Energy Research & Social Science 16 (2016) 132–140
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Energy Research & Social Science
journal homepage: www.elsevier.com/locate/erss
Original research article
From whale to crude oil: Lessons from the North American Arctic
Corine Wood-Donnelly
Scott Polar Research Institute, University of Cambridge, UK
a r t i c l e i n f o
Article history:
Received 18 November 2015
Received in revised form 18 March 2016
Accepted 20 March 2016
Available online 30 March 2016
a b s t r a c t
The Arctic is considered as potential region for energy extraction as it holds vast reserves of hydrocarbons
and the region is being targeted for resource development. However, the current trend toward
development is not the ﬁrst time that oil has been extracted from the Arctic. This empirical and theoretical
investigation is based on the experiences of the whaling industry that operated in the Arctic
over a century ago and extrapolates these experiences to the obstacles faced in contemporary development,
identifying lessons that can be learned through historical comparisons of economic and resource
development. This article considers the theory of peak production, cost-beneﬁt analysis, the role of technological
development and ﬁnally the regulatory environment in the development of the oil industry in
the environmentally challenging, but possibly proﬁtable, Arctic region.
© 2016 Elsevier Ltd. All rights reserved.
1. Introduction
In many conversations about the Arctic, the subject of climate
change and associated ice melt is nearly synonymous with the
extraction of Arctic oil reserves. International focus on the Arctic
has intensiﬁed by a variety of interest groups since the United
States Geological Survey announced potentially large quantities of
technically recoverable oil in the region, increasing speculation on
energy exploration in the region. This information was convoluted
by the perception that the installation of a titanium Russian ﬂag
on the seaﬂoor at the North Pole was a symbolic gesture of territorial
expansion, territory that was now understood to hold vast
quantities of energy resources. The period that follows has been
charged with vast public conjecture that sovereignty claims in the
Arctic have been pursued because of the discovery of unknown
fossil fuels and increasing interest in the development of the shipping
routes in the region. In the ongoing saga of development in
the Arctic, global attention continues to centre on the sovereignty
claims of the Arctic littoral states as they developed governance
mechanisms for the region that protect their interests and the
activities of the petroleum industry amidst the growing concerns
over climate change, environmental and safety issues. Despite the
apparent boon that crude oil presents, it may be that the history
of a previous oil boom, whale oil, provides valuable lessons for
contemporary development of Arctic oil.
Setting aside the moral arguments against further development
of non-renewable energy resources to supply global demand and
E-mail address: ctw37@cam.ac.uk
to secure national interests, in an ideal situation, the process from
energy extraction to market delivery would be a straightforward
exercise without political fray or technological glitches. However,
the reality is that recent pursuit of energy in the Arctic has proved
to be a mineﬁeld, from considerations of climate and weather, the
unsettled domestic regulatory environment and the high cost of
operating in the remote and harsh region—even before calculating
for social resistance from environmental concerns or international
pressures on reducing carbon emissions. So while Arctic oil is often
seen as expedient strategic resource for the lucky stakeholders, an
investigation of the North American Arctic as a historical site of
energy development demonstrate that it has often fallen short of
the expectations of prospectors. A survey of historical newspaper
archives, wreck registers and whaling industry accounts demonstrates
the pursuit of whale oil from the Arctic was not the infusion
it was expected to be. Oil extraction in the Arctic is not a contemporary
phenomenon and because “whaling was just as important to
us [in the twentieth century] as the oil industry is today [1],” there
are lessons for the present to be learned from the history of energy
exploitation in the region.
2. Lesson 1: has Arctic crude been developed too late?
Given the forecasts of recoverable reserves in the Arctic continental
shelf, the recent explosion of development enthusiasm for
offshore crude energy conceals the reality that interest in the region
for the purposes of oil extraction has a history spanning nearly
two centuries. An examination of archival resources, employing
a Boolean search specifying the terms ‘Arctic’ and ‘oil’, produces
documents dated beyond the last decade of discourse on crude
http://dx.doi.org/10.1016/j.erss.2016.03.013
2214-6296/© 2016 Elsevier Ltd. All rights reserved.
C. Wood-Donnelly / Energy Research & Social Science 16 (2016) 132–140 133
reserves exploration and development. Instead, it reveals that the
Arctic became an energy exploratory ﬁeld in the middle of the
nineteenth century. Long before crude oil became a dominant market
commodity behind the industrialized world, whale oil was the
product fuelling energy speculation in the Arctic, given the perceived
renewable population of whales in the region. However,
these speculators failed to realise that global demand for energy
would exceed the renewable capabilities of whales and as a result
the impulse to boost the whaling industry through north development
came too late; by the time the whalers went to the Arctic, the
demand for the commodity was in decline.
Although whale oil was an important commodity of the nineteenth
century, the impulsion to develop the Arctic as a whaling
ground was encouraged as much by politicians in Washington as
promoted from the demands of market forces. It is rather unsurprising
that it was the same senator who was to later negotiate for the
purchase of Alaska who promoted the pursuit of whale oil decades
before the U.S. became an Arctic state. While Alaska yet belonged
to Russia, U.S. Senator Seward lauded the Arctic whale ﬁshery as
“a source of national wealth and an element of national force and
strength,” especially as ﬁshing in the free seas of the Arctic brought
resources to the U.S. which acquired wealth that left the sovereign
resources of the country untouched [2]. Washington’s viewpoint
determined the expansion of the commercial whaling ﬂeet into
the Arctic was an act of duty in order to expand the energy and
commercial security of the nation.
The expansionist pursuits of Seward and his cohorts ultimately
served the resource interests of United States very well in the purchase
of Alaska—a purchase which had paid for itself hundreds of
times over even before the territory became an organized U.S. state.
However, an insurmountable obstacle faced the whaling industry:
the decline of the whale population and therefore the ease and
the abundance of the yield. As the whaling ﬂeets moved north, the
whale population that had once been abundant in Arctic waters
was nearly exterminated in the space of two decades due to unsustainable
and unregulated ﬁshing [3]. As a result, the whaling hauls
faced restricted growth opportunities relative to market demand,
a demand convoluted by competition from developing petroleum
products. Although the whaling industry remained strategically
important for some time, it had become an unsuspecting victim
to the trend described in Hubbert’s peak theory.
