Obama scraps Arctic lease sales through 2022

December 23, 2016Leave a reply

Washington (Platts)–20 Nov 2016
10 sales set for Gulf of Mexico, one for Alaska’s Cook Inlet No lease sales in Beaufort, Chukchi seas of the Arctic Trump could add sales but not much sooner than 2020

The Obama administration on Friday ruled out Arctic drilling from its 2017-22 plan for US offshore oil and natural gas lease sales, arguing the Gulf of Mexico and Alaska’s Cook Inlet hold the best potential and lowest risks.

Republicans attacked the plan for locking up too much of the country’s offshore energy resources when the economy needs a boost.

The US Chamber of Commerce called on the incoming Trump administration and Republican majority in Congress to “immediately rescind and replace” the plan while continuing with the planned lease sales.

Trump could scrap the plan, but the legal process to do so could stretch two to three years, making it hard for his administration to schedule additional lease sales much sooner than 2020, when the first of the canceled Arctic sales was to be held.

He has said he wants to open more federal lands and waters to oil and gas development.

The 2017-22 plan announced Friday offers 11 potential lease sales in four planning areas, including 10 in the Gulf of Mexico — one in 2017; two each in 2018, 2019, 2020 and 2021; and one in 2022 — and one off the coast of Alaska in the Cook Inlet in 2021.

The Interior Department excluded the Beaufort and Chukchi seas from leasing after “receiving extensive public input and analyzing the best available scientific data.”

“The plan focuses lease sales in the best places — those with the highest resource potential, lowest conflict, and established infrastructure — and removes regions that are simply not right to lease,” said Interior Secretary Sally Jewell. “Given the unique and challenging Arctic environment and industry’s declining interest in the area, forgoing lease sales in the Arctic is the right path forward.”

Interior’s Bureau of Ocean Energy Management unveiled the proposed plan in March.

While a planned sale for the Atlantic included in an earlier version was removed, the draft still included 10 Gulf of Mexico sales, a 2020 Beaufort

Sea sale, a 2021 Cook Inlet sale and a 2022 Chukchi Sea sale.

The Obama administration faced intense pressure from environmentalists to cut the Beaufort and Chukchi sales from the lease plan.

Michael LeVine, the Pacific senior counsel of the Oceana nonprofit and a critic of Arctic drilling, said the plan is a common-sense response to the economic and environmental realities of operating in the Arctic.

LeVine said nothing will stop the Trump administration from trying to schedule additional lease sales, but he will not be able to change the low oil price and risks that have seen drillers lose interest in the Arctic in recent years.

LACK OF INTEREST

Earlier this year, ConocoPhillips, Eni, Iona Energy and Shell gave up more than 350 leases covering more than 2 million acres in the Chukchi, according to a review of Interior documents by Oceana. In June, Repsol abandoned 55 leases and announced plans to drop a further 38 in the following 12 months.

In September 2015, Shell abandoned its Arctic drilling efforts after an exploratory well in the Burger prospect of the Chukchi failed to find significant oil or gas. The announcement followed seven years and roughly $7 billion in spending. Alaska’s delegation to Congress said the 2017- 22 lease sales will yield the weakest offshore development plan in US history.

Senator Lisa Murkowski, Republican-Alaska, had urged the Obama administration to listen to the majority of Alaskans who want oil and gas development off their coasts.

“I am infuriated that he has once again ignored our voices to side with the factions who oppose it,” Murkowski said. “We have shown that Arctic development is one of the best ways to create jobs, generate revenues and refill the Trans-Alaska Pipeline.”

Murkowski said the move cedes leadership on Arctic energy production to Russia just as Obama is urging Trump’s administration to stand up to Moscow.

“I will do all that I can to counteract this shortsighted decision,” she said.

Randall Luthi, president of the National Ocean Industries Association, called the removal of Arctic sales an “eye-rolling” and “politically expedient” decision catering to fossil fuel opponents. He said development offshore Alaska could create $193 billion in federal revenue over 50 years.

POSSIBLE 2022-24 SALES

Luthi said the decision will delay Arctic production for up to 15 years.

“It can take 10 or more years, from exploration to development, before a single drop of oil is produced from an offshore well,” he said. “While countries such as Norway, Russia and even China are ramping up their presence in the Arctic, the US will have to play catch-up.”

Environmentalists did not get everything they wanted in the plan, after lobbying Obama to use designations under the Antiquities Act and a federal provision known as Section 12(a) of the Outer Continental Shelf Lands Act to permanently block drilling in the US Arctic and other federal waters.

Analyst Kevin Book, managing director of ClearView Energy Partners, said the retention of the Cook Inlet sale suggests the outgoing Obama administration may be unlikely to invoke permanent exclusions on offshore regions under Section 12(a).

Book expects the incoming Trump administration to start rewriting the five-year plan shortly after Congress confirms Trump’s yet-to-be-named Interior Secretary.

If the replacement plan covers 2019-24, Book said he would not rule out new sales in currently off-limits areas of the Eastern Gulf of Mexico for 2022, 2023 and 2024.

“We do not regard it as a slam-dunk. Leaving aside questions of coastal real estate assets, mixed sentiments among Trump’s Florida support base in the wake of the April 2010 Macondo spill could make an Eastern GOM reopening politically difficult,” Book said.