Shell Abandons Arctic Exploration

The oil industry has taken a number of huge hits this year with the collapse of oil prices. The latest is the announcement from Royal Dutch Shell that they are abandoning their Arctic drilling program in the Chukchi Sea off the coast of northwest Alaska after years of effort, over $7 billion spent, numerous regulatory battles, and unrelenting challenges from environmental groups. Shell announced that they found indications of oil and gas, but that they weren’t sufficient to warrant further exploration in the so-called  Burger prospect. The well will be plugged  and abandoned in accordance with U.S. regulations. The problem is that geologists believe the Arctic holds a quarter of the world’s undiscovered conventional oil and gas reserves. Shell’s high profile failure likely means that other companies won’t make similar attempts, and this resource will be unavailable to meet both US and world demand for oil  that is expected to grow by another 10% over the next several decades.

See Shell move dims oil prospects, delights environmentalists and Shell updates on Alaska exploration

Shell’s news comes on the heels of an article in The Motley Fool presenting the results of a report from the energy-industry consultancy firm Wood Mackenzie. The report concluded that low oil prices could lead to the delay in a staggering $1.5 trillion worth of oil and gas projects in the near term.

See A Staggering $1.5 Trillion of Energy Projects Might Not Get Built in Time

While environmentalists and other green energy advocates are elated by these outcomes, there will undoubtedly be both short and long term negative implications. In the short term the oil industry in the US is shedding jobs (high paying ones at that), and companies are disappearing. In the long term US oil production will drop dramatically as the current oil fields are depleted and no new production comes on board. Oil imports will increase, setting the stage for a disruption in oil supplies and dramatic increases in oil price.


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