Expanded offshore Arctic oil leasing might not draw industry enthusiasm

The Trump administration is seeking to throw almost all marine waters off Alaska wide open to oil companies, but there are questions about whether any companies might want to drill there.

The Trump administration is seeking to throw almost all marine waters off Alaska wide open to oil companies, but there are questions about whether any companies might want to drill there.

The Department of Interior’s draft five-year offshore oil and gas leasing plan proposed for 2019 to 2024 would open up all of the federal Arctic waters to oil leasing, with three sales each in federally managed territories of the Chukchi and Beaufort Seas. That would reverse Obama administration policy, which took the Chukchi and the distant waters of the Beaufort Sea off the leasing schedule.

[Trump administration plans to reopen closed Arctic waters off Alaska to oil and gas drilling]

But the only part of the U.S. Arctic waters that is likely to be of serious interest to the oil industry, one expert said, is the same part that was left open to leasing during the Obama administration – federal territory in the Beaufort Sea that is closest to the coastline of Alaska’s North Slope.

“I do expect that there will continue to be interest in the Beaufort Sea, where they have experience. It’s near infrastructure,” said Matt Berman, an economist with the University of Alaska Anchorage’s Institute of Social and Economic Research.

The more remote Chukchi Sea off northwestern Alaska, site of Shell’s abandoned multibillion-dollar exploration campaign, might also draw bids, but those would likely be for speculation, Berman said.

In the Chukchi, companies might bid “because they don’t want the opportunity to get away from them” or to make sure that competitors don’t get the tracts. That does not mean that there will be drilling in the Chukchi, he said. “In terms of real serious interest in exploration and development, I think the oil price has to be a lot higher than it is now,” he said.

Though the Arctic offshore region likely holds a lot of oil, offshore Arctic development is difficult, Berman said. If the administration succeeds in opening marine areas in the Lower 48 to leasing, that would mean stiff competition for industry investment, he said.

“The Arctic’s environment is an added cost.  With Shell, they spent a lot more money than they had hoped to, and they found a lot less oil than they had hoped to,” he said. If the Lower 48 areas are opened, that “would be a lot more appealing to the industry than, say, in the Arctic.”

Others in Alaska appear to be less concerned about competition for investment dollars from the Lower 48.

The Resource Development Council for Alaska, in comments submitted last August to the Bureau of Ocean Energy Management, advocated for offshore leasing in U.S. Arctic waters and in expanded areas in the Gulf of Mexico and along the U.S. East Coast.

“To further reduce our reliance on foreign sources of oil, America must continue to pursue responsible oil and gas development onshore and offshore Alaska, in the Lower 48 states, the Gulf of Mexico, and the Atlantic basin,” the RDC statement said.

Marleanna Hall, the executive director of the RDC, said the organization looks at competition for oil industry investment in a nuanced way.

“That’s a very complicated question,” she said. “We obviously would encourage resource development first and foremost to be done responsibly here in Alaska.” But the organization is part of the national Consumer Energy Alliance that promotes development nationally, she said.

If there is new offshore Arctic leasing and exploration, that could bring “much-needed infrastructure” to the region, with benefits that go beyond the oil industry, Hall said.

For Alaska, the plan released last week by Interior Secretary Ryan ZInke goes beyond the Beaufort and Chukchi. It calls for lease sales in all other federal waters of the state, with the exception of the North Aleutian Basin, permanently closed to oil and gas leasing in 2014.
That includes areas in the northern Bering Sea that were last explored for oil in the 1980s, as well as areas elsewhere, such as the central Bering Sea, that have never been leased or considered prospective for hydrocarbons.

The idea of oil development in the northern Bering Sea drew fury from indigenous leaders. The Bering Sea Elders Group, representing 76 tribes in the region, issued a statement promising to “take all legal means necessary to fight offshore drilling in our waters.”

Oil development would bring noise and industrial disturbances to a region that has no real prospect for producing oil, the statement said. “It is not clear to us why our many requests have been ignored. It cannot be because there is so much potential for profit here – there isn’t. . . There is no oil there. Our people and our way of life are being exposed to danger and we do not understand why,” it said.

Sen. Lisa Murkowski, however, applauded the wide-open approach as “a positive step.”

“Secretary Zinke’s ‘blank slate’ approach launches a new discussion with local stakeholders to determine where responsible energy development should take place,” the Alaska Republican said in a statement.

There is little potential for offshore oil discoveries outside of the Beaufort and Chukchi seas and southcentral Alaska’s Cook Inlet, according to a resource assessment published by the Bureau of Ocean Energy Management.

According to the 2006 resource assessment compiled by BOEM’s predecessor agency, the U.S. Minerals Management Service, the Beaufort and Chukchi together probably hold about 90 percent of the undiscovered and recoverable oil in the entire Alaska outer continental shelf. After that, the most promising outer continental shelf area in off Alaska’s coast is in Cook Inlet, with about 3.7 percent, and the off-limits North Aleutian Basin, with about 2.8 percent of estimated recoverable oil, according the resource assessment.

Berman said the more obscure offshore Alaska areas that the administration is hoping to open to drilling, such as the northern and central Bering Sea, would require clearance of an important bureaucratic hurdle, a step he said seems unlikely.

“You can’t have a lease sale in an area that hasn’t already had a lease sale without having a full-blown environmental impact statement. Where are they going to get the money to do that?” he said. “These other places are probably just to show the flag rather than expecting there will actually be a lease sale.”