The news of Shell’s departure from its Arctic offshore project has been greeted by a mixture of nodding heads, wrinkled brows, and, in some quarters, elated arm-waving.
On September 28, the company announced it was abandoning its Burger J well in the Arctic Chukchi Basin. Located roughly 240 km northwest from Barrow, Alaska, the Burger J was drilled without incident to a depth of 2,060 m in approximately 45 m of water. Shell said it “found indications” of oil and gas, but these weren’t enough to justify further drilling right now, given low oil prices and—Russia take note—an “unpredictable” federal regulatory regime.
Little of this comes as a shock to those in the petroleum industry. Shell launched its exploratory program to gain a first-mover advantage in one of the more prospective Arctic basins. Yet, with only five previous wells drilled in a province the size of Britain, the chances for a major discovery on the first try were somewhat less than brilliant. Disappointing as the result may be, it can hardly be called surprising or unforeseen.
Wrinkled brows have found it difficult to understand why an experienced company like Shell would spend more than a billion dollars, with another $1.1 billion of contractual commitments in place, and then just walk away. But of course Shell is not deserting its investment, at least not yet. It continues to hold 100% working interest in 275 blocks in the Chukchi Sea. Like much of the global oil and gas industry, it is backing off from prospects that would be largely or entirely non-economic at current prices, even if a major discovery had been made.
Those who cheer Shell’s departure from the Arctic, meanwhile, might find reason to calm their beer hall enthusiasm. This includes the kayakers who schooled around the Polar Pioneer rig as it left Seattle this summer for Chukchi waters. We are witnessing not the end of exploration in this region, but a mere pause at the start of a new era. At prices somewhere near $80 and above, the Arctic will begin to regain some of its gleam and promise. Low prices, moreover, may hurt oil companies and drive them from more expensive areas, but they also make for cheaper fuels, like diesel and gasoline, and so help encourage consumption and, eventually, demand and dependence.
Finally, we can thank Shell for providing us with evidence that the oft-claimed “rush to the Arctic” is a myth. However delicious it may sound to those who feed off conflict, there has been no great unleashing of oil, mining, timber, fishing, and other corporate firms into the warming north. Sticking with oil, we see no one hastening to take Shell’s place. Nor will we anytime soon. For now, technological and economic constraints in the south continue to limit much of what happens in the north.
Scott Montgomery is a geologist and a professor at the University of Washington, where he teaches energy, geopolitics and sustainability.
