Monday, September 28, 2015

Shell Abandons Arctic Plans

Shell now admits it’s no match for the Arctic Ocean. The oil company will remain in the Arctic just long enough to plug its latest exploratory well.

From a distance it was obvious all along that Shell did not have the right stuff to operate in the Arctic. A wing and a prayer combined with equipment designed for use in the friendlier waters of the Pacific was obviously not going to be enough to conquer the Arctic, and indeed, Shell’s ships had to be rescued multiple times when the weather took an unexpected turn. It didn’t own an icebreaker and had deployed only an off-the-shelf weather station. From Shell’s point of view, though, it was not about to start designing custom equipment for an ocean that might not have much oil under it. As it is, the company spent billions of dollars this summer drilling a test well that didn’t provide nearly enough oil and natural gas in return. With an annual R&D budget around $30 billion globally, the company is not so well funded that it can repeat that process over and over hoping eventually to strike it rich.

Falling oil prices don’t help, and neither does the retreating Arctic sea ice. The larger areas of open water in the Arctic Ocean make navigation easier but have more than doubled the size of waves and intensity of storms. The more active weather reduces the number of days on which an oil rig can operate. Despite the obstacles, the idea of oil in the Arctic lives on. When oil prices revisit their historic highs of a decade ago, it’s likely that Shell or someone else will come back and try again to strike oil.