Long before Ottawa ban, the Arctic’s US$150 per barrel breakeven costs had kept oil firms at bay
|National Post 21 Dec 2016 at 14:23|
CALGARYThe move by Prime Minister Justin Trudeau on Tuesday to limit oil and gas exploration in the Arctic comes after years of false starts in Canadas far North.
Companies like Panarctic Oils Ltd. and Dome Petroleum were punching holes in the Canadian Arctic in search of oil and gas since the 60s.
Those early exploration efforts yielded little in the way of worthwhile oil and gas reserves. But over time new investments began to uncover larger swaths of resource, and the Canadian Arctic is today estimated to hold 15 billion barrels of oil and 19 billion barrels of oil equivalent of natural gas. A United States Geological Survey survey in 2008 estimated the Arctic region could contain approximately 240 billion barrels of BBOE of oil and oil-equivalent natural gas, which is almost 10 per cent of the worlds known conventional petroleum resources.
On Tuesday Ottawa and Washington released a joint statement that would effectively ban new oil and gas licences in U.S. and Canadian Arctic waters. The decision would put significant sections of the northern resource off limits to oil and gas companies.
However, the ban comes at a time when interest in developing the Canadian Arctic has all but vanished. Costs for offshore development in the Arctic are among the highest in the world, and companies have steadily shelved development plans in recent years due to lower oil prices.
Since the earliest days of exploration, the promise of an Arctic oil and gas industry has risen and fallen in line with commodity prices. Today, amid heightened uncertainty over oil demand in the long-term and increasingly onerous regulatory expectations, the region is as unfeasible as ever.
In 2015, Imperial Oil Ltd. and BP PLC scrapped plans for an oil development in the Beaufort Sea a short distance north of Tuktoyaktuk, Northwest Territories. The company applied to have the deadline for its licences extended from 2022 to 2028.
We believe additional time is needed to ensure future oil and gas activities are conducted in an appropriately paced, safe and environmentally responsible manner, the company said in a written response to Ottawas decision.
The same year, Royal Dutch Shell PLC shelved its plans to drill the worlds single most expensive well in the Chukshi sea offshore Alaska. A spokesperson for Shell Canada Ltd. said the company had no immediate plans to develop the Arctic, and said the ban would not effect the Arctic operations of its U.S. counterpart.
Northern offshore development has also become a major target for environmentalists, due in part to the long-term nature of deep sea development, which leads to so-called carbon lock-in that slows the shift away from fossil fuels.
According to a recent report by the Stockholm Environment Institute, the cost of oil and gas development in the Arctic is US$150 per barrel more than the price required to meet the worlds target of keeping atmospheric temperatures below 2C.
Due to the low activity in the region, some groups were confused by the ban. Some northern communities see the development of natural resources as one of only a few economic opportunities.
We are concerned by the announcement and firmly believe Northerners should be involved in making decisions that affect them and their economic future, and in this instance, they werent, Northwest Territories premier Bob McLeod said in a written statement.
The Newfoundland and Labrador Oil & Gas Industries Association, whose representative areas are also included in the ban, said they were not consulted by the government before the decision.
We have been assured that there will be no ramifications on the Newfoundland and Labrador offshore industry, where science has proven that drilling can be done in an environmentally-conscientious manner, it said in a written statement.
Trudeau defended the decision, saying the ban would allow northern communities to further develop other industries like fishing and scientific research.
There hasnt been something visible on the horizon of significant benefit to Indigenous communities in the near or even medium-term future, so what were focused on is how do we grow and strengthen those communities right now, because right now is when we need them, Trudeau said in Calgary on Wednesday.
There have been other, more selective bans on oil and gas development in the Canadian Arctic in the past. A moratorium on development in the Lancaster Sound region of the Canada has been in effect for over 40 years.