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If Shell Backs Out, Arctic Oil Off The Table For Years
Submitted by Nick Cunningham via OilPrice.com,
The next several months may be pivotal for the future of oil development in the Arctic.
While Russia has proceeded with oil drilling in its Arctic territory, the U.S. has been much slower to do so. The push in the U.S. Arctic has been led by Royal Dutch Shell, a campaign that has been riddled with mistakes, mishaps, and wasted money.
Nearly $6 billion has been spent thus far on Shell’s Arctic program, with little success to date. Now, 2015 could prove to be a make or break year for the Arctic. Shell may make a decision on drilling in the Chukchi and Beaufort Seas by March 2015. If it declines to continue to pour money into the far north, it may indefinitely put Arctic oil development on ice (pun intended).
The crossroads comes at an awful time for Shell. Oil prices, hovering around $60 per barrel, are far too low to justify Arctic investments. To be sure, offshore drilling depends on long-term fundamentals – any oil from the Arctic wouldn’t begin flowing from wells until several years from now. That means that weak prices in the short-term shouldn’t affect major investment decisions.
Unfortunately, they often do. Just this week Chevron put its Arctic plans on hold “indefinitely,” citing “the level of economic uncertainty in the industry.” Chevron had spent $103 million on a tract in the Beaufort Sea in Canadian waters, but weak oil prices have Chevron narrowing its aspirations.
This development is illustrative of the predicament facing major oil companies. They need to spend billions of dollars now to realize oil output sometime next decade. However, they also must conserve cash in the interim. Oil companies across the world are slashing spending in order to shore up profitability.
And Arctic oil is expensive oil, some of the most expensive in the world. It is on the upper end of where prices need to be in order to be profitable. By some estimates, oil prices would need to be in the range of $80 to $90 per barrel for Arctic oil to breakeven; other estimates say as high as $110 per barrel.
That means that even before the oil price drop, Arctic oil development looked tenuous. Statoil and ConocoPhillips had already scrapped their plans to drill in the Arctic, even when oil prices were nearly double where they are now, because of high costs. And when oil prices drop, these marginal projects get the ax.
Shell is now the only one left standing, still mulling its next move. Shell’s CFO said during a conference call on October 30 that the company is “planning and hoping” to drill in the Arctic in 2015.
Despite Shell’s perseverance, it is facing some significant obstacles, several of which, are out of the company’s control.
Shell is awaiting a court decision on the 2012 approval by the federal government of Shell’s oil spill response plan, which environmental groups have sued to invalidate. There are other regulatory hurdles as well. The Bureau of Ocean Energy Management still has to approve Shell’s drilling plans. And BOEM also has to finalize the revised environmental assessment, one that revised upwards the chances of an oil spill, potentially complicating regulatory approvals. These events must be completed before Shell can begin drilling.
The bureaucratic mess threatens to push Shell’s development plans past the expiration date for many of its leases. Seeing the writing on the wall, Shell earlier this year asked for a five-year extension on its leases, many of which begin expiring in 2017.
“Despite Shell’s best efforts and demonstrated diligence, circumstances beyond Shell’s control have prevented, and are continuing to prevent, Shell from completing even the first exploration well in either area,” Shell’s Vice President in Alaska, Peter Slaiby, wrote in a letter to regulators on July 10, 2014.
The obstacles are piling up.
According to Platts, a decision on whether or not Shell plans to proceed with drilling in 2015 will be made by March. And if they turn their back on drilling, it could mean closing the doors on the Arctic for years to come.
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I dont know ..drilling for oil where its 70 below zero..or in Texas where its nice and toasty.....Ill take toasty
I heard the most absurd thing on NPR yesterday: low oil prices will be a huge global boon, because it will bring the combustion engine to more people!
I would think that NPR's stance on more combustion engines across the globe would be a disaster for the environment, not a global boon. I guess their stance is determined by who occupies the white house.
The Chinese and the Russians will take over the Arctic. This is their century after all.
Shell had their rig washed away, that basically ended their aspirations. Oil price where it is will put a nail in it. And thank God, drilling in the arctic is moby dick style lunacy.
Russians are Masters of Arctic
The Russians deliverd their first arctic oil to Rotterdam in may this year
Well ten years after they invented the light blub, people couldn't believe they were still using the light blub.
Youngman, I had the pleasure of running as chief engineer on a vessel for the Alaska Project. It really wasn't too harsh, yeah, we dealt with a bit of ice, but nothing too major.
