Racing to the Bottom at the Top of the World? Strategic Artic Oil and Gas


Racing to the Bottom at the Top of the World? Strategic Artic Oil and Gas


Research Question

What are the tradeoffs associated with exploiting oil and gas resources in the Arctic?


CGS-SER Nielson Research Excellence Award


Transboundary hydrocarbon resources present strategic choices for both firms and the license-granting nations (such as Norway and Russia). These choices affect industry profits, national tax revenues, timing and extent of development, and environmental externalities. In addition, there are potential internal and environmental costs of exploration for and production of hydrocarbons in the Arctic; costs borne by one country can be related to activities of either country.

Methods Used

The project combines concepts from the theory of strategic interactions with an empirical evaluation. Relevant economic information used in the empirical analysis includes details on the leasing processes for the transboundary resources in terms of lengths of leases, restrictions for environmental considerations, prices paid, the firms involved and their capitalization levels, exploratory and production efforts expended, and results achieved. Relevant environmental information includes species presence, responses to disturbance and other biological effects.


The transboundary nature of the uncertain and unexplored deposits in the Arctic affects strategic incentives over timing, location and magnitude decisions for these resources. Integrating the theoretical and empirical strands of the project will deliver parameters that determine those productivity and resource differentials that foster cooperation and environmental care and those that thwart such cooperation and care. One important aspect here is the emerging tendency towards joint ventures, wherein capital and engineering capabilities from western corporations (e.g. Statoil) is merged with the local know-how and institutional access and support from Russian firms (e.g. Lukoil, Gazprom and Rosneft). The strategic sharing of capital, technology, and access through such joint ventures lowers costs and defrays direct economic risks; it can also facilitate the implementation of higher standards over environmental quality.

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Racing to the Bottom at the Top of the World? Strategic Artic Oil and Gas


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