Obama Unveils New Rules For Arctic Oil & Gas Exploration

Obama Unveils New Rules For Arctic Oil & Gas Exploration

The Obama administration has released drilling operations in the Arctic Ocean. While the new regulations fall short of prohibiting Arctic drilling entirely, they require companies to submit detailed plans on how they will conduct drilling safely.

Although the fall in global oil prices has led many companies to steer clear of drilling in the area, oil professionals were still critical of the new regulations. They believe it will be detrimental to future energy exploration.

The focus of this week’s blog is energy, and today we’re going to start by examining what these new regulations mean for oil companies hoping to drill in Arctic waters.

PRESSURE FROM ENVIRONMENTALISTS

Environmentalists have been campaigning against Arctic drilling for some time. Last month, almost 400 international scientists called on Barack Obama to rule out further oil and gas exploration in the water under US control.

A host of arctic, marine and climate specialists put their names to a letter that called for an end to exploration in the Chukchi and Beaufort seas, to the north of Alaska. The letter was prompted by growing concerns over heat and melting records in the Arctic. They asked Obama to put the entire Beaufort and Chukchi region off-limits until 2022, and asked that he consult native Alaskan groups on any further Arctic developments.

This might have been a harder decision for the Obama administration, if oil companies had not already begun to give up their leases in the area. Exorbitant costs and the low global oil prices have made it difficult for oil companies to explore the Arctic water. Shell, Repsol and others have given up their leases in recent months. The former spent seven years and an estimated $7 billion hunting for oil in Arctic waters.

NEW REGULATIONS

The new rules don’t come as a particular surprise. President Obama and Canadian Prime Minister Justin Trudeau had pledged to ensure commercial activities in the Arctic would only be allowed when the highest environmental standards are met.

Environmentalists expressed several concerns over drilling standards in the region. For example, the nearest Coast Guard station is more than 1,600 kilometers away. They also requested stricter regulations for oil spills and other emergencies, citing the lack of evidence that there is a proven way to clean up oil spills in slushy waters. The new rules require companies to have oil spill response plans, ice and weather forecasting capabilities, and to have a relief rig on hand in the event of well problems.

Although environmentalists are calling for the White House to prohibit future drilling altogether, the Washington Post reports that the Obama administration is “tentatively planning to sell oil and gas leases in the Beaufort and Chukchi seas beginning in 2020.” It also reports that oil companies are asking the administration to run Arctic auctions when it finalizes a plan for what offshore drilling rights will be available from 2017 to 2022.

RECOVERY

The announcement coincides with a report from Goldman Sachs, which claims the U.S. oil industry will need to hire up to 100,000 workers in the coming years as oil prices start to recover.

The American multinational banking firm says high pay in the oil and gas industry should make it possible for oil companies to attract the 80-100,000 workers needed.  The industry’s needs would absorb about 8 to 11 percent of the unemployed population in energy-producing states, according to Goldman.

The report also argues that most oil companies retained experienced staff throughout layoffs and kept them in low-ranking positions. Goldman expects these employees to be promoted once oil-prices recover and says those staff are ideally positioned to preserve the efficiency gains achieved during the downturn.

CONCLUSION

The new measures are expected to cost as much as $2 billion over the 10 years. This is largely due to the requirement that companies must have a backup rig nearby. Rental rates for a rig can reach close to a million dollars a day.

The new regulations create a number of questions. How will the new rules affect oil and gas exploration in the area? Will the U.S. eventually give in to environmentalists and completely prohibit exploration in the area? Will they even run Arctic auctions for offshore drilling in the coming years? It will be very interesting to see how the situation progresses in the coming months.

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