Although Senator Seward was gleeful about the perceived
treasure trove of whale in the Arctic, peak theory was soon to
demonstrate his folly. Hubbert’s peak theory posits that the “the
only a priori information concerning the magnitude of ultimate
cumulative production of which we may be certain is that it will
be less than, or at most equal to, the quantity of resource initially
present [4].” While the idea that production results can never
exceed initial stocks might seem like common sense information,
this was grossly overlooked and as the whale population went
into decline, so did the returned revenues. As a living resource,
the even development and therefore continued viability of the
whaling economy was dependent upon the at least equal repopulation
of the whale ﬁsheries; though some realised the whale stocks
were in decline, others insisted the supply would continue indefinitely.
The effects of a strong negative correlation between the
annual whale harvest and the pod’s renewability in a climate of
an unregulated commercial environment caused supply instability,
decreasing market conﬁdence and reliance on whale oil as an
energy product.
What follows is that the pursuit of whale oil in the Arctic, depicts
the peak theory condition theorised by Hubbert in the shape of a
Gaussian curve [5]. Illustrating this condition through a bell-shaped
curve, production begins at zero when the quantity of the initial
resource is at its maximum quantity and production then accelerates
as commercial processes are reﬁned to reach a point of peak
production. When this process reaches its optimum efﬁciency, subsequently,
there is no direction to develop except for to decline in
production until reaching the ﬁnal depletion of the resource. Peak
production for the whaling industry arrived just before the middle
of the nineteenth century—a decade before the North American
whaling ﬂeets were at their largest capacity, and in an additional
blow, peak whale oil prices were reached even before the U.S. had
acquired the Alaskan territory [6]. Despite the abundance of whales
in the Arctic, the heyday of whale oil came before the region was
tapped for this resource and the promotion by Seward while boosting
the whaling industry in the short term, was unable to prevent
its eventual decline.
With energy security remaining a high priority on national agendas
and awareness that crude oil is a limited resource, there are
parallels between the Arctic expansions of the whaling industry
and the contemporary upsurge of the petroleum industry’s interest
in maritime Arctic oil development. Not dissimilar to the whaling
ﬁsheries that were easy to access and located in more favorable
climes during the middle of the nineteenth century, the oil reserves
that were easy to retrieve have already been claimed or developed.
Applying the laws of nature and business, an industry must expand,
developing new reserves or new methods of production or face
eventual decline. In addition, increasing global energy demands
and the need to maintain energy security require that today’s oil
prospectors extend exploration of reserves that were once technologically
out of reach for development in order to maximize
longevity. So although Arctic energy reserves might prove to be the
difﬁcult option they also someday might be one of the last options
despite evidence of being past peak.
A second parallel is that the call to develop the non-renewable
energy resources of the Arctic mimics the call by expansionist
politicians of the nineteenth century as the expected diminishing
ice extent makes the development of these areas more accessible.
While the U.S. and Canadian governments have not created a correlation
with patriotic duty as did Seward in his encouragement the
development of oil in the Arctic through impassioned speeches,
they have both issued policy statements demonstrating that Arctic
oil is included in national energy security strategies. As with the
encouragement of the whaling industry in another era, these governments
are proactively working with stakeholders and industry
to explore and develop the Arctic, a critical area for energy development
even though oil is also known to be a ﬁnite resource [7]. The
prioritisation of Arctic oil within the economic development strategies
of these countries, while not implying patriotic duty, at least
indicates government cooperation in making this development a
possibility, including their active pursuit of the legitimisation of
sovereign rights over this oil rich territory.
It is no secret that exploitation of non-renewable resources and
resources that are unsustainably exploited, will experience the
effects of Hubbert’s peak theory; this includes crude oil, despite
expansion to the Arctic. It is somewhat ironic that Hubbert’s
research was in fact, speciﬁcally intended to demonstrate to the
American Petroleum Institute that the role of fossil fuels was greatly
limited in its capacity to contribute to the energy requirements of
mankind in the long term. His theory proved valid when U.S. oil
production peaked at the predicted moment in the early 1970s, the
Canadian oil industry peak following shortly thereafter. What the
theory could not account for at the time, was that new reserves and
new technologies would expand the margins for recovery, changing
the deﬁned boundaries of technically recoverable resources. Thus,
the predicted moment for the new peak oil is moves incrementally
into the future. Although the predictions vary it is known absolutely
that oil is not a renewable resource and as such the reserves
will someday be depleted. It is only a matter of time, but eventually,
the resource will expire and the Gaussian curve for oil will
134 C. Wood-Donnelly / Energy Research & Social Science 16 (2016) 132–140
mirror the bell shaped development curve of whale oil and associated
industrial decline.
A question that remains unanswered is what an Arctic speciﬁc
Gaussian curve predicts for peak development of Arctic crude as in
indicator of viability. Oil exploration and drilling began in the North
American Arctic in the 1950s, however, oil production in Alaska has
declined over the last several decades and much early industrial
development in Canada was abandoned due to its inefﬁciency [8],
a trend that appears to be continuing in current pursuits of oil in
the region. The lack of correlation in expected reserves with current
extraction indicates that at present, oil extraction in the Arctic has
not likely reached peak production. All that can be assured is that
the known resources have yet to be depleted and thus Hubbert’s
curve continues indeﬁnitely into the future so long as the ﬁelds of
Arctic oil remain an undeveloped, but potential source of national
security.
This lesson indicates the naïve optimism for expansion to the
Arctic for energy is a chimera of energy security. Given a comparison
of the trajectories of the development and decline of the
whale oil industry to that of development and future decline of
the oil industry, it is theorised that the shape of production does
not extend indeﬁnitely in a positive direction. The oil industry may
therefore discover, that their fate may be as was the whalers in
the Arctic: the move to expand to Arctic resources in a ﬁnal push
to acquire energy security has not advanced soon enough. In the
same way that entry into the Arctic ﬁsheries failed to extend peak
production for the whaling industry, it may be that crude oil has
already peaked for the Arctic and it will be only be discovered at
the point when the oil production bell curve reaches its terminus
that expansion into the Arctic for crude oil came too late and that
efforts should have earlier been turned to the development of other
energy resources.
