German Bank Won’t Finance Arctic Ocean Drilling, Saying The ‘Risks And Costs Are Simply Too High’

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"German Bank Won’t Finance Arctic Ocean Drilling, Saying The ‘Risks And Costs Are Simply Too High’"

by Kiley Kroh

In another stark warning about the dangers of Arctic Ocean drilling, the German bank WestLB announced on Friday that it would not provide financing to any offshore oil or gas drilling in the region. The company’s sustainability manager said the “risks and costs are simply too high.”

The decision was made just a week after insurance giant Lloyd’s of London issued a report concluding that offshore drilling in the Arctic would “constitute a unique and hard-to-manage risk” and urged companies to “think carefully about the consequences of action” before exploring for oil in the region.

Dustin Neuneyer, sustainability manager at the corporate and investment bank WestLB, explained the decision to Environmental Finance:

“The further you get into the icy regions, the more expensive everything gets and there are risks that are hard to manage.… There are projects that are evidently unsustainable in an encompassing sense. For WestLB, the risks and costs are simply too high.”

The bank’s new eight-point policy on offshore drilling lays out specific criteria for the projects and companies that are eligible for financing — excluding any exploration or production activities in areas where the average temperature for the warmest month is below 10°C (50° F).  Additionally, the policy’s criteria — which are binding for any company seeking a loan — require companies to use the best available technology, abide by the highest technical safety standards, and show that activities are validated by an independent third party.

The concerns raised by Lloyd’s of London and WestLB come as Royal Dutch Shell prepares to drill in Arctic waters off the coast of Alaska this summer. The recommendations of these institutions echo those in the recent Center for American Progress report, Putting a Freeze on Arctic Ocean Drilling: America’s Inability to Respond to an Oil Spill in the Arctic.

The dearth of supporting infrastructure throughout Alaska’s North Slope — including ports, roads, railroads, and permanent Coast Guard facilities — coupled with the lack of sound science and extremely volatile conditions make any potential offshore operations precarious at best.  The remote location, harsh and unpredictable conditions, and absence of proven clean-up technologies designed for Arctic conditions would make large-scale response efforts nearly impossible.

Those factors represent a cost and risk WestLB isn’t willing to shoulder.

The stakes are high for Royal Dutch Shell, which after spending nearly five years and $4 billion, will likely soon receive the necessary permits for exploratory drilling in the remote Beaufort and Chukchi Seas. And other oil giants aren’t far behind — Exxon and ConocoPhillips are aiming to start offshore operations in the pristine Arctic Ocean by 2013.

WestLB might be the first bank to explicitly refuse financing for offshore drilling in the Arctic, but they may not be alone for long. “Other banks contacted us and are very interested in this approach and policy,” Neuneyer told Environmental Finance.

How many influential corporate voices will have to raise concerns before someone hits the pause button on Arctic Ocean drilling?

Kiley Kroh is the Associate Director of Ocean Communications at the Center for American Progress.

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6 Responses to German Bank Won’t Finance Arctic Ocean Drilling, Saying The ‘Risks And Costs Are Simply Too High’

  1. Sasparilla says:

    “How many influential corporate voices will have to raise concerns before someone hits the pause button on Arctic Ocean drilling?”

    A really good question. The realistic answer is probably after a huge oil disaster occurs up there. With the U.S. and Russian sides of things pushing for future development in and around the Arctic, money will make it happen regardless of how dumb the whole idea is from big picture standpoint.

    Nice to see some of the Europeans institutions actually talking some common sense about arctic drilling based on the dangers – it’d be even better if they were saying we shouldn’t be developing because we need to leave the carbon in the ground up there (not possible in this reality of course).

    • Mark E says:

      As long as there is the current demand, it requires science fiction creativity to cook up that big a disaster. Only an end to demand, by way of our choice now or by being forced into it later, can halt production.

      With all the big bucks flooding into the election, its about time Obama pulls out his apolitical USA-is-failing Sputnik speech on global warming, backed by the full force and fury of the National Academy. Maybe HBO can air the series “Climatologists Gone Wild”

      Progressives need to embrace the flag, the Pledge, the National Anthem, and the very notion of patriotism, and then paint the guzzlers for the ignorant self defeating unpatriotic blowhards they are. Shame works wonders. There was a blurb in Science long ago about some coffee service where folks were supposed to add their coins to the can, but no one did. Then someone taped up a pair of eyes, and voila! Money started to appear in the can. Break out the flag, folks, and let’s shame ‘em into showing their love for the country the right way.

      Or we can sit back and hope that the NEXT disaster finally makes ‘em wake up. As if.

      • Rakesh Malik says:

        “As long as there is the current demand, it requires science fiction creativity to cook up that big a disaster.”

        Deepwater Horizon isn’t fiction of any kind, so we already have our disaster.

        The catch is that you’re right about the bux; as long as the oil industry retains its ownership of the government, we’re boned.

        • S. D. Jeffries says:

          Instead of the oil companies owning the government, the government should at least partially nationalize the oil companies. Now THAT would bring the price of gasoline down in a hurry and let the oil companies know they don’t won’t be allowed to own the world.

  2. Merrelyn Emery says:

    Sorry Sasparilla and Mark E but I disagree with you both. Exploration companies rely on financing and insurance and the banks and insurance companies are both well aware of climate change and its effects. They know what it has cost them in the recent past and will not want to lose any more.

    The oil and gas interests will re-evaluate the risks when they are not backed up by cheap and easy finance and insurance, ME

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