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Shelling out on the Arctic

The polar pioneer rig before it was towed to Alaska in June The polar pioneer rig before it was towed to Alaska in June Wikimedia/ CC Backbone Campaign
07 Aug
With protests on the outside and job cuts on the inside, Shell's activities are anything but quiet. Geographical takes a look at why the energy company is so determined to drill in the Arctic

For the first time in three years, Shell has begun exploratory drilling the Arctic. The oil company has engaged their off-shore rig, the Transocean Polar Pioneer, for a season of work in the Chukchi sea, 70 miles off the coast of Alaska. Supposedly the idea is to drill the top 40 to 50m portion of a proposed well site, ‘Burger J’, to make way for deeper drilling at a later date.

If the initial phase goes to plan, the company hope to begin work on a second proposed well site, ‘Burger V’, before the Pioneer returns south for the winter. This adheres to a strict permit by the Obama administration, which only allows one hole to be drilled at any one time, at sites at least 15 miles apart from one another, so as not to harm marine life. There is only a window of 75 days during the Arctic summer before weather conditions become unsafe.  

The drilling began at a turbulent moment for the company. The same day, it announced it would slash 6,500 jobs and billions of dollars of investment due to the slump in oil prices. Meanwhile, environmental protesters dangled like a human tripwire from a bridge in Portland. They attempted to delay the Fennica, an ice-breaker laden with oil containment supplies, in its voyage to join the Polar Pioneer. In theory, deeper drilling will commence once the Fennica arrives. 

greenpeaceProtesters against oil development in the Arctic rappel from Oregon bridge, Portland, USA (Image: JPL Designs)



Arctic oil ambitions are expensive. Amid their cuts, the company have commited to spending around £4.5 billion on its Arctic projects. As the burgeoning US shale industry gas slashing oil prices in half, how can oil companies afford to spend so much on Arctic projects?

When considering the economics of any large project,’  says Brent Sheets, Research Manager at University of Alaska Fairbanks, ‘the price of oil today is not necessarily what it will be next week, next month, or next year. We are indeed in a time of renewed oil and natural gas production within the borders of the United States, but we cannot forget that the time to be investing in future oil supplies is now, so that they will be technically recoverable when the pendulum begins to swing forward to high-priced energy again.’

There is a time limit to drilling in the Chuckhi sea — the lease Shell acquired in the 2008 Bush-era expires in just two years time. It is possible that this is also providing extra incentive to locate significant oil now, regardless of the current market. 

It takes years to establish an oil well, especially somewhere as temperamental as the Arctic. Shell is beginning its Arctic projects now so that it will have the capacity to extract it in around ten years time. Therefore, it should be seen more as a long term investment than an immediate gain. ‘So the real question is,’ says Sheets, ‘what will the price of oil be in 10 years?’



The US Geological Survey estimates that there are 15 billion barrels of technically recoverable oil in the Chuckhi sea. Due to the isolation of the high north, the company will need considerable infrastructure and safety equipment installed before it can see a drop of it. ‘Because of its remoteness,’ says Sheets, ‘whoever develops an oilfield will also have to build a considerable amount of supporting infrastructre - emergency response, pipelines and storage etc. ’ Vehement critics agree, protesting that the Arctic is too fragile for oil accidents and too harsh and isolated for an effective clean up. 

The operation has been met with bitter opposition; in June, the city of Seattle revolted at the use of its port as a parking space for the Transocean Polar Pioneer, while Greenpeace activists scaled the frame of the rig as it was towed up to Alaska. The rig replaces the Kulluk, which ran aground in 2012, a cause of further outrage.

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