For Clues on Obama’s Arctic Drilling Ban, Look To California
The Intertubes have been buzzing with news of the ban on Arctic drilling announced last week by President Obama. Though the news may have taken some political and industry observers by surprise, you can check out a recent development in California for hints at the direction in which federal agencies are steering the US oil and gas industry in the past couple of years. It sure looks like evolve is the word of the day for the energy policy formerly known as “all of the above.”
The Arctic Drilling Ban
Just last summer, our friends over at Fuel Fix noted that Royal Dutch Shell had nailed down a couple of important federal permits for Arctic drilling. However, the company abandoned its Arctic drilling plans in September, just a few weeks before the announcement of the Arctic drilling ban.
We’re giving props to Shell for its “you can’t fire me, I quit” strategy. Slumping oil prices were cited as the reason for the pullout, but we’re guessing that Shell also saw the writing on the White House wall.
Also not helping: just a couple of years ago the company was cited by the US Environmental Protection agency for “numerous” violations of the Clean Air Act related to its Arctic drilling operations, and high profile protests in Seattle over the docking of a Shell drilling rig monkeywrenched the company’s efforts to highlight its commitment to climate action.
The slump in oil prices was also cited by the Interior Department last week when it announced the new Arctic drilling ban:
In light of current market conditions and low industry interest, the U.S. Department of the Interior today announced that it will cancel the two potential Arctic offshore lease sales scheduled under the current five-year offshore oil and gas leasing program for 2012-2017. The decision follows Shell’s announcement of its exploration results at the Burger prospect in the Chukchi Sea and that the company will cease further exploration activity in offshore Alaska for the foreseeable future.
Interior also denied extensions to two companies with existing leases:
Today, the Bureau of Safety and Environmental Enforcement (BSEE) also denied requests from Shell and Statoil for lease suspensions, which would have allowed the companies to retain the leases beyond their primary terms of ten years. The leases will expire in 2017 (Beaufort) and 2020 (Chukchi). Among other things, the companies did not demonstrate a reasonable schedule of work for exploration and development under the leases, a regulatory requirement necessary for BSEE to grant a suspension.
In defending the Arctic drilling ban (basically, a withdrawal of the lease program for this cycle), Interior cited the low interest in Arctic oil leases. The agency was wary of a non-competitive process leading to the award of a lease at rock-bottom prices.
California Drops A Clue On Arctic Drilling Ban
Environmental organizations have long pointed out that federal fossil fuel leases have been giveaways, and it looks like the Arctic drilling ban is a step toward the end of free lunch days.
We’re also thinking that the cost of effective federal oversight for fossil fuel operations was another motivator, particularly where sensitive environments are involved, and that’s where California comes in.
In the midst of an ongoing drought last year, California regulators were called to task for permitting oil and gas drillers to dump wastewater into aquifers that could have been used for domestic and agricultural use, following an EPA investigation dating back to 2012.
That resulted in an EPA drilling wastewater enforcement plan last spring:
As the state implements the plan, EPA will continue our heightened oversight to ensure that the state’s oil and gas UIC program meets federal requirements. This effort includes ensuring that wells which inject into non-exempt aquifers, including several hundred disposal wells (with approximately 70 disposal wells in the 11 aquifers historically treated as exempt), nearly two thousand enhanced oil recovery wells, and any cyclic steam wells requiring aquifer exemptions, are addressed as expeditiously as possible, with an immediate emphasis on the wells in aquifers with the highest water quality.
Boy howdy, right? Our friends over at Fuel Fix have been keeping tabs on the state’s response and at the last count California had shut down 33 oilfield injection wells, mainly in Kern County, that were injecting wastewater into federally protected water supplies under improperly issued state permits. That’s on top of another 23 wells shut down earlier this year.
It’s also worth noting that when local communities have attempted to adopt stricter regulation of the fossil fuel industry due to environmental concerns, they are often overridden by state legislation.
In terms of federal energy policy, it’s pretty obvious that the Obama Administration decided that California’s key role in the national economy — in agriculture as well as other sectors — was not being stewarded properly by local officials.
That’s where we see a parallel with the Arctic drilling situation. In the absence of local regulations, the feds are the only game in town and it seems that the Arctic’s role in the US economy is too important to trust to compliance by oil companies.
Interior’s actions last week on Arctic drilling are only temporary, but the trend is toward a permanent clampdown.
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Photo credit: via US Department of the Interior.
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Tina, good job on reporting this!
