After Shell announced it would stop drilling for oil off the coast of Alaska for the “foreseeable future,” environmentalists celebrated the end of the oil giant’s northern adventure.
But their victory almost certainly will be short lived.
“The Arctic is not dead, and it’s not even dormant,” said Scott Montgomery, a geologist at the University of Washington.
The federal government moved on Friday to delay for another 18 months the drilling that industry sees as inevitable.
The Department of Interior announced it is canceling the 2016 and 2017 Arctic Ocean lease sales and ending discussions with two oil companies on Arctic Ocean lease extensions.
The decision by the department means lease sales will stop for the rest of the current leasing program, which started in 2012 and runs through 2017. Portions of the Chukchi Sea, where Shell decided to stop drilling last month, were up for lease in 2016.
Secretary of the Interior Sally Jewell said it didn’t make sense to continue leasing in the wake of Shell’s decision.
“I am proud of the performance of Interior’s Bureau of Ocean Energy Management and Bureau of Safety and Environmental Enforcement, the U.S. Coast Guard and others in ensuring that Shell’s program this past season was conducted in accordance with the highest safety and environmental standards,” she said.
Energy experts say it’s almost impossible for the United States to permanently keep oil companies from drilling in the American Arctic. As more ice melts, other countries are exploring new wells, and Alaska, with its huge energy industry, has state waters it is eager to see developed.
The area’s geology suggests massive oil reserves are under the water, said Dan Kish, a senior vice president at the Institute for Energy Research, an energy think tank that promotes fossil fuels. Exploration and drilling will continue because of a simple reason.
“They have no damn idea what’s up there,” Kish said.
But it is an expensive proposition.
The Arctic Ocean is one of the most difficult places on the planet to drill for oil. Storms linger for days, rough seas can produce massive waves, icebergs move unpredictably and it’s dark for half the year. The drilling season lasts between one and two months.
Companies have to finance all the technology to deal with the unique conditions there, said John Hofmeister, former president of Shell and founder of Citizens for Affordable Energy.
“These are huge technical issues that require a mastering of the physics, the material science, the designs, the operations of these off-shore platforms,” Hofmeister said. “It has to be commercially viable or you won’t do it. That’s part of the test.”
To drill one exploratory well, Shell paid more than $7 billion, not to mention the cost of leases.
The process took years and, with companies facing what some call a hostile Obama administration throwing up roadblocks, environmental activists are trying to make sure investors know what they’re signing up for.
Cassady Sharp, spokeswoman for Greenpeace USA, said Shell showed that drilling for oil in the Arctic is too costly and risky.
“For them to back out is an omen to the rest of the industry,” she said.
Environmentalists such as Sharp say oil companies need to realize projects in the Arctic “aren’t making much sense any more.” Green groups cheered Interior’s decision to stop new leases for offshore drilling in 2016 and 2017 and now they want the Arctic removed from the government’s next five-year oil and gas leasing program.
Sharp said Greenpeace activists are trying to ram home the idea that Arctic drilling is too expensive.
“It’s really an opportunity to push companies like Shell and tell them they don’t have to be oil companies, they can be energy companies,” she said.
But experts say other companies will see the company’s decision to leave the Arctic as a minor setback in a decades-long, potentially lucrative exploration.
“This has no real meaning for the long-term potential attractiveness of the Arctic,” Montgomery said.
Hofmeister speculated that Shell’s decision to stop drilling is a “pause” and not a final decision. The $7 billion that Shell spent on its well will be seen as just a part of its investment.
“The industry doesn’t panic when there are obstacles to develop a new frontier,” he said, “because the frontier isn’t going away.”
And some projects are pushing ahead.
Hilcorp’s Liberty Project would be a 9.3-acre island six miles offshore where the company would drill. An undersea pipeline would carry crude oil to the Trans-Alaska Pipeline. The oilfield could contain as much as 130 million barrels and eventually bring 60,000 barrels per day from five wells, according to Hilcorp. The project is under federal review.
Dan Ritzman, associate director for the Sierra Club’s Our Wild America campaign, said his group is working against the project as part of its “keep it in the ground” strategy.
The Liberty Project has drawn the ire of environmentalists worried about spills since the 1990s when it was proposed. It’s almost impossible to clean up an oil spill in ice-covered water, and sea ice stays around for between seven and nine months, Ritzman said.
Now, Ritzman says, climate change is doubling their worries.
“The science tells us that we need to not look for new oil, and we’re going to need to leave a majority of the oil we already know about in the ground,” he said. “One of the first places to start to look at leaving it in the ground is in the Arctic.”
But Montgomery said there’s too much money to be made to ban drilling.
“It’s still highly prospective,” Montgomery says.
But don’t expect to hear much about new drilling projects off Alaska until January 2017 at the earliest, when a new president moves into the White House.
Kish and Hofmeister say oil companies watched Shell jump through the Obama administration’s hoops and shuddered. The company cited a “challenging and unpredictable federal regulatory environment” when it announced the end of drilling. The decision to cancel lease sales will likely rankle industry even more.
“If you go to a party and people keep throwing drinks in your face and kicking you, you start to think, ‘Gee I don’t want to be at this party,'” Kish said.
There would be even longer delays if another Democrat is elected, according to industry observers. Many of the Democratic presidential candidates are against drilling in the Arctic and fossil fuels in general.
But Hofmeister pointed out that reality often dictates a politician’s position more than ideology.
“When gasoline is near $2 a gallon and there is a surplus of oil in the world, any politician can say anything they want to say about don’t drill here, don’t drill there,” he said.
“But, when gas is between $4 and $5 per gallon, the economy is in recession and the oil and gas industry is struggling … politicians like the ones running for office today will most likely change their views.”
This is an updated version of a story that ran in the Oct. 19 edition of the Washington Examiner magazine.
