Shell Backs Off Arctic 'For the Foreseeable Future'

After all that hullabaloo, Shell is now leaving the U.S. Arctic empty-handed.

Earlier this year, the Obama administration angered environmentalists by giving Shell unconditional approval to drill for oil in the U.S. Arctic Ocean. The company has spent billions of dollars since 2005 on permits, leases and lawsuits in its quest for oil off Alaska's coast, a mission that recently drew crowds of "kayaktivist" protestors to impede its Arctic-bound ships as they departed Seattle and Portland.

On Monday, however, the company made a surprise announcement: It has given up on extracting oil from Alaska's Chukchi Sea, with no immediate plans to try again. Shell has taken breaks from the U.S. Arctic before, but this time is apparently different. In a statement about the decision, Shell cites "disappointing" results from tests of its Burger J well, but also alludes to other factors.

"Shell will now cease further exploration activity in offshore Alaska for the foreseeable future," the company explains. "This decision reflects both the Burger J well result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska."

The retreat was quickly cheered by environmental activists. "[This] is joyous news for our climate, communities along the Arctic Ocean, and the hundreds of thousands of people who have joined in public protests," Sierra Club director Michael Brune says in a statement. "It's been a long road to get here," adds Cindy Shogan of the Alaska Wilderness League, "but today's announcement by Shell is a welcome exclamation point on what has been a risky and unnecessary push for Arctic oil."

There is still oil under the Chukchi Sea — the area in question holds an estimated 15 billion barrels, according to U.S. officials, and the Arctic Ocean overall may contain 90 billion barrels. That has sparked oil companies' interest not just in Alaska, but also in Arctic waters off Russia, Norway, Greenland and Canada. Yet while offshore drilling can be risky anywhere, the Arctic is especially inhospitable.

Shell already suffered a string of setbacks there in 2012, including the crash of its Kulluk drilling rig on Kodiak Island, but its critics say those bloopers were just the tip of the iceberg. Rough seas and ice chunks make the Arctic a tricky place to drill, and its remote location poses a huge challenge for cleaning up spills.

"A major spill in the Arctic would travel with currents, in and under sea ice during ice season, and it would be virtually impossible to contain or recover," conservation biologist Rich Steiner wrote earlier this year. "With low temperatures and slow degradation rates, oil would persist in the Arctic environment for decades."

The Arctic also hosts an array of seabirds, marine mammals and other wildlife, many of which would suffer mightily if oil runs amok in their habitats. "There could be a permanent reduction in certain populations," Steiner warns, "and for threatened or endangered species, a spill could tip them into extinction." On top of that, any major new push for fossil fuels inevitably adds to the ongoing threat of climate change.

Shell has long shrugged off such worries, and has convinced the U.S. government it's prepared to handle a spill. But after spending $7 billion on its Arctic ambitions, Shell is now backing away mainly for economic reasons. It has become harder to justify such a big investment amid the global decline of oil prices, which have fallen from $110 per barrel in 2012 to less than $50 per barrel in 2015.

Nonetheless, Shell isn't giving up completely. The company still holds a "100% working interest" in 275 oil-development blocks in the Chukchi sea, it notes in Monday's news release, and it remains bullish about the region, at least in theory.

"Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.," says Marvin Odum, president of Shell U.S. "However, this is a clearly disappointing exploration outcome for this part of the basin."

Of course, not everyone shares that sense of disappointment.

"The future of the Arctic Ocean just got a little bit brighter," says Susan Murray, deputy vice president of Oceana, in a statement about Shell's decision. "With this pipe dream ended, we can now stop arguing about Shell and focus on moving forward."