Natural resources businesses in the Arctic are facing a complex economic situation. A new economic organization, the Arctic Economic Council (AEC) Secretariat, was recently founded in the region to help small to medium-sized businesses and promote favorable business policies. However, many countries are reassessing their strategies of drilling for oil and gas in Arctic region because of falling oil prices and the downturn of the global economy.
The foundation of AEC is said to be a historical event and breakthrough for the Arctic region. It is especially important for small businesses in the natural resources industry because it will give them a bigger voice to influence regulations. The major business activity in the Arctic is the discovery of natural reserves, in which governmental regulations are heavily involved. Businesses in the natural resources industry are influenced greatly by these regulations. For example, since a drilling rig owned by Shell ran aground off Alaska in 2012, the U.S. commission has set up safety examination procedures for oil drilling companies. Such a move has increased the operating costs of oil companies and might even threaten the operations of small to medium-sized oil companies. The AEC, therefore, becomes a link between the government and the business community and offers a new way for these smaller players in the natural resource industry to speak up in the law making process.
Although the melting sea ice makes oil and gas reserves more accessible in the Arctic, many countries have taken major actions to stop oil drilling activities. For instance, Russian President Vladmir Putin announced that the state-owned energy company Gazprom is stopping a $15 billion expansion of its flagship Shtokman gas field in the Barents Sea. The major reasons for the pullout are rising production costs, falling gas prices, and dwindling demand from Europe as its economies suffer.
In all, the current economic situation is complicated for small businesses to set strategies of whether to invest in the Arctic region or not. These businesses would benefit from the support of the AEC, but they also need to assess their ability to survive in the current state of the global economy.