The last barrel

If President Obama was hoping to cement his environmental legacy by barring Arctic exploration, he’s going to have a fight on his hands. As the Department of the Interior prepares to unveil the 2017–2022 Outer Continental Shelf Oil and Gas Leasing Program, officials from within the administration took the somewhat unusual step of speaking out in support of Arctic development at a recent conference.

The proposed lease program, which is expected to be finalized soon, envisions two sales in the Arctic (one in the Beaufort Sea in 2020 and another in the Chukchi Sea in 2022). However, environmental activists are determined to keep the region’s resources firmly in the ground. A prime example of such opposition was a new poll commissioned by the Natural Resources Defense Council and the League of Conservation Voters.

According to the poll results, “solid majorities” of Americans—especially millennials, the darlings of the media—would support the Obama administration “permanently protecting the Arctic and Atlantic from drilling” and “preventing the expansion of new leases on public lands.” The nationwide poll was, however, branded “alarmingly flawed” and “intentionally biased” by the Arctic Energy Center, an advocacy group which pointed out that the poll doesn’t reflect the concerns of those most affected by such drilling.

Given what’s at stake, and the general hysteria generated by the mere use of the words oil and Arctic in the same sentence, the need for careful consideration has never been greater. So, it was with some interest that I read comments from Obama administration and military officials at the “Geopolitics, Security, and Energy in the Arctic” conference.

Supportive comments. Speaking at the conference, Amy Pope, vice chair of the White House Arctic Executive Steering Committee, and Deputy Homeland Security Advisor and Deputy Assistant to the President in the White House National Security Council, said that “the region holds sizable proved and potential oil and natural gas resources that will likely continue to provide valuable supplies to meet U.S. energy needs into the future.”

Pope went on to say that responsible development of Arctic resources aligns with the United States’ “‘all-of-the-above’ approach to developing domestic energy resources, whether it’s renewables, expanding oil and gas production, increasing efficiency and conservation efforts to reduce our reliance on imported oil and strengthening our nation’s energy security.”

Meanwhile, Admiral Robert J. Papp Jr., the State Department’s Special Representative for the Arctic and former commandant of the Coast Guard, backed the region’s inclusion in the leasing program, saying, “We have to maintain our options. And I think that, somehow, encouraging further development is important, simply because we are going to be dependent upon petroleum and gas for a long time.”

Given prevailing market conditions, many within the industry may see Arctic exploration as a needless extravagance. After all, who would consider pouring money into such a costly, and politically volatile, area when more economic options exist? However, if the downturn has taught us nothing else, we should remember that no one knows what the future may hold.

Today’s industry looks far different than it did a few short years ago, and, if we are honest, no one knows what will happen in a few more years. We can make educated guesses at best, but, in the end, a myriad of factors—such as geopolitics, technological developments and demand changes, to name but a few—cloud the future. If these leases are taken off the table, even temporarily, the timetable for any eventual exploration and development will be pushed back by many years. It doesn’t sound that important now, but it may be later.

One thing is, however, for certain. The other Arctic nations aren’t shy about moving forward. As Mead Treadwell, former Lieutenant Governor of Alaska, told the conference, “the six coastal states in the Arctic are all doing some form of offshore exploration and development and the United States should be there.” Treadwell went on to say that it makes no sense to “retreat in the Arctic,” and that the U.S. should be “engaging in the Arctic” and paying close attention to this frontier province.

Indeed, a review of recent headlines casts light on some of the worldwide progress being made in the Arctic. In Norway, a country which the U.S. would do well to emulate in this regard, Eni’s Goliat platform started production in March, and the country also added 32 blocks in the Barents Sea, a marginal sea in the Arctic Ocean, as part of its Awards in Predefined Areas 2016. Meanwhile, the Nordic nation is also swapping Barents Sea seismic data with Russia, so that both parties can gain “a better understanding of the regional geological conditions.”

OPEC: Call it by a new name. After catching all and sundry off-guard with a bold, if somewhat vague, plan to cut oil production, OPEC appears to be coming apart at the seams. Everyone’s favorite cartel stole the headlines at the end of September by announcing a 14-member “production target” of between 32.5 MMbpd and 33.0 MMbpd. The news prompted a swift run up in prices. However, it didn’t take long before the usual, self-serving posturing began.

As of press time, four of the cartel’s members—Iraq, Iran, Nigeria and Libya—are looking for exemptions from any agreement. The nations—which, according to secondary sources cited by OPEC—produced almost a third of the group’s total production, of 33.394 MMbpd, in September. And while the news raised doubts about the viability of any future deal, not to mention the need for successful collaboration (try not to laugh) with non-OPEC producers, it also prompted Oliver Jakob, founder of the Petromatrix consultancy, to Tweet a humorous new interpretation for the OPEC acronym: the Organization of Producers Exempt from Cuts. That says it all.