Royal Dutch Shell pulls plug on Arctic exploration

29 Sep 2015 | Author: | No comments yet »

In the Arctic, Shell loses, planet wins.

ANCHORAGE, Alaska — Royal Dutch Shell has abandoned its long quest to become the first company to produce oil in Alaska’s Arctic waters, darkening the nation’s long-term oil prospects and delighting environmental groups that tried to block the project.The company cited disappointing results from a well drilled during the 2015 open water season in the waters north of the Bering Strait off Alaska’s northwest coast. After years of effort, Shell is leaving the region “for the foreseeable future” because it failed to find enough oil to make further drilling worthwhile. The company also cited the “challenging and unpredictable federal regulatory environment in offshore Alaska.” Shell in February 2008 was by far the most robust bidder for Chukchi Sea leases and its departure means no company has plans on the books to drill there.

Bill Walker says Royal Dutch Shell’s decision to stop exploratory drilling in the Arctic shows the state needs to drive its own destiny through oil and gas development. The company has spent more than $7 billion to explore for oil in Alaska’s Arctic, slogging through a years-long regulatory gauntlet and attracting spite from environmental groups who feared a spill in the Arctic’s harsh climate would be extremely difficult to clean up and devastating to polar bears, walruses, seals and other wildlife. Only by keeping most of the remaining carbon in the ground, as opposed to burning it in the global commons we call the atmosphere, can humanity avoid the very worst consequences of climate change. The drilling project also held the hopes of Alaska, which has seen oil production and revenues decline sharply in recent years, and the U.S. oil industry, which looked to Alaska’s offshore Arctic as the next source of oil big enough to keep the country among the top three oil producers in the world along with Saudi Arabia and Russia. “Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.,” Marvin Odum, director of Shell’s operations in the Americas, said in a statement issued late Sunday. “However, this is a clearly disappointing exploration outcome for this part of the basin.” Known in the industry as turning up a “dry hole,” it’s common for exploratory drilling to find little to no oil, especially in formations that have not been explored much in the past.

But Shell’s failure is notable because it was the only active drilling project in the sea, which Shell officials had called “a potential game-changer,” a vast untapped reservoir that could add to America’s energy supply for 50 years. Alaska’s budget relies heavily on oil revenue, but production from the once-prodigious North Slope now barely fills a quarter of the trans-Alaska pipeline. Charles Ebinger, senior fellow for the Brookings Institution Energy Security and Climate Initiative, said in an interview that a successful well by Shell would have been “a terribly big deal” because it would have attracted others to the region.

Though countries are pushing for cleaner energy sources, analysts predict that the world will need another 10 million barrels a day between 2030 and 2040 to meet growing demand, especially in developing countries, Ebinger said. Today, in an act of spectacular corporate chutzpah, Shell also blamed a “challenging and unpredictable” regulatory climate in the United States for its decision to abandon Arctic drilling.

Shell, which is based in The Hague, Netherlands warned investors yesterday that the disappointing well results would lead to a charge against its earnings for the third quarter. It didn’t disclose the size of the charge, but it said the accounting value of the project is $3 billion, with another $1.1 billion in commitments to contractors. — Iona Energy Co. (US) Limited, a Canadian company operating in Scotland, and U.S.-based North American Civil Recoveries Arbitrage were high bidders for one tract each at $61,000 and $400, respectively. Environmental groups, which had staged media campaigns aimed at tarnishing Shell’s reputation and tried unsuccessfully to block Arctic-bound vessels, reveled in Shell’s disappointment.

Those weak oil prices are forcing oil companies around the world to cancel or delay new exploration projects, especially those in risky or high-cost areas. Their investments were put at particular risk with oil prices falling into the neighborhood of $20 a barrel, rather than the $100 when the project was conceived and green-lighted. Companies and countries will continue to seek out deepwater fields as long as fossil fuels are subsidized — by overt policy and covert means such as U.S. armies and fleets as global oil police — and their true costs are not priced in.

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