New Offshore Oil Drilling Off Limits
The future of offshore oil drilling in Canada is murky. Prime Minister Trudeau announced on December 20 that he would make all Canadian Arctic waters indefinitely off limits to new offshore oil and gas licenses. His statement said that the waters have “irreplaceable value” and that the challenges of water-based oil extraction and spill response in the remote region would represent “unprecedented challenges.”The drilling ban is to be reviewed every 5 yrs to take into account future developments in science. Click To Tweet
The few existing oil leases will be “respected,” but it appears they will be allowed to expire the coming years and from then on there will be no further arctic drilling. The drilling ban is set to be reviewed every five years to take into account future developments in science.
Active Leases to be Respected
Five companies already have active leases to explore in Canada’s Beaufort Sea, namely Imperial, BP, ConocoPhillips, Chevron, and Franklin Canada.
Those leases were all signed when oil prices were roughly double what they are today, so the companies have already been scaling back their arctic plans even before this announcement. These existing licenses are technically eligible to be extended, but industry watchers expect that any extension requests will be rejected. Most of the companies have declined to comment on the drilling ban, but a spokesman for Imperial has called for the existing licenses to be extended.
The Canadian Association of Petroleum Producers was measured in its response. The organization says that the Arctic waters have a great deal of potential, but they are not worried about a five-year moratorium because major arctic investments are not planned with today’s oil prices and abundance in North America. The industry association says it will wait to see “where new technology takes us,” as future circumstances might be more friendly to drilling. They called the moratorium just a symbolic move.
Many politicians had stronger reactions.
Nunavut Premier Peter Taptuna said the decision was detrimental to efforts in giving the territory more control over its resource development. Northwest Territories Premier Bob McLeod likewise called the moratorium “a step backward.”
Both territories have been working with Ottawa on a “devolution” process that would increase their autonomy. On the other hand, leaders in Newfoundland and Labrador do not expect their offshore oil sector to be impacted.
A Joint Effort
Trudeau did not act alone. His announcement was made jointly with U.S. President Barack Obama, who announced a “permanent” ban on offshore drilling in most the U.S. arctic waters. President Obama used a legal provision that may not be reversible, though some in the industry say that incoming President Elect Donald Trump could reopen drilling.
The American Petroleum Institute denounced the decision while environmentalists rejoiced, but like in Canada, drilling in the American arctic was extremely limited already because of existing market and regulatory challenges.
Canadian energy policies like this ban on offshore oil drilling are not doing much to entice oil and gas investment. Canada slid back behind Australia this year on an annual list of best places to invest in the oil and gas, largely because Alberta is “besieged by increasing uncertainty” caused by anti-industry policies. The offshore moratorium likely will not help. Nonetheless, Saskatchewan and Manitoba remain top destinations for drilling.