In regards to problems, most of those were regulatory issues. Re; the rig that ran aground upon departure/crossing, that was actually a "towing incident" and NOT a drilling incident (which, BTW, had I any say in the big picture, there would have been additional towing vessels to avoid that situation).
I strongly disagree with the article saying that it was a failure. It was actually a success, as to a little known fact, that a 5yr lease/contract, stipulates that you MUST "twist a drill bit" to retain said lease. That was the primary purpose of the 2012 project.
I would go there again, with no hesitation. Each to their own, but I can't handle another heat stroke.
Take care and a Merry Christmas to you and yours.
second horse in my quadfecta crossed the finish line
DXY > 90
Noticed that too, four horsemen?
what are horses 1, 3, 4?
Another reason the Saudis are out blabbing at every opportunity. Knock as much future investment out as possible.
Either that or the Saudi oil minister got his latest round of vds from Russian hookers.
If Shell backs out...?
LOFL
"Shale oil/gas! A TREMENDOUS influx of capital for almost no return, but it make the US "oil and gas independent"
Or, at least that was the situation before Obama and his Saudi blood brothers signed the deal to crash oil and crush Russia, forgetting that China has enough FX along with Russia's 400-500 billion FX to bring the Rubel back to life in a matter of time.
"If"?
haha
wait till WTI < $50
And YES, arctic drilling is now off the table. All high cost oil drilling will shut down and the cheap fields of Saudi pump at full capacity.
Always remember, oil in Saudi comes out of the ground at about 15% the cost of a Fracked Barrel of Oil. 10% for a Tar Sands Barrel of Oil.
Can they compete with that? I think not.
That all depends on what you are using it for. Got a guy here who says he can make gas out of peanut butter and jelly sandwiches, and compete.
is that kind of like indicting a ham sandwich?
Hohoho, and soon we will find out the Gulf Oil disaster was staged so drilling would be shut down so it could be later sold to China when we default.
Marco Polo, Bitchez!
MBA mortgage application index for last week out tomorrow morning ... should be ugly as 10yr yield up about 20bps during week ... but Mr Market don't care (or about durable orders, or new home sales, or ...)
If Shell doesn't back out, it will fail to produce profitably and then the Arctic will be off the table for...ever.
capital goods orders are going to take a beating in 2015 if these energy companies are "scared"
Nice dreams, there is no if with the tribe
All I want to know is which bank has the biggest oil short.
That would be melburn drysdale at the bank of Beverly Hills.
"Sorry, Jed, Tea has crashed. You're broke. You'll have to go back to the mountains where you were all self-sufficient an stuff."
"So what?"
The guys who set up the crime, of course.
We'll find out....
Don't worry, I'm sure the Paz Oil Company will pick up the slack one day in the future.
The banksters need to repay us.
But but what about Al Gore and those poor Polar bears?
Oh the humanity, oh the carbon credits!
Al Gore Dirt Nap for Christmas!
Fucking Algore shill mofo
Long Petrolski Rubelski.
Soon 2b aka Petrorubel.
Shell never found anything anyway as the Arctic value is overblown
Russia and U.S. Spread Arctic War Fear Over Nothing
http://newworldorderg20.wordpress.com/
yes, but punishing oil men with politics is not a good idea.
I would tell them to F/O and keep working.
alrightee_then, Shell never found anything anyway as the Arctic value is overblown
Almost 17 billion barrels have moved through TAPS.
http://r.search.yahoo.com/_ylt=A86.J7tY0ZlUWRwA.TEPxQt.;_ylu=X3oDMTByNzh...
Right, there ain't no oil up there, and as proven in the GOM, it don't grow underwater either...
Pay up people. There is no glut and if you want oil in the future you will
pay dearly for it.
Transocean less than $20 Gazprom less than $5
When there's blood in the water buy oil
There's always going to be more people and less oil (sans an Ebola mutation or nuclear war)
Smitty, I like that. Merry Christmas to you and yours!
PS. Just wondering, what with all that cheap Nat.Gas, have you all noticed your electric bills being cut in half? Didn't think so...
With no demand for oil the Arctic is like the XL Pipeline, redundant. And redundant is a recipe for even lower prices.
What US Arctic? That's Canada's territory. I mean Denmark's. They have a bigger navy than us.
What claim does the US have to the arctic? The same as the moon?
Besides, most energy companies are not US companies, including SHELL.