The spillover from Royal Dutch Shell’s decision to abandon exploration in Arctic waters off Alaska’s coast is stretching into Canada’s Beaufort Sea, while mirroring earlier moves to disengage from polar prospects in Norway and Russia.
At a time when all of the major operators in the Canadian Arctic are under investor pressure to postpone or cancel their programs, Shell’s move to suspend activity in the Alaska region indefinitely has no positive impact on companies and governments in the Northwest Territories or Yukon that were hoping for a new round of exploration.
In June, Imperial Oil and its partners ExxonMobil and BP deferred Beaufort exploration while asking for an extension to their seven-year exploration license which expires in 2020, while Chevron Canada said in December that it was shelving its plans.
Both cited a protracted effort to negotiate a suitable plan to deal with oil ruptures in the same season that the well was drilled - a complex and costly requirement in a region that is under ice for most of the year.
Beaufort ‘challenging environment’
Imperial Chief Executive Officer Rich Kruger said in mid-September that the Beaufort is a “challenging environment.”
He said his company was trying to learn from worldwide operation by ExxonMobil, which owns 69.6 percent of Imperial, and working with governments and regulators to evaluate prospects for Arctic development.
“That may take some time to work together to figure out how best to do that,” Kruger said.
Doug Matthews, an energy consultant and former director of the oil and gas division in the NWT government, doubted there would be any moves within the next decade to drill in the Beaufort or the Chukchi Sea, noting that shareholders are starting to question the need for such high-cost programs.
He told the Canadian Press news agency that Canada has also lost the chance to “learn something” from Shell’s Alaska operation and “how better to operate in Arctic waters.”
That might have helped the National Energy Board model its regulatory regime on the U.S. approach.
‘Contention for investors’
Royal Bank of Canada analyst Biraj Borkhataria said Shell’s insistence on drilling in the Arctic “has been a key point of contention for investors, in our view, given the limited visibility on what is likely to be a prolonged payback period.”
“We think the budget for exploration drilling offshore Alaska would be better spent elsewhere, especially at sub-$50 oil.”
Warren Mabee, director of the Institute for Energy and Environmental policy at Queen’s University, Ontario, said that in addition to low oil prices and high Arctic operation costs, the public awareness of the threat posed to the Arctic may have been an important factor in Shell’s decision.
“I suspect the social pressure against drilling in the Arctic and maybe some recognition of the challenges of operating up there would have contributed to this decision,” he told the Canadian Broadcasting Corp.
“In the future it is going to be harder and harder for companies to access resources in fragile environments and this may be a sign that companies are becoming aware of that,” he said.
NWT Industry Minister Dave Ramsay was not available to comment on the fallout in his region from Shell’s Alaska decision.
Wider Arctic setbacks
The Shell pullout and Canada’s Beaufort slowdown come after a series of wider Arctic setbacks for companies trying to find oil and natural gas in a region estimated to hold 20 percent of the world’s undiscovered resources.
Norway’s Statoil again postponed its Arctic Johan Castberg project earlier this year and in 2012 Russia’s Gazprom, along with France’s Total and Statoil, stopped the Shtokman gas project in the Barents Sea.
While insisting the events were unrelated, Shell and its two New Zealand partners, OMV and Mitsui E&P, also put off deepwater drilling planned for the Great South basin off the southern coast of New Zealand.
Shell said it needs more time to evaluate the basin’s complex geology and was unable to say how long that would take.
The one aspect common to all of these actions has been the role of environmentalists in fighting the work plans, with Greenpeace activists in particular claiming victory for the 7 million people it mobilized to fight the Alaska drilling.
“Now we’ve won, we kicked Shell out of the Arctic,” declared British actress Emma Thompson. “Shell’s defeat shows which way the wind is blowing.”
A Shell spokesman said that although the company “respects the right of people to protest against the activities which we undertake ... it is no surprise that Greenpeace once again chooses to focus on publicity stunts rather than engaging constructively in the debate about how to meet the world’s growing demand for energy.”
