Russian arctic rig

In November, Norway’s Statoil announced that it would quit its exploration efforts in Alaska’s Chukchi Sea, following Shell‘s withdrawal from the region after the company failed to find meaningful quantities of oil or natural gas. Both companies said that exploration in the US Arctic doesn’t make economic sense at this time. But do these moves mark the beginning of the end for offshore Arctic oil, an outcome environmentalists have been campaigning for since drilling commenced in the region. Or is it just a matter of time until operations resume?

The foreseeable future

Citing recent exploration results in neighbouring leases, Statoil decided in November that its leases in the Chukchi Sea were ‘no longer considered competitive’ within its global upstream portfolio. The company, which spent around $80m acquiring its leases in 2008, will now exit 16 operated leases, as well as its stake in a further 50 operated by ConocoPhillips.

"Since 2008, we have worked to progress our options in Alaska," Tim Dodson, Statoil executive vice-president for exploration said in a statement. "Solid work has been carried out, but given the current outlook we could not support continued efforts to mature these opportunities."

"Shell will now cease further exploration activity in offshore Alaska for the foreseeable future."

This decision follows, and was prompted by, Shell’s September announcement of abandoning its drilling operations in the Alaskan Arctic ‘for the foreseeable future’ after a disappointing well test at its Burger J prospect in the Chukchi Sea. Since the company won licenses in the region in 2005, it has spent $7bn, or 20% of its global exploration budget, on searching for oil in Alaska.

However, continuing operations in the region is no longer feasible. "Shell will now cease further exploration activity in offshore Alaska for the foreseeable future," said Marvin Odum, director of Shell Upstream Americas in September. "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."

According to Susan Murray, deputy vice-president for the Pacific for environmental non-profit Oceana, the risks of exploring the Alaskan Arctic simply outweigh the benefits for operators at present. "Companies have to take into account the costs and benefits when pursuing these frontier areas with higher risk [and] both Shell and Statoil deemed the risks of offshore drilling in the Arctic Ocean to be too high," she says.

"The risks were not limited to the logistics of exploration, but also to delivery to market. Had Shell’s Chukchi Burger prospect been feasible, it would have required more than a hundred miles of subsea pipeline to the shoreline, then more pipe across the NPRA [National Petroleum Reserve Alaska] to the Trans Alaska Pipeline. Add sea ice, storms, remoteness, and lack of infrastructure into the equation, and the logistics are daunting at best and a nightmare if not a catastrophe at worst."

A victory for environmentalists?

The withdrawal of Shell and Statoil from the Alaskan Arctic has been hailed as a victory for environmentalists, but with the former stating that operations would only be ceasing ‘for the foreseeable future’, is this likely to be the end of the search for offshore Arctic oil?

Greenpeace senior campaigner Charlie Kronick certainly hopes so. "Oil drilling in the Alaskan offshore Arctic was and will always be incompatible with averting catastrophic climate change and a clean energy future," he says. "The offshore Arctic should always have been and should remain ‘off-limits’ for risky oil drilling given the impossibility of cleaning up an oil spill in this fragile environment."
Kronick adds that it’s difficult to imagine, given Shell’s failure and current industry conditions, that an oil major would incur the risks, costs, and reputational damage that would follow a decision to drill. "There is no such thing as ‘safe’ offshore Arctic drilling.

"If we are serious about dealing with climate change we will need to completely change our current way of thinking. Drilling in the melting Arctic is not compatible with this shift. Rather than pursuing high-risk projects that make neither climate nor financial sense, oil companies need to wake up to the reality of both climate change and changing political and public attitudes."

Energy analyst: ‘The Arctic is not dead’

Realistically, however, drilling in the offshore Arctic is not off the table. While the Obama Administration cancelled two potential Arctic lease sales in the Beaufort and Chukchi seas in October – citing low oil prices and limited industry interest – there are still potential future lease sales in both areas in the draft 2017-2022 OCS Five-Year Leasing Program. "Until governments take these kinds of options off the table, the door will remain open for potential development," Murray remarks.

"Until governments take these kinds of options off the table, the door will remain open for potential development."

Moreover, the Chukchi Sea isn’t the only area of the Arctic ripe for exploration. "We’re seeing a bit of a pause for some areas, but it’s going ahead in others – the Barents Sea portion is going ahead and the Russian portion is going ahead, but at a more limited scale," says Bob Fryklund, chief upstream strategist at IHS Energy. "Over the next ten years, we’re also going to see more activity probably in the [onshore] Prudhoe Bay area and the Beaufort area. The Arctic is not dead."

When it comes to the Alaskan offshore Arctic, though, changes will have to be made if companies are to succeed there, if and when oil prices start to come up again. "They’ll have to come up with some new plays, new ideas that look competitive with the rest of the stuff in their portfolio," Fryklund predicts. "Things will turn around if people start coming up with new ideas, which is difficult when you look at the US Arctic offshore."

"Unless or until oil spill clean-up technology drastically evolves, there will not be a safe way to recover this oil. Decisions about whether or how to develop Arctic resources need to be based on science and precaution, not on companies’ bottom lines," Murray adds. "If there is oil under the Arctic Ocean, it isn’t going anywhere."