Oil Companies Cool on Arctic Drilling. Trump Wants It Anyway.
It’s hard to lure Big Oil to the Big Freeze when crude is at $50 a barrel.
In recent weeks, Trump and his new Interior Secretary Ryan Zinke, with some Senate allies, have reportedly begun exploring ways to open the U.S. Arctic to new oil and gas drilling projects. It’s part of the president’s so-called America First Energy Plan to unlock “vast untapped domestic energy reserves” from environmental protection and begin drilling.
But in the Arctic, energy experts are throwing freakishly-warm-but-still-cold water on those plans. And it’s not regulations that are making Arctic drilling unappealing: It’s market forces themselves, especially crude oil prices that have spent the last two years in the doldrums.
“We think there is almost no rationale for Arctic exploration,” Goldman Sachs commodity expert Michele Della Vigna said on CNBC’s Squawk Box Thursday. “Immensely complex, expensive projects like the Arctic we think can move too high on the cost curve to be economically doable,” he said.
Part of the reason is the shale revolution in the United States, which undercut frontier projects like deepwater or the Arctic.
“Shale is more accessible and is going to come ahead of the Arctic,” said Bud Coote of the Atlantic Council, formerly a CIA energy analyst. When oil companies like Shell did venture to the waters off Alaska several years ago, oil went for more than $100 a barrel. That made all the extra costs involved in drilling at the edge of the earth a bit more bearable. “I think it has to be back up in that range” for companies to head north again, he told Foreign Policy. Yet crude has hovered around $50 a barrel since late 2014.
Big oil gave up on some $2.5 billion in drilling rights in the U.S. Arctic in 2016; expensive plays as oil prices dropped just weren’t worth the cost anymore. “High-cost frontiers,” like the Arctic “will be shunned,” energy intelligence firm Wood Mackenzie said in December last year.
Former President Barack Obama didn’t help. He threw a wrench into Trump’s energy plans when he signed a series of midnight regulations on his way out the door designed to lock up the Arctic from drilling, with little consultation from Alaskan lawmakers.
But despite the clear signals from the market, Trump is stubbornly pursuing Arctic energy plays. Trump and Zinke met with Sens. Lisa Murkowski (R.-Alaska) and Dan Sullivan (R.-Alaska) earlier this month to lay down plans for opening Alaska’s coast to offshore drilling. (The Chukchi and Beaufort Seas off the Alaska coast are the only bits of the offshore U.S. Arctic that have been open at all for drilling.) That has energized Alaska lawmakers, whose state draws much of its revenue from drilling and land leases for oil exploration.
Economics and legal battles aside, national security experts (and Alaskan lawmakers and lobbyists) are framing Arctic drilling as a national security issue — with an eye on Russia. Energy can be a (profitable) wedge to drive greater U.S. presence into a largely empty region, they say.
The United States may have plenty of easy oil to tap before it is forced to weather the tough Arctic offshore. But Russia faces a big decline in crude production from old oil fields as soon as the next decade — unless it can line up some big plays in its own frozen north. That’s why Russia is ramping up its Arctic energy exploration and boosting its military infrastructure there. For the United States, many experts say keeping the energy pilot light lit is a good way for the United States to maintain its footprint and assert its sovereignty in the Arctic.
Even if Arctic energy ventures don’t pan out, energy companies are still poised to have a grand old time during the Trump administration. (Well, maybe not coal companies.) Hot on the heels of the election, the Republican-controlled Congress rolled back anti-corruption regulations for the oil and mining industries. And on Friday, the State Department green-lighted the controversial Keystone XL oil pipeline, reversing Obama’s orders to scrap the project meant to pipe Canadian crude to U.S. Gulf coast refineries.
Trump touted it as a huge win for his scandal-plagued White House. “It’s going to be an incredible pipeline,” he said Friday from the Oval Office. He added it would be built with the “greatest technology known to man or woman,” apparently referring to foreign-made steel pipes. Once completed, the pipeline could provide up to 35 jobs.
Correction: An earlier version of this article had incorrectly stated Alaska’s junior Senator’s name.
Photo credit: ROBYN BECK/AFP/Getty Images
Robbie Gramer is a diplomacy and national security reporter at Foreign Policy. Twitter: @RobbieGramer