Energy Giants Retreat From the Arctic Ocean. Now What?
Falling global oil prices combined with public pressure have all but transformed the Arctic Ocean—at least in the minds of people living in lower latitudes—from an active environmental battleground into a money pit energy drillers can’t seem to back out of fast enough.
On Tuesday, Statoil—Norway’s state-owned company—announced that it was giving up its interests in potential oil and gas drilling in waters north of Alaska. The company is “exiting 16 leases it operates and 50 stakes it has in leases operated by ConocoPhillips in the Chukchi Sea,” reported the Houston Chronicle’s FuelFix blog, and “is planning to close its office in Anchorage.”
Statoil’s announcement came about six weeks after Shell Oil announced that it was putting its $7 billion wager on striking black gold in the Chukchi on indefinite hold.
The company blamed the decision largely on the poor results of the summer’s test drilling at a lease site about 85 miles off Alaska’s north coast, stating that they “were not sufficient to warrant further exploration for the foreseeable future.”
The Obama administration in mid-October announced a two-year moratorium on oil and gas leases in the Chukchi Sea.
With drilling ventures waning, the new questions—for both the fossil fuel industry and eco-advocates—are how long this situation will go on and how international management of the Arctic Ocean may change over the duration.
Low oil prices combined with public pressure have led fossil fuel companies worldwide to give up on most of their Arctic Ocean dreams, said Alexander Shestakov, director of the World Wildlife Fund’s global Arctic program.
“There is one active production site, which is Prirazlomnaya, in the Pechora Sea” of Russia, where two wells produce around 0.8 millions tons of oil a year, he said. But “it’s the only operational platform in the real offshore Arctic,” he added, referring to Arctic Ocean waters that still ice over during the winter.
Statoil, meanwhile, will probably concentrate its resources close to home on the Barents Sea, he said. Above the Arctic Circle, the Barents is largely ice-free year-round thanks to the warming effect of the Atlantic Ocean’s Gulf Stream current.
“We have a time-out. It’s hard to say for how long,” Shestakov said. “Probably around five years.” The hiatus could give the industry, scientists, environmental groups, and governments time to identify “which areas definitely require protection and should be no-go zones” for oil and gas development, he said.
“I can’t say we are relaxed and that all the threat has passed. Unfortunately that’s not the case,” said Shestakov, because the industry is keeping its options open in the region. “The companies have not returned the blocks allocated to them,” he said. “Maybe one day, when conditions change—and that could include further opening of the Arctic Ocean, making it less ice covered. That could include a change in the price of oil, or changing technologies. It could also be driven by some enormous demand in oil.”
Michael Lynch, president of Strategic Energy and Economic Research, an oil and gas industry consulting firm, doesn’t think public opposition trumped the low price of oil in either Shell’s or Statoil’s decision regarding the Arctic Ocean.
“But it was icing on the cake to the decision,” he said. “Definitely the PR was bad, and they were not happy with that. And there were people in the company militating for avoiding the black eye, particularly with the Norwegian green image.”
“The NGOs who were opposing [Arctic Ocean drilling] can probably move their resources on to other subjects,” he said.
Lynch does not expect to see a change anytime soon. “There are people who think oil prices will recover next year, or in five years. But aside from a big war in the Middle East, we’re not going to see prices above $50 a barrel for a decade or two at least,” he said.
“There are a lot of better places to put your money—shale oil in the U.S. is the prime example, but also deep water in the Gulf of Mexico, and offshore of Brazil and West Africa.”
If Arctic Ocean drilling becomes attractive again, it will be because national governments want it to happen, Shestakov said. “It’s not just business, it’s exercising sovereignty, it’s geopolitical issues. It’s development in the high north.”
But governments can play a better role, he said, by using the current lull to assess how to manage all the economic activities converging in the increasingly ice-free Arctic Ocean, “not only oil and gas [but also] fisheries, shipping operations, and then of course all the interests of the local people and indigenous people of the Arctic, who are very often associated with use of marine mammals and the environment overall.”
Among those goals, he said, should be a push “to get more renewable energy into Arctic communities, to cut their dependence on fossil fuels, particularly diesel,” for powering their electrical grids.
Many environmental groups and their supporters argue that the environmental risks of drilling for oil and gas in the Arctic Ocean are too high, because it is critical habitat for endangered polar bears and other marine mammals, along with dozens of species of migratory seabirds and fish stocks that both wildlife and humans depend upon for food.
In a study published by the journal Nature in January, scientists determined that to have any chance of averting a catastrophic increase in global temperatures, all oil and gas deposits below the Arctic seafloor must remain buried.