Obama administration cancels Arctic oil leases due to low interest

The Obama administration yesterday scotched  hopes of the Arctic Ocean emerging as the next frontier for domestic oil production, saying it was canceling planned lease sales for offshore drilling in the Arctic and denied requests by Shell and another company to extend the leases they had held.

The move announced by interior secretary Sally Jewell, was welcomed by environmental groups, which had been drawing attention to the serious risks to wildlife and the environment from drilling activity in the region.

The administration did not rule out future lease sales.

However, the decision might have few immediate effects, say commentators.

Though energy companies hold around 500 leases in the Arctic, Shell was the only company that had actively pursued offshore drilling in the region in recent years. It had little to show for the $7 billion it had spent apart from a series of legal and logistical setbacks.

Last month, following months of exploratory drilling Shell in the Arctic's Chukchi Sea for much of the summer, the company said it was abandoning its efforts in the Arctic "for the foreseeable future" due to challenging economic conditions, including consistently low oil prices, and disappointing results from drilling. (See: Royal Dutch Shell to end exploration in offshore Alaska).

Shell holds around 350 leases in the Arctic.

According to Jewell, the Chukchi Sea off Alaska's northwest coast and the Beaufort Sea off the state's north coast will not be included in the agency's next five-year lease sale plan.

The Beaufort Sea leases are set to expire in 2017, and the Chukchi Sea leases in 2020.

The decision reflected current market conditions and low industry interest, Jewell said in a news release.

"In light of Shell's announcement, the amount of acreage already under lease and current market conditions, it does not make sense to prepare for lease sales in the Arctic in the next year and a half," she said.

Shell had hoped to tap into a resource the US Geological survey estimated at over 26 billion barrels of conventionally recoverable oil under Arctic waters.