Best Investments 2014: Canada's Northern Claim Heats Up the Arctic Oil Race

A new "Cold War" has started on the Roof of the World, but it will give us some of the best investments of 2014...

Is Santa Claus Canadian?

According to the Canadian government, yes.

Last week, Canada claimed the North Pole is under its jurisdiction, damaging relations with Russia and kicking off a new "Cold War."

But this new Cold War isn't over elves, toys, or reindeer. It's over billions of gallons of crude oil and trillions of square feet of natural gas trapped under ice and frozen bedrock.

And the dispute has quickly escalated into one of the biggest geopolitical standoffs of the year.

As Money Morning Global Energy Strategist Dr. Kent Moors recently told investors, "All hell is breaking loose" in the Arctic Circle.

The Arctic Circle likely holds 15% of the world's undiscovered oil and 30% of its undiscovered natural gas. This represents trillions of dollars in national wealth to whomever has the territorial rights to the bonanza.

With global oil and gas demand on the rise, and drilling technologies making production in extreme conditions more viable, the Arctic - and the North Pole - are up for grabs, leading Canada to approach the United Nations for new authorization.

This battle could give us some of the best investments of 2014 - if investors get in now, before the geopolitical battle escalates.

The Arctic Oil Standoff Begins

The battle began six years ago when Russia planted its nation's flag by submarine in frozen waters in an effort to claim two-thirds of the subsea Arctic. Norway, Denmark, Canada, the United States, and several other countries with Arctic borders all disputed Russia's claim.

For the most part, the issue was overshadowed by other regional disputes around the world. But last week, Canada decided to fight back, causing a stir in both hemispheres.

On Dec. 9, Canada's Foreign Minister John Baird announced that the North Pole and a number of claims off its continental shelf belong to Canada.

The government has now ordered scientists to provide data backing up its claims. The nation plans to use this data to make a formal submission to the United Nations under the U.N. Convention on the Law of the Sea treaty to extend its international borders to certain areas of the Atlantic Ocean and the Arctic Circle. This includes 656,000 miles of seafloor.

The international treaty mandates that nations prove their new claims fall within 230 miles of their continental shelf. Prior to the announcement, Canada recently applied to increase its nautical borders by approximately 1.2 million square kilometers beyond its current boundaries, citing studies of its continental shelf's reach.

The treaty's vagueness means that nations in the Arctic can make claims past the 230-mile cutoff due to odd angles of the continental slope or thickness of the seafloor.

While claiming the North Pole is a long shot, that didn't stop the story from escalating...

Russia, which claims more of the Arctic than any other nation, immediately shot back with a stunning announcement. President Vladimir Putin ordered drastic increases in Russia's Arctic military presence.

The nation has already renovated airfields in the Novosibirsk Islands, an archipelago in the extreme north between the Laptev Sea and the East Siberian Sea. Earlier this year, Putin ordered 10 warships and four icebreakers to tour the islands in an effort to flex its military muscle.

Now the world's second-largest oil producer (after falling behind the United States this year), Russia is seeing steep declines in its domestic output levels in the western Siberian oilfields. To compensate for the losses, Russia only has three directions left in which to move:

  • Into highly promising but infrastructure-poor Eastern Siberia;
  • Onto the continental shelf; or,
  • North of the Arctic Circle.

It seems Putin has made his decision. When it comes to Arctic oil, Russia means business.

Best Investments 2014: Cash In on Arctic Oil

How Canada responds to Putin's order remains to be seen. But despite Russia's claim to the Arctic, the nation lacks one important variable needed to drill: money.

The country has recruited venture capital over the last year, but that's nothing in comparison to the potential the Kremlin has by partnering with multinational firms.

As Moors noted last year, "Russia needs foreign help, foreign experience, and, most important of all, foreign money."

The technology to drill in some of the most hostile weather conditions is greatly improving. Thanks to engineering breakthroughs, Russia has seen some success in the Arctic Circle through a strategic partnership with Exxon Mobil Corp. (NYSE: XOM).

Other companies that are capable of providing technology, capital, and engineers include Norway's Statoil ASA (NYSE ADR: STO), Royal Dutch Shell PLC (NYSE ADR: RDS.A), and BP PLC (NYSE ADR: BP).

The region isn't providing much profitability yet. And there's another issue: environmental regulations. International bodies and oil companies have yet to approve regulatory measures.

The primary environmental concern is that the cold Arctic water lacks oil-eating microbes to contain a spill like the one in the Gulf of Mexico in 2010. Putin has already imprisoned Greenpeace members for protesting their Arctic expansion, and the U.N. will likely take up the matter in the near future.

Still, now is the time to invest in multinational players as they attempt to bring new Arctic reservoirs onto their books in order to boost share prices. Both Canada and Russia will require help from these companies, landing them squarely among the best investments of 2014 - regardless of who plants their flag on the Roof of the World.

In fact, Moors found one of the best players to buy now - one that has something these big global guys don't. Go here to read more...

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About the Author

Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.

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