Commentary: A chilling regulatory climate

Late last year a second major oil company was forced to abandon plans to drill in the Arctic Ocean off the coast of Alaska – and irresponsible, high-fiving anti-development activists, most of whom live thousands of miles away and will not be affected, could not be more thrilled.

But for those who live close by, the ones who will be most affected, the news is devastating.

Statoil recently announced that it’s giving up 16 of its company-operated leases in the Chukchi Sea and abandoning its stake in 50 Chukchi leases operated by ConocoPhillips. The Norwegian company added that it would close its offices in Anchorage.

The news comes after Royal Dutch Shell, after spending $7 billion on Arctic offshore exploration in the Chukchi and Beaufort seas, announced it would bow out of Arctic drilling. The two decisions, Alaska Gov. Bill Walker says, were “largely tied” together.

Statoil’s reasoning for axing its Arctic ambitions paralleled Royal Dutch Shell’s explanations. Both cited how Arctic exploration was, “for the foreseeable future,” “not feasible,” “given the current outlook,” it just “no longer made financial sense.”

Some deemed these comments as a nod to the falling oil prices. With inventories at record-highs, oil giants are facing continued pressure to chop costs, especially at the exploration front.

But as Alaska Sen. Lisa Murkowski said, the “real project killer” in both instances was the unprecedented, convoluted, ever-changing federal regulatory process that previously dogged ConocoPhillips in the Arctic.

Just-in-time permitting and conflicting agency decisions ensured that Shell would spend all that time and money just to drill one exploratory well in an area of the Chukchi Sea reportedly the size of Texas, where hundreds of other exploratory wells have been drilled successfully. And instead of trying to extend lease terms, the Interior Department placed limits on this season’s drilling activities, leaving one drilling rig idle.

While the Arctic has record amounts of yet-to-be-tapped oil and natural gas resources – and with it, significant opportunities to increase U.S. energy security and create jobs – development can only be achieved if we have an effective, predictable regulatory framework in place.

Which, to date, we don’t. And the outcome will not be good.

The announcements devastated Alaska’s hopes of finding an alternative source of oil to help close its multibillion-dollar budget shortfall and replenish the Trans-Alaska Pipeline, a major energy artery to the lower 48 states operating at about one-quarter capacity because of declining production in onshore oil fields. And with the administration also cutting off access to the resources-rich Arctic National Wildlife Refuge (ANWR) and millions of acres offshore in the Alaska Outer Continental Shelf (OCS) earlier this year, alternatives are limited.

Bogged down by red tape, delays, legal snafus, and the administration’s ill-advised, one-size-fits-all regulatory approach, Alaska is seeing its economic future darken in a hurry – and so is America.

Consider this: 30 billion barrels of Alaskan oil could have fueled every domestic flight for over 120 years, and 141 trillion cubic feet of natural gas could have heated every American house for 34 years. By 2040, 63 percent of American energy will come from oil and natural gas, the Department of Energy says. That makes finding and developing fossil fuels – safely – a top priority, especially for Americans who can least afford to pay more for gas and electricity.

And with America out of the Arctic picture, far less environmentally responsible countries, like Russia and China, will be left alone to development in the Arctic.

We used to be a regulatory model for the world, one that showed others how to do great things both environmentally and economically. We certainly cannot claim to be that anymore. How did the same country that pushed for and enacted the right policies to recover from the Iran Crisis in the 1950s and the oil embargo of the 1970s fail itself?

Now that’s a question only the administration can answer. Consumer Energy Alliance 


About The Author

David Holt is President of Consumer Energy Alliance, serving in this position since January 2006. As the voice of the energy consumer, Consumer Energy Alliance works to increase domestic energy production and reduce consumer energy prices. CEA seeks to motivate and provide a voice for consumers interested in vital public issues, such as responsible access to available natural resources; power generation; impact of energy prices on business, agriculture and consumers; development of a robust, domestic renewable energy industry; and utilization of new technologies that allow for higher levels of energy efficiency and conservation. With more than 220 consumer and energy affiliate organizations representing every sector of the American economy, and 300,000-plus consumer advocates, Consumer Energy Alliance continues to expand dialogue and develop joint messaging among the energy and consuming sectors through its various activities. David is a Professor with Norway’s Nordland University Graduate School of Business, Master of Science in Energy Management Program, in cooperation with the International Institute of Energy Policy & Diplomacy at the MGIMO University in Moscow, Russia. He serves on the board of Consumer Energy Education Foundation and the St Anne Foundation. David is also a member of the Texas Bar Association and the Houston Bar Association.