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Canada Escalates its Arctic Activities… and we’re not talking hockey you hoser.

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August 21, 2011

canada flagOTTAWA (Dow Jones)–Prime Minister Stephen Harper flies this week to Canada’s High Arctic, where troops are conducting the country’s largest modern-day Arctic exercise, amid heightened global jostling over the region’s natural resources.

The exercise, called Operation Nanook, involves more than 1,000 Canadian troops. Military aircraft and navy vessels, and–for the first time–pilotless drones are taking part. Mr. Harper is also expected to unveil several economic initiatives aimed at developing the increasingly accessible Canadian Arctic.

Melting ice–blamed by many scientists and governments on global warming–promises to open new shipping routes and make oil and mineral deposits there more accessible. The U.S. Geological Survey estimates that already-discovered onshore Arctic fields contain about 10% of the world’s known, conventional petroleum reserves. The agency thinks there could be another 90 billion barrels of oil–just a little less than the reserves of a super producer like Kuwait–still undiscovered, especially in the largely unexplored offshore.

That has set off a scramble by rival Arctic powers to position themselves to take advantage. Last month, Canada announced details of its military exercise just days after Russia said it would deploy two army brigades to the north to defend its own interests.

At the same time, government and international bodies are scrambling to come up with rules and emergency response protocols as economic activity increases. Michael Byers, an international law scholar and Arctic authority at the University of British Columbia, says the chances of armed conflict over the region are small. But Ottawa and other governments are waking up to serious threats that melting polar ice might pose, including criminal activity, from smuggling and illegal immigration to terrorism.

“The challenge is, as the amount of activity, shipping in particular, increases almost exponentially, can the Canadian government ramp up to deal with that,” Mr. Byers says.

At a summit in May, Arctic powers, including heavyweights Russia, Canada, the U.S., Denmark and Norway, divided up search-and-rescue responsibilities for the region and pledged to create rules for preventing and cleaning up oil spills. Washington sent Secretary of State Hillary Clinton, the highest-ranking U.S. official to attend such a meeting. International maritime officials are drafting new safety guidelines for polar voyages, anticipating increased shipping.

Meanwhile, lofty metals and petroleum prices–even after steep declines amid recent market turbulence–have emboldened companies to swallow the higher costs of exploring and developing hard-to-reach Arctic or near-Arctic reserves. Earlier this month, Royal Dutch Shell PLC (RDSA, RDSB) cleared another regulatory hurdle to drill in Arctic waters offshore Alaska. Steel giant ArcelorMittal SA (MT, MT.AE) plans to develop a vast iron-ore mine in Canada’s Arctic.

Russian and Nordic shippers have recently invested in Arctic-capable cargo ships, ice breakers and escort tugs to ply the icy waters.

The stakes this year are especially high for Canada. This summer, research teams are wrapping up field work to support claims by Ottawa of additional economic privileges in the Arctic Ocean. Those claims are due at the United Nations next year.

Mr. Harper has long made the Arctic a centerpiece of his right-of-center platform. Ottawa has pledged to deploy a fleet of new, ice-breaking naval patrol craft, build an Arctic deepwater naval port and bolster Arctic warfare training.

By Chip Cummins, Dow Jones & Co

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