New Rules Add to Cost of Arctic Drilling – 8/4/16

As Arctic ice recedes amid rising global temperatures, drilling companies are eyeing oil reserves in Northern waters estimated to hold 24 billion barrels of oil. Standing in the way of efforts to tap the newly accessible stores are high costs and low oil prices combined with regulatory battles that seem to be lost more than won nowadays.

The latest regulatory loss for energy companies comes in the form of new regulations for offshore drilling in Arctic waters that will add more hurdles to already difficult work. Companies will have to take potentially costly steps meant to prevent oil spills that the Interior Department estimates the measure will cost as much as $2 billion over the next 10 years. The lion’s share of the cost is expected to come from the cost of having a backup rig on hand to bore a relief well in case of an emergency.

The move comes as no surprise after President Barack Obama and Canadian Prime Minister Justin Trudeau recently pledged to maintain high standards for any commercial activities in the Arctic. For now the Obama administration is still planning to sell oil and gas leases in Arctic seas beginning in 2020, though that could change as environmentalists and oil companies battle to persuade the administration to drop or keep proposed auctions as it decides what new offshore drilling rights will be available from 2017 to 2022.

Compared to fracking on mainland US fields, arctic drilling loses out on many fronts: weather is harsher, more capital is needed to get started, spills are harder to contain, and encroaching ice can halt operations. Persistently low oil prices, regulatory uncertainty, and the already high costs of prospecting in the harsh climate of the Arctic region have spurred energy companies to given up more than a million acres’ worth of drilling rights, according to Bloomberg, which should not be surprising when shale-oil fracking exists as a cheaper alternative.

The world the way it is now, it looks as though drilling in the icy seas of the Arctic will take a back seat to shale.

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