The U.S. Interior Department cancelled the two remaining Arctic oil and gas lease sales scheduled to occur under its current program, effectively halting drilling off Alaskaâ€™s coast under President Barack Obama.
The decision comes less than a month after Royal Dutch Shell Plc said it would indefinitely cease exploration in the region, after the company didnâ€™t find sufficient quantities of oil or gas in a Chukchi Sea drilling zone.
â€œIn light of Shellâ€™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,â€ Interior Secretary Sally Jewell said in a statement.
The cancellations highlight the changing environment for the oil industry after international prices fell more than 50 percent from their 2014 peak as supply overwhelms demand. Drilling in treacherous Arctic waters is also expensive, and Shell citied the high costs in shuttering its $7 billion search for oil and gas in the region.
The federal government probably sensed that interest in exploring in risky, challenging environments has faded as crude prices collapsed, said John Herrlin, an analyst at Societe Generale in New York.
â€œAfter Shell pulled out, itâ€™s not like a lot of companies were clamoring to go up there anyway,â€ Herrlin said in an interview. â€œWhen cash is constrained, long-cycle projects get deferred, especially those with potentially decade-long lead times.â€
The potential lease sales that were canceled were part of the Interior Departmentâ€™s 2012-2017 offshore leasing program. The agency said it received no industry interest in a Chukchi Sea lease sale scheduled for next year and one response to its call for nominations for a Beaufort Sea lease sale that was to be held in 2017.
The Obama administration in January proposed its offshore plan for 2017-2022, curbing exploration in the Beaufort and Chukchi seas while opening part of the Atlantic region to drilling. The plan hasnâ€™t been finalized.
Separately, the Interior Department said its Bureau of Safety and Environmental Enforcement has denied requests from Shell and Norwayâ€™s Statoil ASA to retain their existing Arctic leases after they expire within the next five years. The companies didnâ€™t show a â€œreasonable schedule of workâ€ to explore for oil and gas under the leases, the Interior Department said in its statement.
House Natural Resources Committee Chairman Rob Bishop, a Utah Republican, described the Interior Departmentâ€™s decision as a win for Russia, which aims to develop the Arctic region.
â€œThis administration has dangerous priorities,â€ Bishop said in a statement. â€œObama has once again played directly into Russiaâ€™s hands as he destroys our nationâ€™s energy potential.â€