Late this September announced it was shlving its Arctic oil and gas operations off the coast of Alaska – for now. The Arctic is so tantalising for many reasons and the recent knock back to Shell is unlikely to deter it or rival companies from further forays
The Arctic holds around 30% of the world’s undiscovered natural gas, 13% of its oil and 22% of its natural gas liquids, all of which are yet to be found, according to the US Geological Survey. In more tangible terms this amounts to around 400 billion barrels of oil equivalent, which to date is 10 times the total oil and gas produced in the North Sea. Tapping into the resources of the icy polar region at the northernmost tip of the Earth could be crucial to securing future energy supplies. But it means balancing economic, environmental and social challenges, admits one of the companies keen to drill. Last August the Obama administration gave the go-ahead to Royal Dutch Shell to drill for oil in the Chukchi Sea, about 100 miles off the north-west coast of Alaska.
The permission, met with optimism and outrage, meant Shell could start drilling exploratory wells on what is described as one of the best prospective offshore areas in the world. Shell signalled its intention to do just that: drill to depths of about 8,000ft below the ocean bed to strike black gold. Protesters saw red, fearing damage to the Arctic’s delicate environment, possible oil spills and further global warming. The Bureau of Ocean Energy Management in the US reckons there is a fair chance of “one or more large spills” if extensive drilling takes place across the Arctic. Shell didn’t flinch, dispatching its first ship this June as part of a fleet to spearhead exploratory drilling for gas and oil. The Arctic Challenger, one of dozens of support vessels for the oil rigs, set sail from Seattle for the frigid waters off Alaska, with Shell aiming to drill from two platforms. And then it stopped.
Late this September Shell announced it was shelving its Arctic oil and gas operations off the coast of Alaska – for now. The company cited disappointing test results and a challenging regulatory environment. While there were indications of oil and gas reserves in the exploration well in the Chukchi Sea, the amount was not sufficient enough to justify further drilling. However, Shell “continues to see important exploration potential” and given its investment, the oil giant it is likely to be back. The Chukchi Sea, north of the Bering Strait, spans from Alaska to Siberia and Shell is spending more than $1 billion a year – well over $7 billion so far and counting on probably the most expensive well on earth. It has yet to yield one, single barrel of crude oil. And it isn’t the first drilling in this corner of the Arctic. Around 30 offshore wells went down in the Beaufort Sea in the 1980s and 1990s, and five in the Chukchi. None produced oil or gas, mainly because oil prices halved over that time period, putting the frighteners on further exploration. But as climate change renders the Arctic increasingly accessible, there has been a “substantial uptick” in industry interest in the region, according to the US policy think tank the Wilson Centre. It is believed an estimated $100 billion could be invested in the Arctic over the next decade. The Arctic is so tantalising for many reasons and the recent knock back to Shell is unlikely to deter it or rival companies from further forays.
First: the shear amount of crude oil – at least a fifth of the world’s undiscovered crude oil and natural gas – is thought to be holed up.
Second: it could offer more energy security for USA, where crude production is expected to fall to the dreaded one-million-barrel-a-day threshold by 2040.
Third: large stretches of the Chukchi Sea are shallow, no deeper than 200ft.
The Arctic “represents the final frontier of conventional hydrocarbon development”, adds the Wilson Centre. But even sympathetic observers gasp at the challenge. Chevron, ConocoPhillips, Total, Statoil and ExxonMobil have all slapped holding orders on exploration plans. Nick Butler, a former BP strategy executive and an energy researcher at King’s College London, warns exploration is “a dangerous wager”. He told Bloomberg Business: “Given the environmental and regulatory risks in the Arctic and the cost of producing in that difficult setting – assuming they ever get to producing – Shell must anticipate an enormous find, and future oil prices much higher than they are today.” And cutting across the haunting waterscapes echoes the voice of Greenpeace Arctic campaigner Ian Duff: “All the evidence shows Shell can’t drill safely in the Arctic. The extreme conditions mean it’s when, not if, a spill will happen.”
This August Greenpeace launched a boycott against Shell, urging consumers not refuel at Shell stations for 40 days, until 27 September. Greenpeace Netherlands campaign manager for climate and energy Faiza Oulahsen insisted there was a 75% chance of an oil spill from drilling in the area. Shell hit back, insisting that fears of man-made global warming should not put the Arctic off limits. Even as the world shifts to alternative energy sources, it will still need oil for decades to come, it argues. If production happens in US waters it can be controlled and done the right way, insists Shell. The company vowed it was “committed to operating in a safe, environmentally responsible manner”. Meanwhile the green light from the Obama administration is likely to trigger more activity, with Imperial Oil, Rosneft and Russian state-run Gazprom all keen to take to the waters. It also triggered problems closer to home for the American president.
In a split with her boss, Hillary Clinton took to Twitter to warn the dangers of drilling in the Arctic outweighed the potential rewards because the Arctic was “a unique treasure”, not worth risking for the sake of drilling. It also went against the Obama grain: less than a month before his decision on the Arctic, the president ordered big cuts in emissions from power plants in a bid to slow climate change. Such mixed messages have been leaped upon by campaigning groups. These include climate-activist group 350.org.
Executive director May Boeve explains: “If this White House is serious about its legacy on climate action, it’s time to stop the doublespeak and finally begin aligning the action with the rhetoric.” More campaigning rhetoric came from Britain’s Green Party energy spokesman Andrew Cooper, who lamented: “It is incredibly disappointing to see Shell being given the green light for this risky and environmentally destructive endeavour. “It comes at a time when governments should be doing all they can to curb the use and extraction of fossil fuels. And it is especially disheartening to see this project given the go-ahead so soon after president Obama appeared to be making positive steps towards tackling climate change.” Fears about Shell’s Arctic venture spring in part from the ongoing trauma of the Deepwater Horizon disaster in the Gulf of Mexico five years ago. BP, which operated that well, has only recently reached an $18.7 billion compensation settlement.
Environmentalists warn that any such spill in the Arctic would be far more difficult to handle, not least because colder water would stop any natural breaking down of the oil.
Shell counters by insisting it has capping stacks, which could fit over a failed blowout preventer if necessary. The energy giant’s president Marvin Odum remains confident the $7 billion gamble will pay off. Extraction, if it ever happens, won’t start until 2030, by which time he speculates oil prices will have risen enough from their current $50 a barrel to justify the enormous cost of an Arctic project. Odum also reckons Shell can handle any accident that might strike during exploration or extraction: “We can respond to a spill within an hour, which is unmatched anywhere in the world,” he assured NBC News just before pulling the plug, for the time being, on this latest venture. He remains resolute: “My reputation is staked on that. And the reputation of the company is staked on that.”