Monday, 11 January 2016
Summer sea ice extent in the Arctic has been in decline since 1996, but after successive record September minimums in 2005, 2007, and 2012, the possibility of developing the high Arctic has rapidly changed from something decades away to an imminent opportunity. The Obama administration permitted Royal Dutch Shell to conduct exploratory oil drilling in the Chukchi Sea in summer 2015. If successful, further development will follow. The Bering Strait, as the exit of the Northern Sea Route, has already seen increased ship traffic, and this will likely continue if the sea ice remains reliably low. While not the only factor, predictability of sea ice extent, particularly on seasonal scales (3-12 months), is essential; a wrong decision will be costly if not catastrophic (e.g, Kulluk 2012). Using a reduced form model, we investigate geophysical processes which govern the advance and retreat of the sea ice edge at key points (e.g., Nome, Kotzebue, Barrow, Prudhoe Bay). Using the Black-Scholes Option Pricing formula, we estimate costs and risks associated with the ice edge variability.
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