3. Lesson 2: is Arctic oil worth the cost?
The historical records of the American whaling industry reports
that the pursuit of whale oil in the Arctic resulted in extremely profitable
returns [9]. The returns also remodelled the overall value of
the industry and changed the known understanding of whale quality,
as the animals harvested in the region were considered to be
far superior to those found elsewhere. However, eventually this
bonanza diminished and the industry experienced the condition of
negative returns. Even before the U.S. Civil war, a period which saw
lower stock reserves and higher commodity prices nationwide, the
losses in proﬁtability began, continuing into the period shortly following
peak oil production. The whaling historian Starbuck reports
that though the Arctic ﬁsheries returned good proﬁts at the outset,
“Then came the losses, and as the whales became more scarce
and the voyages more prolonged and far more expensive, these
reverses became more and more serious. . . [10]”. Like the seeming
initial abundance of whale oil in the Arctic, the lesson for current
energy development of Arctic may be that while the reserves estimates
of oil and gas in the Arctic are an impressive addition to crude
oil stocks worldwide, that the cost of investment may not provide
returns worth the effort, even if global warming reduces the ice
cover.
In order to begin operations in the whaling industry, the initial
upfront infrastructure costs required signiﬁcant investment
by ﬁnancial backers. Although some infrastructure was the same
for Arctic whaling as elsewhere, including the ships, on board
equipment, fuel, foodstuffs and wages, the differenced lay in the
quantities necessary for travel to the Arctic, exponentially increasing
expenditure on fuel, food and wages. The period newspapers
regularly reported on the incredibly long list of principle articles
that were supplied for whaling expeditions, materials considered
as strictly necessary to conduct the business detailing the investment
required for a single Arctic whaling ﬂeet at around 52 million
dollars in today’s money—and this is only in foodstuffs and equipment
and does not account for the investment in ships, insurance
and wages [11]. While this may seem insigniﬁcant when compared
to the contemporary costs of the crude oil industry, it illustrates the
upfront costs for which investors had to wait several years before
seeing any returns on their invested capital, which in the early days
of Arctic whaling proved a worthwhile wait.
The whaling industry’s foray into the Arctic coincided with the
decline of the Little Ice Age around the middle of the nineteenth
century, a climatic transformation which enables the expansion
northward. This period saw ice caps that had extended during the
ice age decline and “summers became warm enough to melt much
of the sea ice in the Arctic, especially the land fast ice along the
shorelines [12].” This made the formerly inhospitable and nearly
inaccessible Arctic whaling ﬁsheries a possible choice for the industry.
However, this climatic shift was to be a short-lived advantage
as the unregulated ﬁshing caused the declining whale populations
to move further north to escape. This resulted in the whaling ﬂeets
taking extended voyages of several years in order to return at full
capacity, a situation that became increasingly rare. Thus, those
initial outﬁtting investments experienced diminishing proﬁts and
increasing length of delays in returns on the capital. As the viability
of proﬁtability declined, this meant that fewer whaling operators
were able to return to the ﬁeld each season.
These reduced yields coupled with the inherently risky nature of
operating in the hostile Arctic delivering additional impact on the
production costs of the whaling industry. Despite the decline of ice
during the summer months, ice remained a serious risk to whalers
and the wreck registers of the period list numerous repairs made to
ships due to damage from ice, storms or grounding from navigating
without adequate marine charts. For some operational years, there
are reports of the destruction of the entire ﬂeet due to encounters
with pack ice causing a complete loss of ships, supplies and oil
harvest, resulting in negative returns on capital investments [13]!
While primitive technology can account for some lack of environmental
knowledge in the period, it was noted in the reports that
the whalers had received warnings from the native populations
that the wind would soon shift, sending the pack ice their way.
These warnings based on indigenous knowledge went unheeded,
with disastrous consequences.
Not dissimilar to operational requirements today, insurance as
a risk aversion strategy to prevent wholesale capital losses was
an essential component of production costs of operating the Arctic
for the whaling industry. As the whaling industry proved to
be risky business, the possibility of loss was a likely event making
insurance for operating in the region both essential, but also
expensive. Due to this likelihood of disaster, it was rare that a ship
could be insured against complete loss. Demonstrating a correlation
between insurance cover and likelihood of an accident, the
Arctic explorer Vihjalmur Stefansson quipped that the “size of the
insurance policy” explained the actual amount of loss that a captain
tried to prevent intimated that some whaling vessels were
only abandoned due to the lack of personal investment by whalers
who were more concerned for their own safety than the preservation
of an employer’s infrastructure [14]. In any case, as a result
of continuous and repeated losses, insurance in the Arctic became
increasingly costly, “the dangers attending it be so great that insurance
companies refuse to take risks upon vessels engaged in it”
accelerating the costs of Arctic operations [15].
In addition to the high up front cost of infrastructure investment
and high operational costs, the whaling industry faced one
more signiﬁcant obstacle: dwindling demand and dropping prices
for their product. During the decline of the whaling ﬁshing as
an industry, it was predicted that “the continued low price of oil
C. Wood-Donnelly / Energy Research & Social Science 16 (2016) 132–140 135
will soon prevent the business being followed to any great extent
[16].” Although the industry continued for several more decades,
the rise of the “petroleum industry signalled the eventual death
of the American whaling industry [17].” Although whaling would
continue for some products for several more decades, the initial
demands for whale oil was eventually completely pushed out of
competitive trading with the advent of electricity, changes in social
preferences and regulatory mechanisms that made the whaling
industry a demoted business enterprise.
There are comparisons to be drawn from whaling operations
with the high infrastructural costs relating to the development of
fossil fuels in the region. Unsurprisingly, the reports on energy
development in the Arctic have continuously reiterated the high
cost of operations in the region as part of their overhead concerns.
The view is that “costs of building infrastructure also requires
companies to carefully consider whether production volumes will
be commercially feasible to make these investments worthwhile,”
making Arctic development a difﬁcult futures decision [18]. Like
the whalers before, the distances from consumption centres, the
need for specialist equipment and the unpredictable weather conditions
are some of the major concerns facing the industry. Current
estimates indicate that technological difﬁculties will postpone
development of new Arctic oil for some time, increasing the cost
of production for this region on an extended timeline as operating
costs meet with inﬂationary and regulatory pressures [19].
