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.