it was promised by the Prime Minister.”

The lack of adequate logistics facilities and support adds greatly to the cost of doing business in Canada’s Arctic provinces, some of the most remote and least-developed areas in the world. “There is still no deepwater facility in Iqaluit, Nunavut, which would lower the cost of living by 30 percent, plus make it easier and more economical to bring in building materials and equipment,” Mr. Byers said.

Nunavut is not only Canada’s northernmost and largest territory, it is larger than western Europe. Its 35,000 residents in 26 communities in this extensive archipelago are separated increasingly by open water as climate change encroaches on the Arctic shelf.

Most of Iqaluit’s supplies arrive during the short summer season, when barges brave 12-metre tides in a race with time to unload cargo on the town’s rocky public beach. High winds and ice often prevent unloading. “Canada’s High North, in particular, remains startlingly underdeveloped when compared with southern Canadian provinces and other Arctic regions,” said John Higginbotham, Senior Fellow at The Centre for International Governance Innovation, known as CIGI, in his report The Northwest Territories and Arctic Development on the Beaufort Area. “Canadian federal economic support for development in the Arctic is modest and fragmented by domestic Arctic governance issues,” Mr. Higginbotham said in his report. Nunavut’s unique dependence on the sea and lack of basic maritime transport infrastructure prevent it from serving basic community needs, including safe transportation, and facilitating responsible economic resource, tourism, fishing and polar shipping development, the report states.

Nunavut is unprepared to address the maritime challenges emerging in the High Arctic. Nonetheless, it is the Canadian region with the most to gain in the long run from the economic opportunities that melting Arctic ice will present. The report points out that the Northwest Territories are better connected by land and river with neighbouring Canadian provinces than Nunavut, which is almost entirely dependent on airlift, but not nearly as well connected as the Yukon, the most-developed Canadian Arctic territory.

The scale and variety of NWT’s resources, as well as its rich experience in responsible exploitation, are the area’s greatest advantages, and its ticket to further development and prosperity. Approximately one-third of the NWT’s GDP is generated by mining, oil and gas. The NWT is the third-largest diamond producer, by value, in the world and has significant oil-and-gas potential in the Beaufort area, with more than 90 oil wells drilled to date.

“The mining companies have to factor in the cost of building their own roads and ports,” said Kells Boland, a Project Manager of Arctic logistics specialist Prolog Canada. “There needs to be some nationbuilding by the government to facilitate the development of our remote Arctic resource areas so it is more economically feasible for the miners and oil majors to greenlight projects in Arctic territories.” The infrastructure needs of Canada’s remote Arctic regions range from extending hydropower lines past Churchill up the coast of Hudson Bay to Rankin Inlet and Baker Lake to installing the infrastructure necessary to bring submarine fibre-optic, high-speed internet and reliable telecommunications to the region. But maritime needs remain the top priority – without deepwater ports, logistics becomes a patchwork of long-haul trucking and barges braving tides, ice and winds during short summers.

“The CEO of a mining company sees the Canadian government as sitting on its hands when it comes to infrastructure development,” said Mr. Byers. “There is a new deepwater port built to serve an iron ore mine at Mary River on Baffin Island. It was built with private money in one summer. Why can’t the government do that?”

Critical maritime infrastructure needs include services that only the government can provide – infrastructure that is essential to handle the increasing traffic of commercial and cruise ships in waters still fraught with danger. Some of that missing infrastructure is part of Canada’s commitment and responsibility under formal agreements with its Arctic neighbours.

For now, it appears that Arctic resource development will take a breather, allowing the government to balance its books and meet the promises it has made to voters. The issue of Arctic infrastructure, however, will not go away, and sooner or later needs to be dealt with. Perhaps by that time, minerals and metals prices will have recovered, and governments will be back in surplus territory.