All the best,
Aaron Lephart
I had no idea my own state of CA was allowing such disgraceful, disgusting behavior as poisoning aquifers! Thanks very much for bringing this up.
Ca is busy divesting coal it doesn’t have and fracturing for gas(which it also doesn’t have much of, either)
Much of what you write is interesting and there always needs to be strict controls on things like drilling and waste water disposal. (All uses of natural resources need strict controls, even solar in the deserts and wind in the mountains)
But in this case I am going to say oil at $50.00 a barrel (and looking like it will stay below $100 for some time to come) is the reason why Shell is stopping this effort. Shell stockholders do not want the firm to spend billions on a project when for a faction of the money they can drill in TX, North Dakota, Gulf of Mexico and soon Iran.
The rise of wind and solar helps in the rise of EV’s which will help temper demand for liquid hydrocarbons, thus long term drilling is going to stick to low cost drilling locations. Arctic drilling is very high cost so you should see USA, Russia, and Norway all pull back from Mega-projects.
FYI: I recall reading there remains near 500 active leases in the sea’s off Alaska; but nobody is looking to do anything because of cost. Hanging from a bridge made for great news footage but soft demand for oil is what stopped Shell.
I believe Shell has said that they were unlikely to be able to produce oil from Arctic wells until about 2030. Lots of infrastructure needed.
By 2030 we could easily see a significant drop in oil demand meaning that lower cost providers would make more expensive Arctic oil totally unsellable.
And hopefully a revenue neutral fee and dividend scheme will make cost an even higher hurdle…
http://citizensclimatelobby.org/carbon-fee-and-dividend/
Actually some of those leases are quite active and are mostly in the Cook Inlet. There are about 760 wells that have produced offshore Alaska. They have been producing offshore oil and gas for decades. Dozens of wells have previously been drilled offshore in the Arctic, in the Beaufort Sea. This was not even the first offshore well drilled in the Chuckchi Sea.
Shell has done this before and will do it again. We should thank Shell for paying the Federal government $2.1 Billion dollars for the privilege of putting up with those oil-dependent bridge-hangers (using ropes made from oil) and kayakers floating around in boats made from oil. Shell drilled offshore in the Chuckchi Sea in the 1980’s, and this was just a continuation of that project that actually began in the 1970’s. Shell was actually one of the first oil companies to explore the North Slope, although they have never really operated there, they have drilled wells. This well was planned for years, and the departure is very certainly a combination of bad economics due to oil prices, and many problems dealing with regulations.
It takes about ten years to plan a well in the Arctic, between starting the work to doing the drilling. With only a ten year lease, it is actually hard to even finish planning and permitting a well before the lease expires, so kudos to Shell for even crossing that hurdle before the lease expired. Shell just added a few more data points to their data, and will be better prepared for the next time they enter the Arctic, in ten, twenty, or even thirty years. Anyone who thinks they stopped Shell from going to the Arctic is simply self-delusional.
Russian and Norwegian oil exploration in the Arctic Ocean will continue no matter what the US government does.
We need to stop all offshore drilling. A spill would be impossible to clean up in such a harsh environment. In addition, seals and other marine life would be destroyed like what happened in the Gulf Horizon explosion and spill.
No matter what it costs to drill or how low competing prices? Shell may have to wait a long time. Demand is down and Saudis have a few barrels of cheaper oil.
This was kind of an empty gesture. It is not like anyone wants to drill up the arctic right now anyway. It costs too much and the price of oil is too low.
When oil gets back above $100/barrel (which it will eventually), the drillers will be back.
I doubt it.
US fracking wells and Canadian tar sands would come on line first. If demand ever grew that high.
Odds are very high that demand will shrink.
Afraid I don’t quite see that optimism – demand will increase for a few years to come before starting to fall rapidly some time between 2020 and 2025
US demand won’t. Our fleet mileage requirement increases each year until 2025. We’re more than doubling the mileage requirements from something like 25 to 54 (forgot exact numbers) over a ten year period.
And that will be boosted by older, less efficient cars heading to the crusher.
I was thinking globally.
Although I agree, OECD countries, are in general, reducing in demand steadily. As they are with energy consumption in general.
As with all things, it’s China and India driving increased demand.
Globally, I suspect peak oil use will fairly rapidly follow peak CO2 output.
We need to cancel all off shore drilling. Well this is good, Obama has opened up the East coast of the USA to offshore drilling. This is a horrible decision, and inline with Obama’s horrible all of the above energy policy. If we replace all our dirty gas cars with clean electric cars, we can save our environment and ban all offshore and onshore drilling.