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Oil & Minerals

Arctic oil exploration: on ice

Major players in the Arctic oil rush may be rethinking diving into the frigid waters
Oil & Minerals
New oil exploration in the Arctic this year will be sparse (Photo: Greenpeace)

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Despite forking over billions of dollars in recent years for the right to drill for oil in the Arctic, a number of major oil companies have waivered in their belief that the region will be a profitable investment anytime soon.

In the most recent announcement, Shell said it was dropping plans to drill in Alaska in 2014. The move, according to a company status report released last week, was a way to cut spending, but it came on the heels of a court ruling challenging the validity of the company’s lease in Alaska’s Chukchi Sea, leading to “uncertainty” and a “lack of a clear path forward” in the region, according to Shell spokesperson.

Although Shell had spent considerable time and resources preparing to drill, given the current situation the company found it “impossible to commit the resources needed to explore safely in 2014”.

SEE VIDEO: In Search of Arctic Energy (at end of article)

Ben van Beurden, Shell’s managing director, said the company would be focusing on projects with more certain outcomes and shorter timelines.

Shell did not drill off Alaska last year after several mishaps in 2012, and environmental groups are claiming victory – if only a temporary one – after last week’s announcement. 

“Offshore oil drilling in the Arctic is filled with so many dangers that it defies common sense to try,” said Mette Frost, a spokesperson for WWF Denmark. “Shell’s decision to drop the wells in remote areas in 2014 means that Alaskan wildlife will have another year without the threat of oil spills.”

Frost said the decision showed Shell had learned hard lessons in 2012 about the risks of Arctic oil exploration. “Shell’s decision should reignite the debate on the future of Arctic oil drilling.”

Geologists estimate there are 1 billion barrels of recoverable crude off the coasts of Arctic countries. In a number of regions, particularly the Barents Sea and in the Russian Arctic, drilling is already underway.

Et tu, Cairn?
Some of those operations are expected to expand in the coming year, but in general 2014 is looking to be a year when companies decide whether Arctic oil is something worth chasing after right now.

Already in December, ExxonMobil cast doubt whether the expense of drilling in the Arctic was worthwhile. Instead of taking part in a licencing round for drilling rights off north-eastern Greenland, the company said it was pulling out to focus on shale gas in North America.

Cairn Energy last month also confirmed that it would not conduct drilling operations in Baffin Bay, off Greenland’s western coast, in 2014, despite indicating in late 2013 that it would resume activities after a two-year hiatus.

“Cairn and its joint venture partners are continuing to mature plans for the Pitu block offshore North West Greenland,” the company said, adding that a busy drilling season elsehwere, not a lack of confidence in the region's potentail, led to its decision.

Gone, but not forgotten
A fourth possible former-Arctic oil firm is Statoil. The Norwegian state-owned firm has licenses to drill off western Greenland, and had partnered with Cairn with the expectation that they would drill in 2014. Now though, an active 2014 season and cost-cutting measures will see it rethink its future in western Greenland.

Tim Dodson, the Statoil head of exploration, told Norwegian media that although nothing had been decided, the licences are expensive and Statoil was going to be more careful about where it explored.

“It has to do with the costly nature. It has to do with the risk profile,” he said.

Despite their hesitancy, it is unlikely oil firms are gone from the Arctic for good. In December, for example, Statoil was awarded a licence to operate in north-eastern Greenland, where conditions are much more difficult than in Baffin Bay. In fact, oil firms may simply be biding their time. There are currently cheaper places to get oil, and in 20 years time oil firms will have better drilling technologies. There will also be less ice permanent ice, should current trends hold. Ironically, however, their operations would likely face an increased threat of icebergs.

If indivudal firms are rethinking Arctic drilling, at the national level, it remaians a priority issue. Non-Arctic countries, on the one hand are still keen to get a foothold in the region, say experts.

“The Arctic opening feeds into Asia’s very serious energy concerns,” Mikkal Herberg, a senior lecturer on international and Asian energy at the University of California at San Diego’s Graduate School of International Relations and Pacific Studies, said during a recent Arctic energy forum held by the Washington, DC-based Wilson Institute. “The notion of more oil and gas supplies coming from someplace besides the Middle East is attractive to them.”

Arctic countries, too, are getting ready. Improving infrastructure, building more icebreakers and beefing up search and rescue capability are the most visible ways of doing so. Shoring up legislation, however, may be more important. Experts worry that countries are relying on existing drilling regulations, rather than addressing what they say are challenges specific to the Arctic.

“There should be consistent standards in regulation that every company operating in the Arctic needs to meet. It shouldn't be discretionary, and it shouldn't be what is recommended by the industry,” said Marilyn Heiman, the director of the Pew Institute’s US Arctic Programme.

In the rush to drill the Arctic, it would appear that he who hesitates will get regulated.