Shell abandons Alaska Arctic drilling
Oil giant’s US president says hugely controversial drilling operations off Alaska will stop for ‘foreseeable future’ as drilling finds little oil and gas
by Terry Macalister, The Guardian, September 28, 2015
Shell has abandoned its controversial drilling operations in the Alaskan Arctic in the face of mounting opposition in what jubilant environmentalists described as “an unmitigated defeat” for big oil.
The Anglo-Dutch company had repeatedly stressed the enormous hydrocarbon potential of the far north region in public, but in private began to admit it had been surprised by the popular opposition it faced.
Shell said today it had made a marginal discovery of oil and gas with its summer exploration in the Chukchi Sea but not enough to continue to the search for the “foreseeable” future.
Shell has spent over $7bn (£4.6bn) on its failed hunt for oil which critics said could only endanger one of the world’s last pristine environments and produce expensive hydrocarbons that were no longer needed.
Shell said it would have to take a hit of around $4.1bn on future earnings as a result of the decision but it is unclear what the final bill will be.
The company has already come under increasing pressure from shareholders worried about plunging oil prices, a planned merger with rival BG as well as the costs of what has so far been a futile search in the Chukchi Sea.
It appears that Shell’s chief executive, Ben van Beurden, was also worried that the row over the Arctic was undermining his attempts to influence the debate around how to tackle climate change.
His attempts to argue that a Shell strategy of building up gas as a “transitional” fuel to pave the way to a lower carbon future has met with scepticism, partly because of the Chukchi operations.
In a statement today, Marvin Odum, director of Shell Upstream Americas, said: “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 US. However, this is a clearly disappointing exploration outcome for this part of the basin.”
“Shell will now cease further exploration activity in offshore Alaska for the foreseeable future. This decision reflects both the Burger J well result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska.”
Reacting to the news, Greenpeace UK executive director John Sauven said: “Big oil has sustained an unmitigated defeat. They had a budget of billions, we had a movement of millions. For three years we faced them down, and the people won.
“The Save the Arctic movement has exacted a huge reputational price from Shell for its Arctic drilling programme. And as the company went another year without striking oil, that price finally became too high. They’re pulling out.
“Now President Obama should use his remaining months in office to say that no other oil company will be licenced to drill in the American Arctic.”
Barry Gardiner, Labour’s new shadow minister for energy and climate change, said Shell had been engaged in a fool’s errand.
“(Potentially) desecrating one of the world’s last wildernesses shows a complete failure of moral leadership at the head of the company. If his investors are not calling for Ben van Beurden’s head, now that the company has suffered a $4.1bn loss then his board certainly should be.”
There has been an increasing number of energy industrialists and other experts who have questioned the wisdom of Arctic drilling, including former BP chief executive John Browne and Fatih Birol, new executive director at the International Energy Agency.
A variety of consultants have also argued that Arctic oil is too expensive to find and develop in either a low oil price environment or in a future world with a higher price on carbon emissions.
The Alaskan Arctic was seen as something of a testbed for potential wider drilling off Greenland, Norway and Russia. Environmentalists hope Shell’s failure will slow that race for riches in the far north. They will also hope it will prevent a build up in military might amid fears of a new cold war.
Anthony Hobley, chief executive of Carbon Tracker, an organisation which repeatedly argued Chukchi exploration was unaffordable, said Shell’s decision to halt in the Arctic is a win for common sense.
“But why did it take $7bn of shareholders’ money to come to this view?” he asked. “Analysis by Carbon Tracker and others clearly showed that Arctic oil needs much higher prices to give investors a decent return. Yet the decision appears a reluctant pause as Shell suggests it would have continued to drill if it had found more oil and gas and it has only halted exploration ‘for the foreseeable future’.