Drilling for oil in the Artic has suffered a new major setback. The US Interior Department announced late last Friday it was canceling the sale of two Arctic oil leases that had been scheduled for 2016 and 2017 respectively.
The agency canceled sales for a lease in the Beaufort Sea, north of Alaska, and a lease in the Chukchi Sea, northwest of Alaska. The decision by Shell to cancel plans to explore for oil in the Chukchi Sea was cited as a reason. Shell did this after drilling a test well there that was unsuccessful. Another reason given was a lack in industry nominations of specific areas of exploration interest.
Secretary of the Interior Sally Jewell said in a statement that “In light of Shell’s announcement, the amount of acreage already under lease and current market conditions, it does not make sense to prepare for lease sales in the Arctic in the next year and a half.” Environmental organizations were quick to applaud the move after blasting the Obama administration for approving the Shell lease.
Last year the Bureau of Ocean Energy had quadrupled its estimates of oil and gas that might be available in the Chukchi Sea for exploration from 1 billion barrels to 1.4 billion barrels. This had created great hope that oil companies would find large reserves there allowing the US to be less dependent on the importing of crude oil.
A significant part of the reason interest in Arctic oil has diminished is because of low oil prices that make any form of remote exploration less economical. Several oil analysts weighed in on the matter, one from Raymond James stated, “This is part and parcel of what we’ve seen across the spectrum of the oil and gas industry, which is, companies are cutting back on investment. And when companies are cutting back on investment, with the degree of austerity that’s been taking place, the reality is, everything gets cut.”
A silver lining for Arctic exploration was offered by Fadel Gheit, an analyst at Oppenheimer & Co, who stated that Arctic exploration might be a long game comparing it to the state of shale oil 50 years ago. There was no economical base for that either then. In the same way, Arctic oil could be revisited in the future.