Shell gas station

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Shell Suspends Operations in Alaskan Waters
| published September 28, 2015 |

By R. Alan Clanton, Thursday Review editor

Despite spending billions of dollars on initial work in the icy cold waters north of Alaska, Shell (full name: Royal Dutch Shell) has announced it will suspend exploratory operations after the main well failed to produce the desired results.

Shell spent about $7 billion so far on Arctic oil exploration north of Alaska in the hopes of tapping into what it had hoped was billions of gallons of oil, known by some geologists to exist under the frozen icy waters. But after drilling more than 6,800 feet—and hitting some oil and gas deposits—Shell says it has not been able to produce sufficient quantities of either to justify the operation, at least for now, at the “Burger J” well and drilling site.

Officials with Shell say that the Arctic region still shows great promise, and the company intends to stay active in the water off Alaska, but that the particular site in the Chukchi Sea—81 miles off the northwest coast of the largest U.S. state—has not yet proven able to recover the cost of going any further forward. Drilling technologies may change in the future, however, and Shell says it may return to the site of the deep exploratory well, eventually. Shell holds leases for about 275 other Outer Continental Shelf drilling blocks in the Chukchi Sea.

The suspension of work comes as a disappointment for the company which back in 2008 had spent $2.1 billion for the rights to lease the area for drilling. Shell, like scores of major oil and gas companies, is facing complex pressures with a worldwide drop in oil prices, now affecting almost every part of the globe. With the price of oil dipping to record lows, and with the glut of oil now presenting problems even for storage, Shell could no longer sustain the cost of the expensive venture.

When the project was authorized in the late aught years, oil and gas prices were at their highest point, and major projects involving deep drilling in the Arctic were deemed safe bets, and were considered valuable potential sources of oil for future generations. Other major oil companies were also looking into the potential of the waters north and west of Alaska, but several have temporarily suspended consideration. Warming waters have opened up vast areas of Arctic seas previously unreachable.

The cancellation of the Shell drilling, however, comes amidst much celebration by environment groups, many of whom had opposed drilling in the area, and some of whom had tried to block the project. In addition to the disappointing output from the exploratory well, Shell also cited changing U.S. regulatory policies for the waters off Alaska.

The announcement came on what would have been Shell’s last permitted day of drilling for the season, as under federal guidelines—and under the terms of the government lease—oil and gas companies must shutter operations in early fall each year. Sea-ice normally begins to reform and expand in early October, making operations difficult and dangerous, but also putting at risk animal life that depends of access to the sea ice.

Though in Washington support for the Alaska operations of Shell and other companies is a divisive issue, in Alaska there is generally widespread support for drilling—onshore or offshore. Alaska is seeking to boost business and industrial development, and also to increase the flow of oil through the Alaska pipeline, now operating at about one quarter of its full capacity.

Related Thursday Review articles:

Shell to Buy BG Group; Thursday Review staff; Thursday Review; April 8, 2015.

Why Oil Prices Will Continue to Fall; Keith H. Roberts; Thursday Review; July 3, 2015.