Victory! Shell quits Arctic

Yes we did! Shell no Kayak Flotilla climate stabilization demo in April 2015. Photo: Backbone Campaign via Flickr (CC BY).
Yes we did! Shell no Kayak Flotilla climate stabilization demo in April 2015. Photo: Backbone Campaign via Flickr (CC BY).
Shell's US president says the oil giant's unpopular drilling operations in Alaska's Chukchi Sea will stop for the 'foreseeable future' as exploratory drilling finds little oil and gas to justify its $7 billion investment.
Big oil has sustained an unmitigated defeat. They had a budget of billions, we had a movement of millions. For three years we faced them down, and the people won.

Shell has abandoned its controversial drilling operations in the Alaskan Arctic in the face of mounting opposition.

Its decision, which has been welcomed by environmental campaigners, follows disappointing results from an exploratory well drilled 80 miles off Alaska's north-west coast. Shell said it had found oil and gas but not in sufficient quantities.

Environmentalists claim victory as Shell abandons Arctic oil drilling, but the energy company is still pursuing oil and gas elsewhere in the short-term.

The move is a major climbdown for the Anglo-Dutch group which had talked up the prospects of oil and gas in the region. Shell has spent about $7bn (£4.6bn) on Arctic offshore development in the hope there would be deposits worth pursuing, but now says operations are being ended for the "foreseeable future."

Shell is expected to take a hit of around $4.1bn as a result of the decision.

In a statement today, Marvin Odum, director of Shell Upstream Americas, said: "Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the US. However, this is a clearly disappointing exploration outcome for this part of the basin."

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

Growing pressure from campaigners - and investors

"Big oil has sustained an unmitigated defeat", commented Greenpeace UK executive director John Sauven. "They had a budget of billions, we had a movement of millions. For three years we faced them down, and the people won.

"The Save the Arctic movement has exacted a huge reputational price from Shell for its Arctic drilling programme. And as the company went another year without striking oil, that price finally became too high. They're pulling out.

"Now President Obama should use his remaining months in office to say that no other oil company will be licenced to drill in the American Arctic."

The company has come under increasing pressure from shareholders worried about the plunging share price and the costs of what has so far been a futile search in the Chukchi Sea.

Shell has also privately made clear it is taken aback by the public protests against the drilling which are threatening to seriously damage its reputation.

Ben van Beurden, the chief executive, is also said to be worried that the Arctic is un dermining his attempts to influence the debate around climate change. His attempts to argue that a Shell strategy of building up gas as a 'transitional' fuel to pave the way to a lower carbon future has met with scepticism, partly because of the Arctic operations.

Falling oil price compounds problems

A variety of consultants have also argued that Arctic oil is too expensive to find and develop in either a low oil price environment or in a future world with a higher price on carbon emissions. Current oil prices are under $50 per barrel, while Arctic oil will only be profitable at over $100.

Fatih Birol, incoming executive director of the International Energy Agency (IEA), recently told the Guardian's Fiona Harvey that the technology was not ready, and faces hurdles that may prove too costly to overcome:

"I believe that Arctic oil is not for today, and not for tomorrow - maybe for the day after tomorrow. It's geologically difficult, technologically difficult, lots of environmental challenges, and the cost of production is very, very high, especially if you look at the current oil price levels."

Birol stopped short of recommending an outright ban, but urged leaders of states and businesses to look deeply into the issues before embarking on expeditions:

"It should be an assessment of the oil company, whether or not they see [a business case] at those prices [for oil], or at those costs [of production] - whether or not it could be a profitable project. I think the companies should look at all these risks combined. It is up to them to make or lose money."

He warned governments to consider the potential risks, including those of climate change and pollution. "Governments should hold projects from the angle of whether or not it makes economic sense for the country, for this business, whether or not it has implications for the local and the global environment. And they should also think of what supports the energy security of their country."

Birol took over as executive director of the IEA this month, from his longstanding position of chief economist at the agency, which is regarded as the gold standard on energy issues. He has long been a champion of clean energy, and was one of the first economists to put climate change at the heart of the world's energy policy.



Terry Macalister is the Guardian's energy and industrial correspondent. Fiona Harvey is an award-winning environment journalist for the Guardian. Some additional reporting by The Ecologist.

More about Greenpeace's three year campaign against Shell's Arctic drilling.

This article originally appeared on the Guardian and is reproduced here by kind permission via the Guardian Environment Network.

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