No new offshore oil and gas leases will be offered in the Alaskan Arctic through 2022, according to a new five-year plan for offshore drilling released Friday by the Obama administration. President-elect Donald Trump could overturn the ban, but that could take years and may not draw much industry interest if oil prices stay low.
The Interior Department’s five-year plan laid out all of the proposed auctions for drilling rights on the outer continental shelf of the United States. It allowed for no leases between 2017 and 2022 in the Beaufort or Chukchi seas, Arctic waters north and west of Alaska.
A prior draft of the plan included the potential for offshore drilling in both the Beaufort and Chukchi Seas when it was released in March. The current plan limits potential leases in the next five years to the Gulf of Mexico and the Cook Inlet off south-central Alaska.
“The plan focuses lease sales in the best places—those with the highest resource potential, lowest conflict, and established infrastructure—and removes regions that are simply not right to lease,” Interior Secretary Sally Jewell said. “Given the unique and challenging Arctic environment and industry’s declining interest in the area, foregoing lease sales in the Arctic is the right path forward.”
Some Republicans voiced opposition to the plan before it was even published.
“This would not only unilaterally harm Alaska’s economy and kill thousands of good jobs, it fundamentally misunderstands what is going on in the country right now,” Sen. Dan Sullivan (R-Alaska) said on the Senate floor on Thursday. “It fundamentally misunderstands the enormous opportunity of energy for America.”
Sullivan said the ban on Arctic drilling was another Obama administration policy that delays and disrupts energy development in America. He cited the unsuccessful attempt by Royal Dutch Shell to drill in the Arctic, which Shell abandoned last year.
“Shell had to spend 7 years and $7 billion to get permission from the Obama administration to drill one exploration well in 100 feet of water,” Sullivan said. “And eventually they just said we give up, we’re leaving.”
Shell left the Arctic after failing on multiple fronts. It encountered costly equipment malfunctions, including a major accident with its drilling rig the Kulluk in 2012. In the end, its exploratory well, which it spent $4.1 billion on, did not produce enough oil or gas to make it worthwhile.
“Shell pulled out in 2015 not because of some regulatory problem, but simply because the economics of this drilling are not viable under current oil price conditions,” said Pavel Molchanov, an equity research analyst at Raymond James & Associates in Houston. “At current price levels near $50 [a barrel] this type of very high risk drilling is not something the industry is interested in.”
Shell has three years remaining on its lease, but when it pulled out last year, the company said it had no immediate plans to return to Arctic waters. Its lease is one of nearly 40 existing leases in Arctic waters that are not affected by the new five-year plan. Those leases will all expire in the next few years.
Trump could reverse the Obama administration’s ban by drafting a new five-year leasing plan. Former Alaska Gov. Sarah Palin, an ardent drilling proponent, has been mentioned as a possible nominee for Interior Secretary, suggesting the new administration may pursue a new plan. Such a restart, however, would take time. The five-year leasing program announced Friday, for example, took two years to develop.
Since the Deepwater Horizon drilling rig explosion caused a cataclysmic spill in the Gulf of Mexico in 2010, the Interior Department has taken a more careful approach in analyzing potential impacts of leases, according to Michael Levine, Pacific senior counsel at the environmental group Oceana.
“It’s possible that a Department of the Interior led by President Trump would walk back all of that progress, but it wouldn’t be easy nor would it be sound fiscal or environmental policy,” Levine said. “The statute has relatively few timelines built into it, but I think it would be difficult to create a new five-year leasing program on an extraordinarily expedited schedule.”
New leases available in the Arctic might not draw the interest of the oil and gas industry.
“Right now it’s a moot point,” Molchanov said. “Five years is a long time, if oil prices stage a strong recovery in the medium term, then perhaps there will be some desire on the part of oil and gas producers to pursue Arctic drilling, but definitely not now. There is no such desire now.”