The U.S. Interior Department effectively halted drilling off Alaska’s coast for the remainder of President Barack Obama’s term by canceling two sales of Arctic oil and gas leases.
The decision comes less than a month after Royal Dutch Shell Plc said it would indefinitely cease exploration in the region as the company didn’t find sufficient quantities of oil or gas in a Chukchi Sea drilling zone.
“In light of Shell’s announcement, the amount of acreage already under lease and current market conditions, it does not make sense to prepare for lease sales in the Arctic in the next year and a half,” Interior Secretary Sally Jewell said in a statement on Friday.
The cancellations highlight the changing environment for the oil industry after international prices fell more than 50 percent from their 2014 peak as supply overwhelms demand. Drilling in treacherous Arctic waters is also expensive, and Shell cited the high costs in shuttering its $7 billion search for oil and gas in the region.
Alaska projects oil to account for about 75 percent of the revenue generated in the state for fiscal 2015 -- down from 88 percent the previous year -- and state politicians immediately criticized the decision to cancel the lease sales.
“This is a stunning, short-sighted move that betrays the Interior Department’s commitments to Alaska and the best interests of our nation’s long-term energy security,” Senate Energy and Natural Resources Committee Chairman Lisa Murkowski, an Alaska Republican, said in a statement.
The canceled sales were part of the Interior Department’s 2012-2017 offshore leasing program. The agency said it received no industry interest in a potential Chukchi Sea lease sale scheduled for next year and one response to its call for nominations for a possible Beaufort Sea lease sale that was to be held in 2017.
The Interior Department made an “entirely reasonable decision” in canceling the lease sales, Lois Epstein, the Anchorage-based Arctic program director for The Wilderness Society, said. New Arctic lease “would likely be unsuccessful” after Shell failed to find substantial oil in the Chukchi Sea, she said in a statement.
The Obama administration in January proposed its offshore plan for 2017-2022, potentially curbing exploration in the Beaufort and Chukchi seas while opening part of the Atlantic region to drilling. The plan hasn’t been finalized.
Separately, the Interior Department said its Bureau of Safety and Environmental Enforcement has denied requests from Shell and Norway’s Statoil ASA to retain their existing Arctic leases after they expire within the next five years. The companies didn’t show a “reasonable schedule of work” to explore for oil and gas under the leases, the Interior Department said in its statement.
The American Petroleum Institute, a Washington-based industry group for oil and natural gas companies, said investment in the Arctic has dwindled due to uncertainty about federal regulations.
Lease extensions are “clearly justified under the circumstances,” Erik Milito, the group’s upstream director, said in a statement.
With global oil supply outpacing demand, offshore Arctic oil “is not really needed and it is hard for any company to justify spending much on it right now anyway,” Brian Youngberg, an analyst at Edward Jones in St. Louis, said in an e-mail. “Unless prices went much higher and looked sustainable, I doubt any companies will pursue it anyway,” he said.