In addition, the incentives to develop the Arctic given the costs
of the infrastructure do not appear to be outweighing the potential
proﬁt margins with the current price of a barrel of oil remaining at
a low in global markets. Global oil prices are impacting the development
of Arctic oil from both industrial and political machines,
with some oil companies quitting their Arctic campaigns and government
departments cancelling offshore oil and gas lease sales for
the near future [20]. What this demonstrates is that there is a pattern
developing for discontinuing oil exploitation in the Arctic due
to the impact of production costs. First, it was the abandonment by
the whaling industry, but then it was test wells being drilled and
abandoned throughout the Canadian Arctic in the 1960s and 70s
and now the trend has again returned with the recent abandonment
of oil exploration in the Arctic by big industry players such as
Shell, Exxon, Chevron and BP [21].
While climatic predictions indicate that the operating season
in the Arctic could become longer due to shrinking ice melt, with
varying estimates of an ice free Arctic in as soon as thirty years,
at present, operations in the Arctic are heavily dependent upon
the good graces of the weather gods [22]. The short summer season
has proved problematic for the drilling of exploratory wells,
with many of the operations of some of the well-known companies
seeing year after year of limited performance, dependent on
when the season makes a shift towards Arctic winter. The diminished
operating season, using only a few months of the year to make
a return on investment costs, invariably decreases the proﬁt margins,
especially when the wells continue failing to produce. The
short operating season of the Arctic oil ﬁelds means slow exploration
and development, extending the time period from point of
initial investment to a return on capital, not an ideal condition for
investment opportunities, especially given the condition of global
oil markets.
Despite advances made for increasing operational safety in the
Arctic maritime, the inherent danger of operating in the Arctic is
substantially higher than in more temperate climes. The whaling
industry faced difﬁculty in both affording the insurance that made
some attempt to cover their losses and reluctance of insurers to
provide coverage for their Arctic operations. Actuaries in today’s
insurance market are still uncertain of the risks versus the costs of
providing insurance for current Arctic operations. While the geographic
distances and climatic considerations can be factored in, the
industry is worried about the ‘unknown unknowns’: what operational
risks are yet to become issues? Regarding operations in the
Arctic, the industry knows that “insurance capacity for the energy
industry is not unlimited. Cover is offered for risks in return for
appropriate premiums and on speciﬁed terms and conditions [23].”
As insurance is intended to offset ﬁnancial risk, the likelihood that
insurance costs will be higher than is realistic for yielding good rates
of return on the investment in Arctic infrastructure and the decision
on its affordability will undoubtedly factor into future Arctic
development.
This cost-beneﬁt analysis lesson from history demonstrates that
the development of energy industry in the Arctic, ﬁrst with whale
oil and now with fossil fuels comes at a higher cost than other
operation areas. Given the combination of distance to markets, the
difﬁculty of insuring whaling operations, repeated losses of equipment
and supplies, long periods of waiting for return on investment
and the decline in demand in the face of rising competition ultimately
the Arctic whaling market was a poor investment choice.
Although technology has improved and climatic issues appear to be
a diminish concern, it appears that much might not have changed
for the contemporary oil industry. There are still many of the same
barriers: distance, infrastructure and operating costs and long waits
for return on investment that indicates the industry might be condemned
to repeat costs, and perhaps also the losses of the past.
4. Lesson 3: will capitalism make Arctic oil an investment
relic?
History tells us that the most lucrative business opportunities
are those that can exploit scarcity and create a natural monopoly.
The whaling industry was attractive because not only was there
a market for the product but at one stage, it faced little competition.
The market demand for products derived from whale oil was
the primary driver behind the expansion in whale oil production,
escalating into industrial levels by the mid seventeenth century
and into competitive national whaling industries that were in full
operation by the nineteenth century. The expansion into Arctic ﬁsheries
was delayed by the abundance of whales in better locations,
but eventually scarcity created a focus on the new grounds in the
far north. This politically enabled turn to the Arctic coincided with
burgeoning industrial demand resulting from the industrial revolution,
population growth and the turn from a subsistence to a market
economy. Despite the conditions of a natural monopoly once held
by the whaling industry, it eventually faced near extinction from
replacement products. It may be that despite the potential reserves
in the Arctic, the crude oil industry and its products will become
obsolete, not only due to scarcity, but also due to shifts in demand,
competition and societal pressures.
Although whale parts, from blubber to bones, eventually made it
to market, the primary output of the industry was rendered whale
oil as a raw product. A messy and exceedingly smelly process, this
rendering was often processed in situ, sometimes in land based
whaling stations or ﬂoating factory ships, outﬁtted with the necessary
equipment for transitioning blubber to oil. Today, the Polar
Regions are littered with the rusting remains of whaling stations or
‘try yards’ as the environmental impact of the abandoned stations
was of less concern than the costs of dismantling the equipment.
Through the whaling industry and the whale oil it produced, the
Arctic became entangled in the “global system of commerce and
exchange” and when whale oil reached the markets, it was then
converted to many different products useful for the period [24]. The
legacy of this industry still impacts the Arctic in both its physical
scars and in its residual effects on the whale populations; however
the demand for these products was not to endure.
136 C. Wood-Donnelly / Energy Research & Social Science 16 (2016) 132–140
The use of whale oil for household illumination was one of the
primary products of whale oil, used in tallow candles and patented
lamps. Although whale oil was more expensive than some earlier
forms of lighting fuels, it “burned cleaner and provided a steady,
bright light that gave off less odour and smoke than other fuels”
making it attractive and desirable to the expanding population [25].
Despite the popularity of whale oil for lighting, only introduced
to the market during the 1820s, “it was virtually defunct by the
1860s. Other fuel sources had replaced whale oil, chieﬂy kerosene,
a cheaper and more easily obtainable product [26].” Though it had
a heyday, market dominance of whale oil was prevalent only over
a few short decades, replaced ﬁrst by a petroleum product, which
was in turn made redundant by the invention of the electric light
bulb.
