Royal Dutch Shell announced Wednesday that it will not drill in the Arctic Ocean off the coast of Alaska this year, declaring a cease-fire in one of the nation’s fiercest political battles over energy development and environmental protection.
Shell Oil President Marvin Odum described the decision not to conduct exploratory drilling in the Chukchi and Beaufort Seas as a “pause.”
“We’ve made progress in Alaska, but this is a long-term program that we are pursuing in a safe and measured way,” Odum said in a statement. “Our decision to pause in 2013 will give us time to ensure the readiness of all our equipment and people following the drilling season in 2012.”
The company’s effort to tap oil and gas in the warming Arctic — an endeavor that has already cost more than $4.5 billion — has been riddled with problems during the past year. The Obama administration has allowed Shell to proceed with exploratory drilling in the Arctic — over the objections of environmentalists — but it has subjected the company to intense regulatory scrutiny.
Two months ago, the Shell drilling barge Kulluk was damaged after it ran aground off Alaska’s Kodiak Island; last July, a Shell drill ship nearly ran aground at Unalaska Island, Alaska, after dragging its anchor. Last summer’s drilling season proved a disappointment as unusually thick late-sea ice covered some of the company’s lease sites, and its Arctic Challenger oil-containment barge took longer than expected to meet federal permitting requirements.
On Friday, Rep. Edward J. Markey (D-Mass.) released a letter to Odum disclosing that the Coast Guard had found 16 violations with the drill ship Noble Discoverer — one being that the propulsion system “does not result in sufficient speed at sea to safely maneuver in all expected conditions without tow assistance.”
Odum said both the Discoverer and Kulluk will be towed to Asia for maintenance and repairs. Shell spokesman Curtis Smith said that “time is needed to assess our management systems” as well as to repair equipment.
Investors shrugged off the news. Shell’s share price rose 1 percent to $65.54.
“The slowdown means very little for Shell, because Arctic exploration, under any realistic scenario, would not have become a needle-moving source of production until the end of this decade at the earliest,” said Pavel Molchanov, an oil analyst with the investment firm Raymond James.
Sen. Lisa Murkowski (R-Alaska), a strong supporter of Arctic drilling, said in a statement that although she backs energy exploration off her state, “I have always said that it must be done to the highest safety standards. Shell’s decision to postpone this summer’s exploratory drilling program shows that it shares that commitment to safety.”
“This pause – and it is only a pause in a multi-year drilling program that will ultimately provide great benefits both to the state of Alaska and the nation as a whole – is necessary for Shell to repair its ships and make the necessary updates to its exploration plans that will ensure a safe return to exploration soon,” she added.
Environmentalists said the Obama administration should jettison the idea of Arctic drilling altogether, given the harsh conditions and the possibility of environmental damage. Andrew Hartsig, Arctic program director for the Ocean Conservancy, called Shell’s decision “one of the smartest moves they’ve made regarding Arctic operations,” given the past year’s mishaps.
Chuck Clusen, director of Alaska Projects for the Natural Resources Defense Council, an environmental advocacy group, said “Mother Nature” had won the first round in the fight over drilling by showing “us clearly that oil companies are no match for the Arctic Ocean.”
“Now it’s time,” Clusen said, “for the Obama administration to learn from this experience, step into the ring and end this folly once and for all — before the next accident happens.”
Molchanov said, “In broad sense, the slowdown has a context that is entirely intuitive. Frontier exploration is intrisically difficult, particularly in a region as a sensitive [politically and environmentally] as Alaska.”