Morning Consult | Monday, October 5, 2015 | By Randall Luthi
Last week, in the wee hours of the morning on the East Coast, Shell announced it was suspending its offshore Alaska operations, after finding insufficient quantities of hydrocarbons to justify further development at its sole well in the Chukchi Sea. The news rippled its way around the globe, through Washington, DC and the North Slope of Alaska, leaving in its wake jubilant opponents of oil and natural gas development, disappointed job seekers and industry supporters in Alaska (and in the Gulf of Mexico), a half empty trans-Alaska pipeline, and questions within the energy industry of what comes next.
Shell expended over $7 billion on this “dry hole”. In addition, they have battled transportation mishaps, expensive renovations to drill ships, Green Peace hounding their every move, and an exploration plan unnecessarily crimped by Federal regulations. I heartily commend Shell for their efforts and their steadfastness in working with the local native governmental groups to pave the way for local support and understanding of oil and natural gas exploration. More importantly, Shell showed a wary public that exploration and drilling can be done safely in the Arctic. The technology is there, it has been used in other parts of the world, but the real challenge was navigating under the regulatory thumb of the Federal government.
From the view of the Federal regulators, they were going to do everything in their power to allow little or no margin for error. Shell was required to have the equipment and ability to cap a leaking well, response ships on stand-by and another drilling rig sitting idle in case a relief well was needed. The regulatory prohibition of not being able to drill more than one exploratory well certainly made that a Hail Mary attempt.
To the cheers of many environmental groups and the disappointment of others, Shell’s long shot missed. But the attempt doesn’t mean there aren’t commercially available oil and natural gas resources in the area; it just means there weren’t any where Shell drilled. But, what does it really mean? Is future Arctic exploration frozen out, or is this just a step backward, while gearing up for a big leap forward?