A second and long lasting product of whale oil included its use
as a machine lubricant, a product that accelerated in importance
with the onset of the industrial revolution and the changes in transportation
and farming practices. While petroleum products were
introduced as lubricant products as early as 1850, whale oil from
sperm whales, with its highly waxy and viscous properties was
considered to be the best lubricant on the market well into the
twentieth century. The demand for this product continued until
social pressures caused whale oil lubricant to become politically
unviable when the sperm whale was placed on the endangered
species list and as a result, it therefore also became commercially
unviable for the end user when the ensuing scarcity caused prices
to skyrocket. Rather than being replaced by petroleum, which also
produces machine lubricants, whale oil lubricants were replaced
by jojoba oil [27]. Here, it is demonstrated that societal pressures
forced innovative change in addition to the forces of market pres-
sures.
Machine lubrication is not the only whale oil product that
became obsolete due to replacement by a vegetable oil. Whale oil
has also been used in considerable amounts in soaps, cosmetics
and perfumes. With large percentages of the whaling catch at times
being turned toward the manufacture of soaps, “the soap industry
was an indispensable buy for the whaling industry [28].” Although
there was some resistance to the use of the smelly whale oil soaps,
fresh whale oil was considered prized in cosmetics and in perfumes
due to its lack of scent and more importantly due to its low melting
point. Spermaceti wax was difﬁcult to artiﬁcially reproduce
and so whale oil continued to be used until scientists were able
to developed alternative ingredients based on modiﬁed vegetable
oils, such as coconut oil [29]. In addition to the social resistance
to the use of animal products, whale oil used in these commodities
was eventually made redundant by easier to produce chemical
alternatives.
In the North American whaling industry, the animals were predominately
harvested as a commodity rather than as a food source
and the whales would be processed from ﬂesh into oil before being
brought to market. However, there was some food value gained
from whales in the production of a butter substitute, margarine.
Whale oil was an early choice for hydrogenated oil in the middle of
the nineteenth century “because large amounts became available
on account of its being no longer needed for illumination [30].”
The use of whale oil in margarine continued throughout the world
wars as a butter substitute due to wartime dairy shortages, but
eventually vegetable oils would come to dominate in margarine
production. Although whale oil continued to be used into the 1970s
in margarine, it continuously faced increasing competition from
tastier vegetable oils [31]. Eventually, the pressures of the regulatory
environment and social attitudes toward whaling felled usage
of whale oil as an ingredient in margarine.
Although important in many commercial products, it was likely
whale oil’s inclusion in national defence strategies that prolonged
its market survival as glycerine, a key ingredient in some explosives,
is a by-product of the fat rendered from whale blubber. Nitroglycerine,
a liquid explosive ﬁrst invented in 1848, was developed
into “Alfred Nobel’s invention of dynamite (nitro-glycerine) in 1860
creat[ing] a more ominous outlet for the whale oil’s glycerol (fatty
acids) [32].” Whale oil still played an important role in national
defence, especially during the world wars, as glycerine became an
important ingredient in the development of new generation explosives.
During this period, some governments declared whale oil
to be essential national defence commodities and purchased large
percentages of available stocks during wartime and hearings were
held in Congress to discuss which other countries were investigating
the development of whale oil explosives [32]. This use of whale
oil possibly kept the demand for the industry’s existence perpetuating
for longer than regular market forces or other environmental
concerns would have normally allowed.
Despite the continued availability of this renewable resource, a
fast growing population and continued demands for whale oil in
various products, the proﬁtability of whaling industry was continuously
hampered by discoveries of competitive alternatives, new
technological requirements and social mores. Despite the expansion
of whale stocks in the Polar Regions, by the middle of the
nineteenth century, the industry began its struggle for survival. It
is speculated that initially “the market for oil was weak because
of the advance of petroleum production, and only the demand for
bone kept whalers aﬂoat [33].” As demand for whale oil illumination
declined new uses, such as its incorporation into margarine
production and its use in explosives helped to keep the industry
operating into the twentieth century, but eventually the industry
was been reduced to its current small scale due to the domestic and
international regulatory environments and social pressures against
the use of animal products and Arctic whales are largely hunted as
a food stuff.
Although the whale oil industry continues in an increasingly
diminished capacity into the twenty-ﬁrst century, alternative
resources have largely replaced whale oil as a raw material, especially
by vegetable oils and petroleum. This negative trajectory
began with the discovery of petroleum in Pennsylvania in 1850s
and shortly following, a different lamp that used a different fuel
soon replaced the lamp that had been created to burn whale oil.
The same end result has occurred with many other whale oil products,
not because whale oil as a resource was completely depleted,
but because discovery of new raw resources and new technologies
to use those resources rose to market predominance. The capitalist
market may have its ills, but with proﬁtability remaining a key pursuit,
this encourages innovation and technological development.
Hence it may be, that capitalism really did save the whale with “the
march of technology [34].” What is not yet fully known, is what will
save the world from petroleum.
However, the petroleum industry should expect the same transition
that occurred for whale oil to also hold true for fossil fuels.
Should the global supply of hydrocarbons become inﬁnite and without
repercussions to the climate, there would be little need for
innovation and progress; but such is not the case. Scarcity certainly
plagues the oil industry and the continuous pursuit of new
ﬁelds and new mechanisms for extraction, demonstrates that the
longevity of the industry is limited. Additionally, this resource is
plagued by geopolitical insecurities, creating instability in production,
price and procurement. It remains to be seen how petroleum
will be replaced, but there is already vast innovation to this end and
both scarcity and insecurity are strong motivators for development
and innovation.
Drilling for oil in the Arctic has received a considerable amount
of attention by environmental activists. This is not without just
deserts as the “environment is paying a serious price for our unbridled
consumption of fossil fuels and our climate is warming at a
rate that may cause irreversible consequences [35],” although fossil
C. Wood-Donnelly / Energy Research & Social Science 16 (2016) 132–140 137
fuels are also responsible for many of the advantages that civilization
now enjoys. The predominate focus by environmental activists
against the activities of oil companies in the Arctic is to communicate
“resistance to Shell’s plans to drill for oil and secure new
oil reserves in the Arctic [36].” These types of activism that gain
widespread media attention tend to focus on the use of crude oil in
the development of fuel and its contributions to carbon emissions,
but generally fails to trickle down to activism that rejects the use of
any products that petroleum brings to civilization: mobile phones,
toothbrushes and clothing and the kayaks that environmentalist
sometimes use to protest oil drilling in the Arctic.
