WASHINGTON, D.C., September 28, 2015 – The Arctic Institute, an independent think tank of scholars and researchers focused on Arctic policy issues, reacts to Shell’s announcement to end exploration off the coast of Alaska in the Chukchi Sea “for the foreseeable future” as an expected turn of events for a region filled with uncertainties. Their decision to cease exploration reflects the new era of sub-US$50 oil, in which few companies will go forward with Arctic offshore oil developments. Shell’s experience in the Chukchi Sea is indicative of the Arctic operating environment in which it had to contend with significant regulatory hurdles, varying and uncertain ice conditions, ongoing technical challenges, and persistent environmental protests.
“Hyped discussions about a ‘scramble’ or ‘race’ for Arctic resources frequently cite the 2008 U.S. Geological Survey’s estimates of undiscovered oil and gas,” states The Arctic Institute’s Executive Director Malte Humpert. “While in theory resources north of the Arctic Circle promise a significant reward for companies attempting to exploit them, their efforts conflict with the realities of the Arctic environment and cheaper oil, in part fueled by less risky and cheaper unconventional oil and gas resources.”
Arctic offshore oil exploration, at least for the North American Arctic, will likely remain the nuclear fusion of hydrocarbon development; always ‘just’ a decade away.
The Arctic Institute’s scholar stress the importance that resource potential and climatic conditions vary widely in the Arctic sub-regions, like the Chukchi Sea, the Barents Sea, and the Kara Sea. “Projects in the Barents and Kara Sea, such as ENI’s Goliat and Gazprom’s Prirazlomnoye continue to operate, although their profitability remains doubtful at current oil prices,” according to Humpert.
The Institute’s Senior Fellow and U.S. Director Victoria Herrmann stated: “Shell’s Arctic story reveals a lot about the uncertain economic future of the broader circumpolar region. In an era of high oil prices, the Arctic was considered the next ‘hot’ oil/gas region. The company’s decision to depart from Alaska, however, is indicative that the future of the region’s development will not lie with the exploitation of hydrocarbons and minerals, but will have to include ‘new technologies’ such as renewables, fiber optics, and data centers.”
“Arctic drilling is a long-term project and so far it seems that Shell’s, and other companies, economic assessments and future scenarios do not see Arctic oil and gas as a feasible commodity – a further indication that the oil price will stay low in the years to come. Only 10 days ago, Ben van Beurden, Shell’s Chief Executive, echoed the long-term considerations that come will investing in Arctic petroleum development in an announcement that the project would only have been sanctioned by 2020, indicating that production would have not started before 2030,” continued Herrmann.
“The future of an ecologically changing Arctic – an already risky place to operate – is uncertain and complex. Increasing storm surges, shoreline erosion, and thawing permafrost are all serious challenges to existing and forthcoming industry infrastructure needed for a large-scale Arctic oil project. Beyond climate change’s physical consequences, the UN climate negotiations in Paris this December, an event in which President Obama is heavily invested, holds the added potential to strand American oil assets through a multilateral treaty to decarbonize the global economy,” concluded Herrmann.
About The Arctic Institute
The Arctic Institute is an interdisciplinary, independent think tank focused on Arctic policy issues. We are a think tank for the 21st century – a network of young professionals who work from locations around the globe and who represent expertise in many different disciplines. Collaboration, creativity and independence are all critical to our success. We strive to provide the most nuanced, objective, clear and candid analysis possible. In general, we see the Arctic as a fast-evolving region characterized by international and inter-sectoral cooperation rather than a region in which Cold-War mentality and behavior still dominate. Located in Washington, D.C. The Arctic Institute comprises of scholars across the continents and speak multiple languages: www.thearcticinstitute.org.
Thumbnail Photo Credit: Tom Doyle