Shell Abandons Arctic Drilling Plans at a $7 Billion Loss

For years now, oil companies have circled the Arctic like vultures hanging in the sky over a dying carcass. From up there, the target is clear, and the execution appears easy.

Political cycles come and go with the idea of drilling in the Arctic rising and falling in popularity. Some believe we can unlock unimaginable energy potential by cracking into the trove of crude buried beneath the frozen tundra. Remember Sarah Palin’s reductive catch phrase, “Drill, baby, drill”? Others think the process of deep-sea arctic drilling is as impossible as tying your shoe on a rollercoaster.

Across the span of quite a few years now, Shell spent a total of $7 billion in research and exploratory drilling of the Arctic. After previously stating its confidence in the “90 billion barrels of crude available” in the Arctic, Shell is now announcing that it is abandoning its arctic operation entirely.

“Shell will now cease further exploration activity in offshore Alaska for the foreseeable future,” the oil company stated. “The decision reflects both the Burger J well [the planned location] result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska.”

Uncertain Political, Environment and Petroleum-Based Future

The unpredictability Shell refers to is likely in reference to the looming general election. U.S. regulatory conditions may shift a great deal after the 2016 election. Harsh sanctions and regulatory changes may push clean energy much more aggressively if a liberal candidate wins the presidency.

Hillary Clinton recently joined the ranks of Martin O’Malley and Bernie Sanders as she voiced her dissent on arctic drilling. This means all potential democratic candidates for the 2016 presidential election are against oil companies drilling up north.

NASA’s latest findings also show carbon emissions, like burning fossil fuels, require immediate attention and is already destined to augment the habitable areas of coastal cities in the coming century. The public perception of deep-sea drilling likely will continue to sway towards avoiding such risks in the future.

Ramifications of the Decision

You might think that Shell’s decision to pull out of arctic drilling is an overwhelmingly positive outcome. But the residents of Unalaska, Alaska will now feel the pinch of this decision. The coastal city benefitted from an optimistic jobs prospect with Shell looking to hire for the now-abandoned operation.

Unalaska Mayor Shirley Marquardt lamented that her town’s citizens and businesses will be disproportionately impacted by Shell’s departure. “Our business community will notice it because [Shell] utilized a lot of local businesses and hired a lot of folks. So, that’s too bad. I mean it was a real boon,” she said in a recent radio interview.

This is not to say that the town will implode. Marquardt is quick to add, “It’s not going to be too huge, I mean, we’re an extremely busy port, we’ve been expanding for years, and that’s not going to end.”

Takeaway

Given the continued runaway success of renewable, clean energy it appears likely that Shell might have just seen the difficulty in drilling inhospitable locales for oil as a sign that crude is not the future of energy on this planet. Losing $7 billion on a bad bet must sting, regardless of Shell’s comfortable profit margins.