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Energy industry unfazed after feds announce plan to ban offshore licensing

A boat crosses in front of the Transocean Polar Pioneer, a semi-submersible drilling unit that Royal Dutch Shell leases from Transocean Ltd., as it arrives in Port Angeles, Wash., aboard a transport ship after traveling across the Pacific before its eventual Arctic destination in an April 17, 2015 file photo. The federal government says it will ban offshore oil and gas licensing in Arctic waters, a measure to be reviewed every five years. THE CANADIAN PRESS/AP-Daniella Beccaria/seattlepi.com via AP, File MAGS OUT; NO SALES; SEATTLE TIMES OUT; TV OUT; MANDATORY CREDIT

Ottawa’s move to ban offshore oil and gas licensing in Canadian Arctic waters prompted a shrugging of shoulders Tuesday from energy industry observers who point out there are no drilling plans in the region now, partly due to exorbitant costs.

The measure announced Tuesday was part of a joint announcement with the U.S., which designated the bulk of its federally controlled waters in the Arctic Ocean and certain areas in the Atlantic Ocean as indefinitely off-limits to future oil and gas leasing.

Michael Byers, a University of British Columbia professor who recently published a book called “Who Owns the Arctic?”, said the only surprise in the Canadian government’s announcement is that it provides for a five-year review of the ban.

Byers said the move seems to be politically motivated and is designed to show that Prime Minister Justin Trudeau is protecting the environment despite a recent decision to sanction two oil pipelines — the Trans Mountain expansion and Line 3 replacement project.

“Closing the door to Arctic oil and gas helps to position himself on the climate change file by saying that there are limits in terms of the development of new oil and gas fields, therefore drawing a line in the sand from a climate change perspective,” he said.

“There’s no activity taking place in the Canadian Arctic right now, so saying ‘No’ doesn’t require anyone to stop.”

Last year, Imperial Oil applied to extend the expiry date on its licences to drill in the Beaufort Sea off the Northwest Territories from 2020 to 2028, citing insufficient time to conduct technical work and complete regulatory processes.

Byers said the federal ban means the Imperial licences can simply be allowed to expire, likely without liability for the federal government.

Imperial Oil spokeswoman Killeen Kelly said the company would not speculate on whether it would seek compensation for its licences if they aren’t extended.

The last oil well drilled in the Beaufort Sea off the Northwest Territories was completed in 2006 by Devon Canada.

Chris Seasons, who was president of the company at the time, said Tuesday’s decision to close the Arctic to drilling may hurt companies with interests there in the long run, but won’t cause any immediate pain.

“People always like to have the maximum number of options available as technology changes and as views change on the commerciality of some of those resources, but I don’t think it has a big impact on Canadian companies at this juncture,” he said.

“There’s definitely hydrocarbons there. We found about a 200-million-barrel oil pool, but it wasn’t of sufficient scale to be commercial.”

He said other companies made discoveries in the Arctic in the 1970s and 1980s, but those resources can’t compete for investment because they are less environmentally risky and much closer to consumer markets.

Byers said oil and gas production in the Arctic doesn’t make sense economically or environmentally, estimating that benchmark U.S. oil prices would have to triple to above US$150 per barrel to make oil from the region profitable.

He said the extremely short drilling season represents a huge and costly risk for companies that explore there, adding that transportation is a “nightmare.”

Trudeau said Tuesday the ban is intended to ensure a sustainable Arctic economy, protect the region’s ecosystem and prevent future risks associated with offshore oil and gas activity.

He said his government will also encourage the use of energy efficiency measures and renewable power in an effort to reduce reliance on diesel in Northern communities.

In statements, both Greenpeace and the World Wildlife Fund welcomed the Arctic drilling bans, saying they will help protect endangered species and ecosystems.

Paul Barnes, Arctic manager for the Canadian Association of Petroleum Producers, said in an email the industry remains confident that it can develop offshore oil and gas resources in the Arctic in environmentally responsible ways.

The Canadian and U.S. governments said they are launching processes to identify sustainable shipping lanes throughout Arctic waters, including the Beaufort and Chukchi Seas.