Even so, the arguments of activists against fossil fuels are
not without foundation. According to the U.S. Energy Information
Administration, a barrel of crude oil can be reﬁned into gasoline,
diesel, jet fuel, gasoline, heavy fuel oil, liqueﬁed gases and other
products, showing that over 80% of a barrel of crude oil is used for
the production of fuels which are largely used in transportation
[37]. The demand for transportation fuels makes up a large part
of rationale for pursuing crude oil as the entire global economy
relies on the movement of goods and people around the world in
a timely manner, an exercise, which at present requires the use of
fossil fuels. Research is underway to transition away from the use
of fossil fuels in transportation to the use of electric or other renewables,
and both the technology and demand are escalating in a way
that may “force change in the automobile industry [38].” A transition
away from gasoline and diesel would represent a two-thirds
product loss to the suppliers of crude oil, and while it may not yet
be the competition that will eliminate dependence on oil, it certainly
is on its way. Not only does scarcity demand this transition
but capitalism also encourages it.
Transitions occur within a system when a new rule is added
to cause the norm to deviate [39]. For the whale oil industry, the
new rules were a combination of scarcity, technology, political and
social demands; this combination eventually proved lethal for the
proﬁtability of the industry. There is little evidence to demonstrate
that these same rules will not also apply to the continued
reliance on hydrocarbons in order to fuel the globalised economy.
Scarcity demands that new sources of energy be found, capitalism
demands that innovation continues and society is realising that
climate change is a real and impending danger. Hydrocarbons are
hardwired into society and the transition to alternatives may be
slow, but it may well be prudent for the oil industry to learn early
the lessons experienced by the whaling industry and facilitate this
transition into a new product investment rather than invest in the
oil ﬁelds in the Arctic.
5. Lesson 4: are the dynamics of the regulatory frameworks
creating investment insecurity?
As a region in development, the Arctic and those who wish to
expand business ventures to the region are faced with the uncertainty
that accompanying regulatory transitions brings. The Arctic
whalers of an earlier era faced changes in sovereignty over ﬁshing
areas and the application of legal frameworks of maritime
delimitation to the region. Today’s energy investors still face some
sovereignty disputes, but they also must assess investment risks
that changing international governance and domestic legislation
introduce to investment environments. The regulatory environment
in the Arctic is currently in a state of constant ﬂux, which has
potential to “harm the business environment by imposing unnecessary
costs, increasing uncertainty and risks and erecting barriers to
competition [40],” while legislative bodies work to determine what
is in the public interest: safeguarding the environment or providing
for economic and energy security. While it was the uncertainty
in the regulatory environment that initially spurred oil interests in
the Arctic in the 19th century, this same category of uncertainty
now creates barriers to development.
When Senator Seward made his speech to Congress in 1852 noting
that the expansion of the U.S. whaling ﬂeet to ﬁshing in the
Arctic would leave national stocks untouched, he was referring to
the regulatory environment of Alaska as being outside of the territory
of the United States. At this time, Alaska was the sovereign
territory of Russia administered, albeit poorly, by the state sponsored
charter company, Russian American Company. Alaska did not
become a territory of the United States for another ﬁfteen years
when it was purchased from the Russians in 1867 for 7.2 million
dollars. During this time, many of the North American whalers were
in fact poaching the sovereign resources of another nation. This
activity was noticed by Russian administrators who claimed this
whaling harmed the environment, destroyed the ecosystem that
provided the sustenance of the natives and also resulted in many
shipwrecks from a lack of adequate maritime charts [41]. However,
due to Russian security interests being focused on the Crimean
war, coupled with the inherent corruption of the Russian American
Company, this created an environment prime for exploitation.
The only recourse for the Russian administrators was to cooperate
with the U.S. navy once these resources had been deemed within
the national interest of the United States [41].
However, this apathetic attitude towards the respect of ﬁshing
within territorial boundaries of another states was to return
to haunt the United States’ efforts to secure another maritime
resource in the region a half a century later. When the U.S. purchased
Alaska, a period of “close ﬁsted commercialism [42]” was to
follow. This resulted in policy where the U.S. prevented Canadian
sealers from hunting in the Bering Sea on the grounds that as Russia
had claimed sovereignty over the entirety of the sea, a sovereignty
that the United States had ignored. As a result of the 1867 Alaska
Treaty, the United States expected to be entitled to sovereignty over
their half of the Bering Sea; however an international tribunal found
the United States in breach of to the principle of the freedom of the
seas and they were required to recompense the economic losses
of the Canadian sealers. While this ruling was speciﬁcally attempting
to protect U.S. interests in the seal population, the ruling also
had impact on the whaling stocks within the same seas by limiting
the amount of environmental legislation that could regulate for
whaling harvests and delaying the introduction of environmental
stewardship until the Marine Mammal Protection act in 1972, ofﬁcially
terminated the activities of whalers within the United States
for operators except indigenous groups.
On the Canadian side of the Alaska boundary, sovereignty games
also impacted the proﬁtability of Arctic whaling operations, especially
for American whalers. Without any evidence of authoritative
sovereign claims, the British crown transferred the Arctic islands
to the Dominion of Canada in 1880. Although the ﬁrst step toward
sovereignty included the discovery of new territory and several
countries, including the United States, had explored the North
American Arctic, Canada intended to enforce this transferred title.
In 1907, Canadian Senator Poirier invoked the ‘sector principle’ and
proposed that Canada extend its territorial borders all the way to
the North Pole [43]. By 1926, maps issued by the Canadian government
showed all Arctic islands in the Canadian archipelago as
Canadian territory, despite their lack of either initial discovery or
effective occupation of this territory.
