After spending approximately $4.5 billion on permits, exploration, and equipment, the multinational oil giant Shell has decided to shelve its plans to drill in the Arctic this year.
A recent decision by the 9th US Circuit Court of Appeals threw Shell’s Arctic prospects into jeopardy. The court sided with a coalition of global and regional environmental advocates by ruling that the Interior Department failed to adequately assess the environmental consequences of oil production in the Chukchi Sea before offering leases there.
In a press release circulated on Thursday, new CEO Ben van Beurden cited this ruling as a central factor in the decision:
“This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” van Beurden said. “We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible.”
The federal court’s decision alone doesn’t fully account for the decision to postpone Arctic oil production, however.
Shell’s fourth quarter report detailed a staggering 71% decrease in earnings and a 5% reduction in oil and gas production. In light of this, their decision to halt high-cost and high-risk operations off of the Alaskan coast is hardly a surprise.
The accident-prone company is also still reeling from a series of Arctic mishaps.
In 2012, heavy storms contributed to a near-accident of a Shell drill ship in July. In December the drilling rig Kulluk broke away from its moorings and ran aground off Sitkalidak Island, Alaska. After drilling only two of 10 planned Arctic wells, Shell was banned from further drilling by federal regulators who found that Shell did not have adequate spill prevention equipment in place.
Environmental groups are widely applauding Shell’s decision, while also advocating for a permanent ban on Arctic drilling. Erik Grafe, an Earthjustice attorney, is asking the Obama administration to conduct another investigation into the environmental impacts of Arctic oil production:
“The Department of the Interior now needs to take a hard look at whether the Chukchi Sea should be open for oil drilling at all, beginning with a full and public environmental impact statement process that addresses the Ninth Circuit decision and does not minimize the risks of oil drilling in this vibrant but vulnerable sea,” Grafe said in a statement.
A permanent ban on oil exploration in the fragile Arctic is the first step to protecting a fragile area that is home to threatened species, including the polar bear and the bowhead whale. In the Arctic, which is warming at twice the rate of the rest of the world, many native communities depend on local marine life to support their livelihoods.