How Cheap Oil Saved the Arctic From Drilling

Save us from those "saving" the Arctic from discontinued plans for oil and gas drilling there.

There has been much hot air--gas, if you will--expended in the past few years over the potential dangers of drilling for oil and gas near the Arctic circle. I myself am not fully convinced about the climate justice in first having Arctic oil reserves made available to human exploration by burning fossil fuels that have played a part is causing polar ice to melt, then obtaining more fuel to shrink the aforementioned polar ice anew. There's even been a high-profile campaign aimed at Lego (of all companies) to get Shell to stop exploring these areas.

The recent plunge in oil prices as massive production continues untrammeled is having interesting effects the world over--including the Arctic. As it turns out, northern climes where it was previously economic to explore and eventually drill way above $100/barrel are no longer so when you have predictions that we will soon have $40 oil at spot prices. So, environmentalists are rejoicing for now in the misfortune that has befallen the evil energy firms who endanger these ecologically sensitive areas with the possibility of oil leaks and so forth:

The Arctic -- spanning Russia, Norway, Greenland, the U.S. and Canada -- accounts for more than 20 percent of the world’s undiscovered oil and gas resources, including an estimated 134 billion barrels of crude and other liquids and 1,669 trillion cubic feet of natural gas, according to the U.S. Geological Survey. That’s almost as much oil as Iraq’s proved reserves at the end of 2013 and 50 percent more gas than Russia had booked, BP Plc (BP/)’s Statistical Review of World Energy shows.

Yet, explorers seeking a piece of the Arctic prize have been tripped up for years. After spending $6 billion searching for oil off Alaska over the past eight years, Royal Dutch Shell Plc (RDSA) in October asked for an extension of licenses as setbacks including a stranded oil rig and lawsuits risk delaying drilling further. Cairn Energy Plc (CNE) spent $1 billion exploring Greenland’s west coast in 2010 and 2011 without making commercial discoveries, and OAO Gazprom (OGZD) has shelved its Shtokman gas field in the Barents Sea indefinitely on cost challenges. 

The militants at Greenpeace, for one, are quite pleased with this turn of events:

Environmental group Greenpeace has occupied oil rigs from Norway to Russia, arguing a spill would cause irreparable damage to ecosystems that sustain animals from polar bears to birds and fish. The possibility that economically marginal fields such as Arctic deposits might be stranded as governments adopt stricter climate policies has also shaken some investors.

The Brent crude benchmark fell 1.9 percent to $45.70 a barrel, deepening losses from the lowest closing price since March 2009. Statoil declined 1.4 percent to 127.3 kroner at 9:50 a.m. in Oslo, extending losses to 35 percent since a June high. 

As oil companies cut spending to cope with falling prices, already costly and risky Arctic projects will fall down the priority list even if crude is expected to recover by the time production starts, Henderson said. Global capital expenditure will probably drop by more than 20 percent this year, according to a Jan. 9 note from Sanford C. Bernstein. Like Statoil, Dong Energy A/S and GDF Suez have returned Greenland licenses because exploration has become too expensive, Danish newspaper Politiken reported.

Until oil prices climb again and these firms begin reconsidering extraction in these marginal regions, I'd save my attention for...other things.