Although there was no ofﬁcial outcry from states that may have
held inchoate title over Arctic islands, the Canadian government
wanted to ﬂex their administrative muscles in the region. Thus, the
remedy for this vacuum of effective occupation and administration
by the Canadian authorities was to levy regulatory mechanisms
on whalers operating in the region, especially on the American
whalers. Regulation of whalers became a method whereby states
could enforce their sovereignty claims to the region, enforcement
138 C. Wood-Donnelly / Energy Research & Social Science 16 (2016) 132–140
that appeared to be asymmetric in application as, the American
whalers faced harsher regulatory conditions, although the Scottish
whalers were in reality more active in the Canadian Arctic [44]. It
was ultimately the whalers who objected to Canadian administration
over what they considered historic ﬁshing grounds rather than
any states contesting Canadian claims to sovereignty. It was this
increased regulation and the reduction in hunting areas that greatly
reduced the proﬁtability of an industry already battling diminishing
stocks and reduced yields.
Both the United States and Canada made turns toward environmental
stewardship, placing protective moratoriums on whaling
hunting on the basis of moral grounds rather than as a result of
free market policies. These domestic turns into legislative practices
were reinforced by commitments to international conventions on
whaling. Although Canada has withdrawn from participation of the
International Whaling Commission it still maintains a domestic legislative
ban on the activity and uses other environmental legislation
to protect its sovereignty over the Northwest Passage, including the
Arctic Waters Pollution Protection Act 1972. So while the whaling
industry initially thrived in the anarchic regulatory environment
of the Arctic, they struggled when faced with operational costs
and losses due to the harsh operating conditions coupled with the
transitory domestic and international regulatory frameworks, contributing
to the industry’s ﬁnal demise in North America.
Due to the lack of an established regulatory environment, the
whaling industry, while in itself a microcosm of a globalising economy,
was situated geographically within a ‘lawless’ region, with
only domestic effective occupation initiatives to provide guidance
on the stability of operations in the region. In time, frameworks
also began to develop in the international realm, especially in the
development of the Law of the Sea frameworks, which worked to
solidify claims to resources sovereignty by Canada and the United
States. The most notable conceptions to contribute to the economic
development of the Arctic in the maritime regions include
the establishment of the exclusive economic zones and the consideration
of the continental shelf as a natural extension of a states
territory. It is this extension of territorial limits and the protection
the sovereignty allows that provides for the considerable potential
of fossil fuel extraction by today’s energy industry.
However, while providing ﬁxed resource sovereignty, the international
regulatory environment with regards to the oil industry
and especially to the development of the oil industry in the Arctic
is yet a framework in ﬂux. The members of the Arctic Council have
agreed on non-binding operational guidelines in their Agreement
on Cooperation on Marine Oil Preparedness and Response in the Arctic,
which intends to reinforce existing bilateral and international
agreements on the issue of oil pollution in maritime regions. Aside
from the facilitation of response to pollution incidents in the Arctic
by coordinating movement of teams and equipment across borders
and the exchange of information, the agreement does little
to prevent an oil spill incident from occurring. While regionally
coordinated governance goes some way to facilitate political cooperation
in the region, the effect of this agreement is merely to refer
the matter back to the guidelines provided within international law.
Despite this, the frameworks in international law regarding
oil spill incidents refer speciﬁcally to pollution from ships and at
present, drillships are excluded from these provisions. That is not to
say that the international community has been silent on the matter.
In 1977, the Convention on Civil Liability For Oil Pollution Damage
Resulting From Exploration For And Exploitation of Seabed Mineral
Resources (CLEE Convention) was proposed, but never entered
into force. Instead, it is domestically legislated regulations on oil
pollution that provide the teeth for liability response in the event
of an oil spill incident. This was seen in the Deepwater Horizon case
where liability and compensation were made possible through the
US Oil Pollution Act 1990 [45]. Outside of domestic legislation, the
Offshore Pollution Liability Agreement 1975, a voluntary industry
scheme, also provides some recompense potential in the event of
a maritime oil disaster, but only for participating international oil
companies in participating states. At present, this does not include
all operators or states in the Arctic. What is certain is that case
precedent indicates that the political and ﬁnancial fallout from an
Arctic oil disaster could be considerable.
It is unlucky for the energy industry that the recent turn towards
developing the fossil fuel resources in the Arctic coincided with
the wake of the Deepwater Horizon incident, resulting in strong
pressures by the U.S. Federal Government to force oil companies
to demonstrate the safety of their operations. The consequence is
that this has presented a shifting regulatory environment for the oil
companies seeking to expand Arctic operations, with the Federal
Government changing the guidelines for establishing safe operating
procedures before the granting of exploration licenses. This
includes the preparation of streamlined analysis of oil spill response
and broad environmental assessments for operation in the Arctic
[46]. Although the government eventually approved the license for
Shell to drill in the Chukchi Sea, the company ceased operations
citing “the ‘challenging and unpredictable’ federal regulator environment
for offshore Alaska [47].” Thus, it appears at present, the
shifting regulatory environment creates more investment risk than
some oil companies are willing to shoulder.
Additionally, a special regulatory regime has been established
for the Arctic under the Law of the Sea through Article 234, speciﬁcally
for ice-covered waters. The result of this provision introduces
the role of stewardship in the legal protection of the Arctic within
international law. The role of environmental steward for the protection
of economic resources was once attempted by the United
States to prevent damage to the seal industry in the Beaufort
Sea and it is currently being applied by both Canada and Russia
through legislation intended to enhance their sovereignty over the
Northwest Passage and the Northern Sea Route, via the notion of
economic stewardship. In the changing regulatory environment,
it may be seen that the sovereign implications of stewardship
develop into increased economic liability for damages to sovereign
resources in the event of an oil disaster in the Arctic. This is
undoubtedly a shift that greatly increases the ﬁnancial risks of
drilling for oil in the Arctic.
There are also the additional costs of infrastructural development
that the Arctic regulatory environment brings. In 2014, the
International Maritime Organisation approved the implementation
of the Polar Code, passed not as a new body of legislation, but rather
as amendments to an existing body of international law. Not only
did this approach require less political wrangling to cause the Polar
Code to enter into effect, but also the formal adoption of the code
is a signiﬁcant industry milestone will have impact on the energy
industry [48]. As the regulatory mechanisms of the IMO apply only
to vessels in transit and not to stationary drilling rigs, the majority
of the impact of the Polar Code on production will be in the vessels
used to support operations in the Arctic region. Accordingly,
the code will have an effect on the training and safety equipment
necessary in the Arctic, increasing the cost of investment in the
region.
