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Giancarlo Strocchia

Giancarlo Strocchia

A journalist and communications consultant, Strocchia has been working with major Italian and international newspapers, including the RAI (Italian Public Broadcasting Network) and Euronews. For…

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What Future Does Arctic Oil Have?

Arctic Oil Rig

The horizontal white line is unmistakable. A white blanket and an icy sea that cover a "warm" core of hydrocarbons that, recently, seems to have lost its attractiveness. So much so that the oil major Royal Dutch Shell has decided to abandon the extensive arctic lands despite its substantial investments there. The venture simply does not seem to be worth the trouble. Yet estimates would suggest the exact opposite, with past assessments leading many Oil & Gas companies to fund costly explorations, betting on the Arctic to ensure the industry’s future. The energy history of the Arctic begins in Russia with the discovery of the Tazovskoye13 field in 1962, which launched the big race for hydrocarbons. It was then Alaska’s turn with the Prudhoe Bay field, which came to light in 1967. Approximately 61 large oil and natural gas fields have been discovered within the Arctic Circle since, including in Russia, Alaska, Canada and Norway. A total of 15 of these large fields are still not in production, 11 are located in Canada and territories of the northeast, 2 in Russia and 2 in Arctic Alaska.

Large investments stuck at the starting post

The current collapse in oil prices has resulted in a clear change of perspective. Although the Energy Information Administration speaks of reserves amounting to 27 billion barrels of oil and 132 billion cubic feet of gas "trapped" in the depths of the boundless Arctic lands, major oil companies, such as Royal Dutch Shell and ConocoPhillips, have given up their exploration rights in the U.S. Arctic worth a total of $2.5 billion. In particular, last year Shell ended an unsuccessful exploratory effort costing at least $8 billion in the Chukchi Sea. The company determined that the risks were not offset by the earning prospects, and other major companies in the industry are gradually coming to the same conclusion. At the end of 2015, the Obama administration had "frozen," at least until the end of 2016, drillings in search of oil and gas off the coast of Alaska, revoking existing permits (Shell until 2020 in the Chukchi Sea and Norway’s Statoil until 2017 in the Beaufort Sea). Sally Jewell, U.S. Secretary of the Interior, who also deals with mineral resources in the U.S., blocked the 2 licenses and will not grant any more. The last act in this saga concerns the drawing up, by Shell and ConocoPhillips on May 1, 2016, of the decision to abandon the Arctic, with a deadline fixed for the payment of millions of dollars to the U.S. government, the lessee of exploration blocks in northern Alaska. Meanwhile, on March 15, 2016 Jewell and the Bureau of Ocean Energy Management (BOEM) presented the 2017-2022 Outer Continental Shelf (OCS) proposal for the licensing program in the Oil & Gas industry. An entire chapter covers the debate on whether to open a further concessions program in the vast Arctic area corresponding to Alaska. The "regulator" openly expresses her hesitation in proceeding to issue further licenses, even after the moratorium expires in December 2016, in the Chukchi Sea, the Beaufort Sea and in the Cook Inlet areas. The areas under examination, as stated in the document, "could be subject to potential conflicts between oil and gas research and extraction activities and important ecological and livelihood resources for the local people." The BOEM has declared these areas as "important for the environment" while it continues the work of collecting new information, mainly from local populations. "We know that the Arctic is a unique place and crucial for many native populations who rely on the resources that the ocean provides to meet their daily livelihood needs," said Jewell. "We will proceed to prepare the final proposal while continuing to consult the population in order to understand whether these areas are adequate to support new licenses, without adversely affecting environmental resources."

The Washington-Ottawa axis

At the same time as the presentation of this program, in a joint statement with Canadian Prime Minister Trudeau, President Obama announced the launch of a handbook of rules for managing the Arctic area. The main rule concerns the commitment to verify and ensure that all commercial activities to be undertaken in the Arctic meet the highest safety and environmental standards, especially with regard to national objectives in terms of environmental protection and climate change. For this reason, during the process of planning offshore oil activities, the BOEM will work with Canada to ensure that the global regulation for managing the Arctic zone, established by the 2 nations, is complied with care. For its part, Ottawa has estimated that approximately 1.36 billion barrels of oil may lie buried beneath the Beaufort Sea in the Arctic Ocean. But there are also difficulties on the Canadian side. Major Oil & Gas companies such as Imperial Oil, Exxon Mobil, BP and Chevron could be forced to abandon their research and extraction projects, since they have not been able convince the federal authorities that they can continue their drilling activities – before their licenses expire – without completely evading the environmental risk. Related: Saudi Arabia To Tax Foreign Residence As Oil Crisis Continues

A still uncertain future, awaiting a new president

Yet what will happen after the upcoming presidential election at the White House? Michael Livermore, Professor of Environmental Law at the University of Virginia, recently argued that it would be difficult, although not impossible, for the future president to alter what now seems to be a real change of course in the possibility of Arctic energy exploitation. "If, in the licensing program, some zones are excluded, it will be unlikely that they will be considered exploitable again in the future; therefore no license will be granted, even by the next administration," claimed Livermore. "But the new leaders could decide to launch a new programming process, and through this grant new license areas." In this regard, the message of Hillary Clinton, Democratic presidential candidate, was immediately clear: "the Arctic is a unique treasure, and we cannot run the risk of exposing it to new drilling." Clinton’s position satisfies the hopes of environmentalists, who are asking White House candidates to adopt a harder line on the development of fossil fuels than the approach taken during current President Obama’s 2 terms in office.

By Giancarlo Strocchia via Abo.net

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