Here's why Obama is approving Arctic drilling again

Reuters News
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Posted: Apr 01, 2015 1:59 PM

By Timothy Gardner

WASHINGTON (Reuters) - For a leader who has made fighting climate change a priority, President Barack Obama's decision to approve Royal Dutch Shell's return to oil and gas exploration off Alaska was seen by many environmentalists as a contradiction.

On Tuesday, his administration upheld a 2008 Arctic lease sale, clearing an important hurdle for Shell. The Interior Department will now consider the company's drilling plan, which could take 30 days. But Shell, which has already spent about $6 billion exploring the Arctic, expects to return to polar waters this summer and is already moving oil rigs to Alaska.

Meanwhile, environmentalists pointed to Shell's mishaps in the region in 2012 when a massive rig ran aground and the company was fined for pollution, raising questions about Obama's decision:

Isn't Obama opposed to oil extraction in sensitive areas?

While his administration has championed renewable energy, Obama has never disavowed the need for oil and gas in the U.S. energy mix. His approach has been to balance new regulations on high-carbon industries with an appreciation for the economic benefits of the domestic oil and gas boom.

To counter critics, Obama can point to his January proposal to prohibit drilling on 1.4 million acres of the Alaska National Wildlife Refuge. In addition, drilling offshore Alaska is in relatively shallow waters and would need less pressure than deepwater drilling in the Gulf of Mexico, home to the 2010 BP Deepwater Horizon oil spill.

The special U.S. envoy to the Arctic, Robert Papp, said this week that Shell understands the importance of taking necessary precautions after its Kulluk rig ran aground in 2012. "They should be OK," Papp said.

With global crude prices low, why is Shell going to a remote region in search of hard-to-extract oil and gas?

While oil prices have fallen by more than half since last summer, offshore Arctic drilling may not produce substantial new reserves for decades - when onshore shale deposits may start to wane.

The fracking revolution in North Dakota and Texas has led to the highest U.S. oil output since the early 1970s, but nobody knows how long shale will continue to produce at high rates.

"The trick of Arctic energy development is that the time horizons are extraordinary long, some 10 to 30 years from when companies start these complex deals to even seeing when those resources would get to market," said Heather Conley, an analyst at the Center for Strategic and International Studies.

Shell will conduct tests to see how much oil and gas are in the Chukchi and Beaufort Seas. The Arctic is estimated to contain about 20 percent of the world's undiscovered oil and gas, 34 million barrels of oil in U.S. waters alone. Only Russia has bigger deposits. The National Petroleum Council, a group led by oil companies that advises the Energy Department, said in an assessment of Arctic potential last week that the region will boost U.S. energy security. (http://bit.ly/1Fe08jp)

Won't this add to carbon emissions at the same time Washington is trying to get the world to cut them?

If fracking in the continental United States declines, the government could argue that it is simply replacing barrels it used to produce elsewhere. The Arctic also has a lot of gas that is lower in emissions when burned. Depending on how markets shape up, energy companies could be drilling for more gas than oil in the Arctic.

Could Obama be acting for strategic reasons?

Other countries are present in the Arctic. Russia is exploring its northern waters, although Western sanctions have forced Shell competitor Exxon Mobil to withdraw from partnerships there. China and India are also interested in joining partnerships to drill in the Arctic.

But the United States has a major infrastructure advantage: Due to a decline of Alaskan oil output, the Trans Alaskan pipeline is only operating at 25 percent of capacity and could serve as a conduit for new oil finds. "The Alaska pipeline would be ecstatic to get another customer," said Lou Pugliaresi, president of the Energy Policy Research Foundation, noting that the Russian Arctic's lack of infrastructure could make projects slower to develop.

(Reporting by Timothy Gardner; Editing by Bruce Wallace and Leslie Adler)