The role of the Polar Code in the Arctic is primarily intended to
improve the safety of navigational operations in the Arctic and to
diminish the risk of environmental damage to the region. While
many parts of the Polar Code may not directly apply to drilling
platforms, it remains to be seen what impact the code will have
on drillships or semi submersibles and the requirement to have
polar class equipment. History shows that even ﬂoating ships can
become trapped, crushed and destroyed by the force of moving sea
ice and the Arctic has seen at least one disaster with the destruction
of Ocean Ranger by a storm in 1982. Like the victims of the Titanic,
many of Ocean Ranger’s casualties were caused by cold conditions.
C. Wood-Donnelly / Energy Research & Social Science 16 (2016) 132–140 139
Even more recently, the U.S. Coast Guard had to launch a rescue
when an ice-reinforced oil rig ran aground in the Arctic, fortunately
without spilling its cargo [49]. Though it cannot guarantee safety,
the provisions of the Polar Code might prevent some misadventure;
however, this is not without additional cost to infrastructural
and operational costs, reducing the attraction of the investment
opportunity.
Although the Arctic is thought to have signiﬁcant percentages
of fossil fuel reserves lying offshore the Arctic maritime, there is
not a coherent regulatory system for mitigating the uncertainty for
region operations. For investors, the regulatory environment has
been in transition since commercial interests began engagement
with the region. The early issues for the regulatory environment had
to confront the establishment of sovereignty in the region and the
shifting territorial boundaries. While this issue is mostly resolved,
a sovereignty delimitation dispute still remains in the Beaufort
Sea, an area considered attractive for fossil fuel exploration. International
law regarding the liability for oil spill pollution remains
incomplete and thus it falls to the domestic sphere to provide regulations.
Finally, the infrastructure requirements generated by the
Polar Code potentially introduces additional operational costs to
the energy industry. Combined, these factors create an uncertain
and dynamic regulatory environment that results in increased risks
and costs for operators in the region as exploration and operational
licenses rest on fulﬁlling the changing goalpost of domestic
regulations.
6. Conclusions
The development of the Arctic for the extraction of oil is often
portrayed as a rush for liquid gold. Although the Arctic does appear
to hold vast reserves of fossil fuels, the remote and hostile region
has been proving resistant to development by the modern oil industry,
in not a dissimilar fashion to the hesitant welcome it extended
to the whalers of a bygone era. It may be that there are a series
of lessons that can be learned from considering the engagement
of the whaling industry with the region, applying the lessons they
learned in their experiences to the energy development interests
of today.
The ﬁrst lesson may be that like the whalers of the nineteenth
century, international oil companies have arrived too late
to develop the oil industry in the region. The whalers arrived
after peak production had been reached in the whale oil market
and although the discovery of the rich resources of Arctic whales
extended production period, the Gaussian curve had already passed
its maximum production point. Although technically renewable,
whale oil was not an inﬁnite resource and Hubbert’s theory would
prove to run its course when faced with decreasing production
capabilities. Fossil fuels are also a ﬁnite resource and subject to the
laws of peak production, and although the discovery of fossil fuels
in the Arctic might extend hydrocarbon production, ultimately the
resource will someday be exhausted.
A second lesson can be learned from the operational and production
costs with combined risks that the whale oil industry
experienced through a cost-beneﬁt analysis. Operating at the end
of the Little Age Ice, the whalers found the Arctic climate hostile to
operations. The remote location from markets requiring high operational
costs and long intervals of time before a return could be
seen on capital investment, meaning that whaling investors saw
slow rates of return. These returns were only possible if the whaling
ﬂeet or its cargo managed to return to home ports to deliver the
goods and often, the losses for both the investors and their insurers
resulted in long periods of negative returns. For the contemporary
oil extraction industry, operational costs in the warming, but still
hostile Arctic region remain high and to date there have been few
returns on the investment in the exploration, if any at all. In addition,
like the whalers before them, current development faces high
insurance costs associated with the riskiness of engaging in Arctic
operations as the industry calculates for externalities including
anything from climate to environmental activism.
The third lesson can be learned from the knowledge that new
technologies will develop and new sources of energy will be found.
Early demands for whale oil were diminished by the discovery
of petroleum, the invention of the electric light bulb and aside
from limited use as a foodstuff, it was eventually made completely
redundant by the extraction of oil from vegetables. It is the laissez
faire nature of the capitalist market that has created the long-term
demand the oil industry needs to survive, but this same system will
ultimately lead to its demise. Continued proﬁtability requires either
a monopoly or innovation in order to remain successful in the marketplace,
thus it is the technological developments that research
and development produces that will likely also create the technologies
that will ultimately reduce global reliance on hydrocarbons.
The estimates for this date vary wildly, but it is certain that one day
it will come.
Finally, as long as the regulatory environment continues to
be dynamic in response to international and domestic legislative
developments, the oil companies engaging in exploration and
extraction of Arctic oil will face the same uncertainties over continued
future production as did the whalers of the nineteenth
century. While designation of sovereign territory is a signiﬁcantly
more stable concept today, there still remain some disputes over
areas expected to hold hydrocarbon resources. While the whalers
were able escape culpability for the environmental damaged they
caused, today a primary risk facing the extraction industry is the liability
for causing environmental and thus economic damage over
resources considered as sovereign property. The volatile nature
of the regulatory environment and the changing goalposts that
accompany these changes increases the costs of Arctic operations.
Although current developments indicate that the development
of hydrocarbons in the North American Arctic are on standby,
in a world of increasing energy insecurity, it is likely that these
resources will remain an attractive option to politicians and the oil
industry alike. Yet, with some hope, these agents will realise that
the future lies not in investment toward the extraction of hydrocarbons
from the Arctic, but in the investment in research and
development that can create security in new forms of energy. If
this occurs, it may be that these lessons from the history of the
whale oil industry operating in the Arctic region do not also have
to be learned by the oil companies of today when it is realised that
they arrived too late for Arctic oil.
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