Hofmeister: Little long-term effect from Shell’s Arctic failure

Shell’s announcement this week that it would no longer pursue drilling for oil beneath the sea in the Arctic Circle provoked polar (ha ha) opposite reactions among defenders and detractors of the project.

Environmentalists did an end-zone dance: “Green victory of the week,” crowed the headline of one story, which quotes Greenpeace UK Executive Director John Sauven attributing Shell’s move to the “massive pressure” from activists who tried for three years to derail the exploration.

Other observers say the project in the Chukchi Sea was never going anywhere anytime soon, based purely on market forces. Wired science writer Nick Stockton wrote:

Don’t give the environmentalists all the credit (or blame). Where 2008 was a great year to start drilling, 2015 is a great year to quit.

To get an insider’s view of the decision, I asked someone who knows a little about the oil patch, and about Shell’s thinking: John Hofmeister, who served as Shell Oil’s president from 2005 to 2008 and wrote the book Why We Hate the Oil Companies.

Hofmeister, a member of both the board of directors and board of advisors for Fuel Freedom, and also one of the stars of our 2014 documentary film PUMP, answered several questions via e-mail:

Landon: What did Shell get out of the $7 billion it spent on this project?

John: Of course much of the investment went to obtain the leases in the first place. Like other pioneering efforts, companies like Shell have to be prepared to spend what it takes to test the potential value of this opportunity. There are some 36 billion barrels of crude in this region. At some point it will be developed, and everything that Shell learned along the way will return future value.

Landon: Why do oil companies continue to look for oil in such hard-to-reach, pristine, often unsafe places?

John: Because they go where the oil is, which they have always done. Much of the “easy” oil in the world has been produced or is governed by state-owned oil companies that will not let the major oil companies operate in their countries.

Landon: What ripple effect will this have on the rest of the industry, particularly the U.S. oil industry?

John: Probably none. This was always a far-out project destined to be developed in the post-2030s and 2040s. While it looks like a setback, it is not unprecedented in the way the industry develops around the world. It is no secret that the Obama administration, while ultimately approving the permits, did everything it possibly could to frustrate the process of moving forward, adding perhaps 5 years of delay to the efforts.

Landon: It seems unlikely that Shell would have been able to lift any oil it found, under today’s low prices. How much was Shell just looking to the future?

John: it was all about the long game of future development. I explained to officials in 2006 that we would not be specific about when this opportunity would be developed to the point of producing oil.

More Hofmeister wisdom:

• Wait, oil companies actually hate high prices?
• Ex-Shell Oil exec interviewed on ‘Meet the Press’
• Hannity says PUMP a story ‘America needs to know’