Lower oil price forces Shell to abort Arctic oil project

After withstanding all regulatory and climatic challenges, Anglo-Dutch oil major Shell finally gave up Arctic oil project owing to oil price drop. The oil price has been hovering at $40 a barrel throughout 2015. The lower oil price discouraged Shell to go ahead with oil project in Alaska Arctic region.

Several oil and energy companies are exploring oil buried below the Alaska Arctic. Oil companies have been getting 15 billion of barrels of oil over several years.

Shell spent nine years of time and $7 billion investment in Arctic oil project. Shell faced several challenges in forms of regulation, ice and hurricane-force storms. However, the continuous fall in oil price took a toll on Shell. As a result, it has abandoned the Arctic project, as reported by Wired.com.

Not only oil price drop, but also environmental issues also impacted Shell's drilling in Alaska Arctic region. Shell has withdrawn from drilling operations in Alaska Arctic owing to mounting opposition from environmentalists.

The Guardian reports that the abrupt ending in drilling operations after spending $7 billion will impact its future earnings. Shell has made a marginal discovery of oil and gas in Chukchi Sea but couldn't continue exploration for foreseeable future. Ben Van Beurden, Chief Executive, Shell, said that the controversy over Arctic drilling operations is undermining Shell's commitment on how to tackle the climate change.

Shell's strategy states that building up gas as a transitional fuel to pave the way to a lower carbon future is facing skepticism. Shell has ceased exploration in Alaska for foreseeable future.

Marvin Odum, Director of Shell Upstream Americas, said: "Shell continues to see important exploration potential in the basin." The costs associated with the project are also high. Adding to this unpredictable federal regulatory environment in offshore Alaska is also posing a major challenge for drilling operations.

Shell also made it clear that it didn't find sufficient reserves of oil and gas in Burger J that would warrant further exploration. Shell was disappointed over the outcome from drilling operations in Alaska Arctic region. Oil and gas industry analysts opine that Arctic is a very risky place for exploration and expensive for the development.

Stuart Elliott from energy information group Platts said in an interview with BBC that it's possible that "Shell might almost be relieved as they can stop exploration for a legitimate operational reason, rather than being seen to bow to environmental pressure."

With the oil price around $50 a barrel, it was a risky endeavor with no guarantee of success. Energy analysts consider that Shell's decision is not a big surprise.

Russian Arctic owned by Gazprom Neft is located by nearby area. There's one field in operation as part of joint drilling operation by Rosneft and Exxon. This was also abandoned due to sanctions on Russia.