As ExxonMobil beats BP to strike a deal for Russian Arctic oil, what does it mean for the industry – and the environment?

In an age of diminishing resources but soaring populations, the scramble for the Arctic's riches continues. Months after BP's rival bid fell through, US oil giant ExxonMobil has just struck a £2bn agreement to develop vast hydrocarbon resources in the Kara Sea, off Russia's northern coast, in return for offering its Russian partner, Rosneft, assets in the US.

In one sense the deal is, of course, a very welcome development. Far from fulfilling dark prophecies of conflict and confrontation between rival governments, the Arctic's resources are instead bringing nations closer together, moving in step with the mysterious, unpredictable pace at which regional ice is retreating: US experts, using advanced satellite information, have shown that ice in the Arctic Ocean is continuing to "decline at a brisk pace", even if this year's figure is not set to match the record low of 2007.

The deal represents a remarkable mutual interdependence and harmony. On the one hand, the Russian government, highly dependent on oil and gas exports for revenue, desperately needs advanced western technology and expertise if it is to have any hope of maintaining its current level of production.

Meanwhile, western "supermajors" such as ExxonMobil are under constant shareholder pressure to "book reserves" by finding large sources of future revenue that will allow them to keep commercial pace with global, particularly Asian, competitors.

It is just such reserves that the Arctic appears to offer. A 2008 survey by the US Geological Survey estimated that the region appears to harbour around 13% of the world's undiscovered oil resources and 30% of its undiscovered natural gas. And the relatively shallow waters of the Kara Sea are particularly appealing.

In this respect, this week's agreement represents a positive step – one that will reduce political rivalry and tension between the two respective governments, both of which will have much to gain from oil revenues when the deal is put into practice.

Nonetheless, the new agreement does give one major cause for concern. For as the Deepwater Horizon catastrophe showed so painfully last year (around 5m barrels of oil were lost as a result of BP's Macondo blow out), both parties need to give some reassurance that they will be doing their utmost to prevent and minimise any environmental mishap.

The Arctic region is particularly vulnerable to such mishaps for the obvious reason that the regional climate makes them much more likely. True, there is less ice than before – levels this year are said to be "exceptionally low" in the Kara Sea – but they can vary enormously from year to year, and icebergs, moving at fast speed, can still appear at any time of year.

In difficult conditions, pipelines are not only more likely to crack, but any spillages are apt to be proportionately harder to find: it was no coincidence that BP's other recent environmental tragedy, the Prudhoe Bay oil spill in 2006, happened in a remote area of Alaska's North Slope.

It is true that, under the deal, the two companies have agreed to set up a joint research centre in St Petersburg to develop new ice-resistant drilling platforms and other technology. But these could take years, or even decades, to bear fruit; and in any case the agreement says nothing about the enhanced safety standards – such as a detailed clean-up plan to deal quickly and effectively with any spillage – that need to be rigorously enforced.

The Russians have an appalling track record on environmental safety – the way they have dumped radioactive waste into Arctic waters bears ample testimony to that – while ExxonMobil's critics allege that a company so concerned about shareholder returns could be tempted to cut costs and take environmental risks.

In particular, the two companies need to recognise that environmental safety is a matter of commercial self-interest. Any serious oil spillage would of course hugely damage their share price and, even if this remained just the stuff of nightmares, the power of the "ethical investor" should not be underestimated.

For Moscow, the costs of guarding oil installations, if they are targeted by protestors using similar tactics to those who boarded Cairn's rig off Greenland last summer, could also be considerable. And the mere threat of such protests would also further undermine Russia's battered image before international investors.

ExxonMobil and Rosneft could now seize this Arctic opportunity and break new commercial ground by signalling that they will respect the concerns of the environmental lobby and drill in Arctic waters only when strict safety standards have been met. And formulating and implementing those standards now offers the US, Russia and other international powers a fruitful way of working together.

(By Roger Howard, Guardian.co.uk, 02/09/2011)