Obama Administration Makes It Harder for Oil Firms to Drill Offshore in the Arctic

Hil­lary Clin­ton put some polit­ic­al dis­tance between her­self and Pres­id­ent Obama on the en­vir­on­ment a few weeks ago when she came out force­fully against drilling in Arc­tic wa­ters off Alaska’s coast.

On Fri­day af­ter­noon, that dis­tance ef­fect­ively shrank. The Obama ad­min­is­tra­tion took two steps that will make it tough­er for oil com­pan­ies to tap what may be huge hy­dro­car­bon sup­plies in those Arc­tic seas.

The In­teri­or De­part­ment can­celed plans to sell new drilling leases in the Chuk­chi and Beaufort Seas in 2016 and 2017, re­spect­ively. In a sep­ar­ate move, In­teri­or re­jec­ted re­quests from two oil gi­ants—Shell and Statoil—to ex­tend the life of Arc­tic leases they already hold.

To be sure, the de­cisions ar­rive as in­dustry in­terest in ex­pens­ive Arc­tic off­shore pro­jects is at a low ebb, es­pe­cially after Shell’s years-long, mult­i­bil­lion-dol­lar Arc­tic ef­fort went bust late last month.

In­teri­or cited Shell’s sus­pen­sion of its Arc­tic pro­gram when the de­part­ment an­nounced its de­cisions on Fri­day to can­cel new lease sales.

“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.

The de­part­ment noted that in­dustry ex­pressed little in­terest in the Arc­tic auc­tions slated for 2016 and 2017 when reg­u­lat­ors asked for nom­in­a­tions for spe­cif­ic areas to be offered.

The Amer­ic­an Pet­ro­leum In­sti­tute, a large in­dustry lob­by­ing group, at­tacked the Obama ad­min­is­tra­tion for what the group calls a his­tory of put­ting up bur­eau­crat­ic hurdles.   “In­vest­ment de­cisions have been dir­ectly thwarted by the policy de­cisions of the ad­min­is­tra­tion re­lated to Alaskan Out­er Con­tin­ent­al Shelf de­vel­op­ment, and lease ex­ten­sions are clearly jus­ti­fied un­der the cir­cum­stances,” said Erik Milito, a top of­fi­cial with the group. “And while it is not sur­pris­ing that In­teri­or can­celed the re­main­ing lease sales be­cause there was an ab­sence of nom­in­a­tions, it is the sig­ni­fic­ant reg­u­lat­ory un­cer­tainty that has cre­ated the re­luct­ance on the part of our in­dustry,” he said.

The twin de­cisions could make it tough­er for the in­dustry to re­ignite Arc­tic de­vel­op­ment in the fu­ture, which is why a suite of en­vir­on­ment­al groups ap­plauded In­teri­or’s ac­tion Fri­day.

“This is a his­tor­ic de­cision to keep Arc­tic oil in the ground that will be felt for years to come. It’s great news for the Arc­tic and for every­one fight­ing against ex­treme fossil-fuel pro­jects,” said Green­peace spokes­man Trav­is Nich­ols.

The de­cision to scuttle the 2016 and 2017 lease sales is not a shock. As Na­tion­al Journ­al re­por­ted in Au­gust, there were already sig­nals that they might not hap­pen.

When it comes to ex­ist­ing Arc­tic leases sold un­der Pres­id­ent George W. Bush, Shell and Statoil, along with Cono­co­Phil­lips, had asked for so-called sus­pen­sions that would ef­fect­ively ex­tend the op­tion to de­vel­op them bey­ond their 10-year life. With Fri­day’s de­cision, Beaufort Sea leases ex­pire in 2017 and Chuk­chi Sea leases ex­pire in 2020. “Among oth­er things, the com­pan­ies did not demon­strate a reas­on­able sched­ule of work for ex­plor­a­tion and de­vel­op­ment un­der the leases,” In­teri­or said of the de­cision not to grant the lease ex­ten­sions to Statoil and Shell.

But like many ad­min­is­trat­ive battles, this one could drag out for quite a while. The Hou­s­ton Chron­icle, which broke the news of In­teri­or’s ac­tions Fri­day, re­por­ted:

After Cono­co­Phil­lips’ sus­pen­sion re­quest was denied, the Hou­s­ton-based com­pany chal­lenged the de­cision be­fore an In­teri­or De­part­ment ap­peals board. Set­tle­ment talks are un­der­way. Shell and Statoil can now ap­peal their deni­als to the same ad­min­is­trat­ive body. If they do, it could be a move to pre­serve the op­tion­al value of the leases, which ef­fect­ively give the com­pan­ies a chance to ex­plore in U.S. Arc­tic wa­ters for a few more years—and pos­sibly wait for a new ad­min­is­tra­tion that could take a dif­fer­ent view on the is­sue.

The Obama ad­min­is­tra­tion still has more de­cisions to make about policy in the Arc­tic seas, which are es­tim­ated to con­tain 23 bil­lion bar­rels of re­cov­er­able oil. Off­shore lease sales are planned in five-year in­cre­ments. A draft plan for 2017-2022 floated in Janu­ary in­cludes Arc­tic auc­tions in 2020 and 2022, but it’s un­clear wheth­er the fi­nal plan will in­clude those sales.

Fri­day’s de­cisions drew quick GOP cri­ti­cism. Rep. Rob Bish­op, the chair­man of the House Nat­ur­al Re­sources Com­mit­tee, bashed the can­cel­la­tion of new lease sales.

“While the Obama ad­min­is­tra­tion pats it­self on the back, [Rus­si­an Pres­id­ent Vladi­mir] Putin is pat­ting this ad­min­is­tra­tion on the head. Obama has once again played dir­ectly in­to Rus­sia’s hands as he des­troys our na­tion’s en­ergy po­ten­tial,” Bish­op said.