Shell postpones Arctic drilling until 2013

The oil giant has suspended its plans to drill in the Arctic region until next year, thanks to failing safety equipment.

by Michael Northcott
Last Updated: 19 Aug 2013

Producers are going to ever greater extremes to find oil reserves, and Royal Dutch Shell’s most recent plans were to set up drilling operations of the coast of Alaska. But, in a blow to expectant shareholders, the firm has had to push the target date back after its ‘Arctic Containment System’ (which clears up spills) failed. Shares fell 9p to 2318p. Alaska is one of the last unexplored regions, and scientists believe that the Arctic region contains around a quarter of the world’s undiscovered fossil fuels. Getting to the oil first is massively important to Shell, which is spending around £2.5bn on the programme.

The failed containment system takes the form of a giant dome which is hitched up to a container barge, and in the event of a ‘gusher’ (like at BP’s Deepwater Horizon disaster), the oil can be funnelled into a container ship instead of being spread over hundreds of square miles of the ocean’s surface. The company said in a statement: ‘We will forgo drilling into hydrocarbon zones this year. We will not conduct any operation until we are satisfied that we are fully prepared to do it safely.’ Obviously keen to avoid the natural and PR disaster that BP had…

The oil industry faces intense international pressure to get it right after the Deepwater Horizon episode. BP has paid many billions of pounds in compensation to fishermen, tourism-based businesses and cleanup schemes, as well as a fine, since the oil spill in 2010. So it’s probably a good idea for Shell’s reputation (and balance sheet) that everything is in place to avoid having its own oil spill catastrophe. 

Nonetheless, the firm can continue working off the coast of Alaska, but will only drill at more shallow depths that stand less chance of blowing out and turning into ‘gushers’. Not to mention that the company was not expecting the new field to produce commercial oil until 2017. It’s a long old process setting up rigs in a new oilfield, what difference will a couple of months make?

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