To fully appreciate the significance of the Interior Department’s long-awaited decision earlier this week to allow Shell Oil to drill three exploratory wells in the contested Chukchi Sea, you need to keep in mind the recent struggles and uncertainties that the oil industry in the state of Alaska has faced.
Last month, ConocoPhillips announced that for the first time in 40 years, it had no plans to drill new exploratory wells in Alaska. BP, meanwhile, reportedly cut its 2010 development budget for Alaska by 15%. Volume on the trans-Alaska pipeline is way down from its 1988 peak, reflecting a failure of newer fields to offset the decline from Prudhoe Bay. And as capacity approaches the point at which operating the pipeline would no longer be feasible, thousands of jobs, as well as the future of the state’s main industry hang in the balance.
All of these developments are part of a general uncertainty over the future of the Alaskan oil production. The uncertainty comes not from any doubts about large volumes of untapped reserves in the state: By conservative estimates, Alaska’s coastal waters hold 27 billion barrels of oil and 132 trillion cubic feet of natural gas. Rather, questions persist over our ability to access those reserves.
The December 7 Interior Department ruling allowing Shell to drill in Chukchi resolves a longstanding dispute in one of the state’s most oil rich regions. An appeals court ruling earlier this year had allowed some other oil and gas projects in Alaska that had been initiated during the Bush Administration, but then held up under Obama, to go forward.
The Chukchi Sea is considered one of the most underdeveloped sources of oil in the U.S. Shell is eager to begin drilling. Alaska Governor Sean Parnell is also looking forward to the project getting underway. “Alaskans need these jobs and Shell is well prepared to explore for and develop oil and gas basins critical to our nation’s security,” he said in a statement.
However, it is worth stressing, as we’ve said before on this blog, that oil majors in no way regard this, or any other favorable ruling, as a license to drill with abandon. In fact, Shell won approval to drill in Chukchi only after it presented a proposal that addressed environmental concerns, in part by tightening the pollution controls on its drill ship. It was a costly and time consuming investment that should underscore the industry’s interest in Alaskan oil and gas, but its desire to do right by the state over the long haul.