Oil’s Value Keeps Dropping, So Shell Drops Arctic Drilling
It’s official: Royal Dutch Shell called off its Arctic drilling plans off Alaska’s coast Sunday, blaming disappointing results from exploratory wells that weren’t showing enough promise to continue the expensive drilling operations.
“Shell has found indications of oil and gas in the Burger J well [about 150 miles from Barrow, Alaska],” the company said in a statement, “but these are not sufficient to warrant further exploration for the foreseeable future.”
Conservation groups such as Greenpeace say the move is a major victory in the battle to keep greenhouse-gas-emitting fossil fuels in the ground (its post on the decision Monday included a banner stating, “This. Is. Huge.”). It’s also taking some credit for changing Shell’s mind, saying public pressure pushed the oil giant to abandon its near-decade-long, billion-dollar research investment.
But check out oil prices lately, and another potential motive for Shell’s change of heart comes into focus. Thanks to a shale oil boom in the United States, new oil extraction techniques in Canada’s tar sands fields, and fuel-sipping car fleets replacing the gas guzzlers of 2008, there’s a glut of oil in the market, in the face of diminishing demand.
When Shell paid $2.1 billion for a 10-year lease in Alaska’s Chukchi Sea back in 2008, oil was priced around $140 a barrel. Today, it’s $44. With high production costs associated with drilling in a remote and dangerous environment like the Arctic, Shell would need gas prices of around $100 a barrel for the operation to be viable.
Michael C. Lynch, president of Strategic Energy and Economic Research, who advises oil companies and investment banks, told The New York Times that Shell’s Arctic abandonment reflects the realities of global oil prices.
“When prices go down, the oil industry shortens their list of projects in development by removing the most expensive ones,” Lynch told the paper.
But even if today’s economic environment is the real driver behind Shell’s shift away from the Arctic, environmental hurdles and conservation groups’ efforts to stall the project worked to delay their efforts long enough for the market to turn against Arctic viability.
“This is a victory for everyone who has stood up for the Arctic. Whether they took to kayaks or canoes, rappelled from bridges, or spread the news in their own communities, millions of people around the world have taken action against Arctic drilling,” Greenpeace U.S. executive director Annie Leonard said in a statement. “Today, they have made history.”