By Brian Wingfield and Joe Carroll
(Bloomberg) — The U.S. Interior Department canceled the two remaining Arctic oil and gas lease sales scheduled to occur under its current program, effectively halting drilling off Alaska’s coast under President Barack Obama.
The decision comes less than a month after Royal Dutch Shell Plc said it would indefinitely cease exploration in the region, after the company didn’t find sufficient quantities of oil or gas in a Chukchi Sea drilling zone.
“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 cancellations highlight the changing environment for the oil industry after international prices fell more than 50 percent from their 2014 peak as supply overwhelms demand. Drilling in treacherous Arctic waters is also expensive, and Shell citied the high costs in shuttering its $7 billion search for oil and gas in the region.
The federal government probably sensed that interest in exploring in risky, challenging environments has faded as crude prices collapsed, said John Herrlin, an analyst at Societe Generale in New York.
“After Shell pulled out, it’s not like a lot of companies were clamoring to go up there anyway,” Herrlin said in an interview. “When cash is constrained, long-cycle projects get deferred, especially those with potentially decade-long lead times.”
The potential lease sales that were canceled were part of the Interior Department’s 2012-2017 offshore leasing program. The agency said it received no industry interest in a Chukchi Sea lease sale scheduled for next year and one response to its call for nominations for a Beaufort Sea lease sale that was to be held in 2017.
The Obama administration in January proposed its offshore plan for 2017-2022, curbing exploration in the Beaufort and Chukchi seas while opening part of the Atlantic region to drilling. The plan hasn’t been finalized.
Separately, the Interior Department said its Bureau of Safety and Environmental Enforcement has denied requests from Shell and Norway’s Statoil ASA to retain their existing Arctic leases after they expire within the next five years. The companies didn’t show a “reasonable schedule of work” to explore for oil and gas under the leases, the Interior Department said in its statement.
House Natural Resources Committee Chairman Rob Bishop, a Utah Republican, described the Interior Department’s decision as a win for Russia, which aims to develop the Arctic region.
“This administration has dangerous priorities,” Bishop said in a statement. “Obama has once again played directly into Russia’s hands as he destroys our nation’s energy potential.”
–With assistance from Laura Curtis in Washington.
©2015 Bloomberg News