WASHINGTON — The Obama administration has canceled proposed plans to market Arctic offshore oil leases through 2022, setting up an early conflict for president-elect Donald Trump who has said he wants to increase U.S. oil production.
The U.S. Interior Department on Friday released its final five-year plan for offshore drilling leases, including 10 sales in the Gulf of Mexico but eliminating two proposed Arctic options. Oil experts say the Trump administration could restore lease sales off Alaska's Arctic coast, but it most likely take a couple of years to reverse course.
"The plan focuses lease sales in the best places — those with the highest resource potential, lowest conflict, and established infrastructure — and removes regions that are simply not right to lease," Interior Secretary Sally Jewell said in a statement. "Given the unique and challenging Arctic environment and industry's declining interest in the area, forgoing lease sales in the Arctic is the right path forward."
The move is a change from earlier this year, when Interior's Bureau of Ocean and Energy Management proposed three lease sales in Alaska — two in the Arctic — during the five-year period. The new plan for 2017 to 2022 includes one Alaska lease sale, in the federal waters of Cook Inlet, and none in the Chukchi or Beaufort seas. The state already is selling leases in the nearshore Inlet.
The plan proposed in March shut down industry hopes for Atlantic coast offshore drilling following opposition from residents, the fishing industry and the Defense Department, but it kept Arctic drilling on the table. At the time, Jewell said canceling lease sales in Alaska was still a possibility but not the administration's "main focus."
But apparently that focus shifted. The new lease plan is far short of the 2012-17 lease plan, which initially offered seven lease sales.
The last Alaska outer continental shelf lease sale — a 2008 Chukchi auction — broke records, drawing more than $2.66 billion in high bids, $2.1 billion alone from Shell. But the lease sale was controversial and plagued with legal problems; court decisions forced two rewrites of environmental studies that were supposed to have been completed prior to the sale.
Since 2008, sales originally slated for various areas off Alaska have been cancelled or withdrawn by the Interior Department. And Shell, ConocoPhillips, Statoil, Chevron, BP and Exxon have all, to some degree, abandoned offshore Arctic drilling. The high cost of drilling and the low price of oil make business success in the region a difficult prospect.
In September 2015, Shell announced it was abandoning its Alaska program after exploratory drilling yielded disappointing results. The next month, the Interior Department canceled Arctic lease sales, citing low interest.
Lucas Frances, spokesperson for the pro-industry Arctic Energy Center, said Alaskans "will be looking to the Trump administration to quickly tear up the lease plan and implement an entirely new schedule, which includes the Arctic and helps secure the state's future."
That could take a while, however.
Friday's announcement means the lease sales — as officially published, a rule — will become final just before president-elect Donald Trump takes office. The Trump administration would face a more rigorous and time-consuming process to rewrite the rule — and that could mean delaying planned lease sales for the Gulf of Mexico, which are scheduled to begin in 2017.
A process to allow federal lease sales in the Arctic Ocean under a Trump administration could take two to three years, according to officials with the Alaska Oil and Gas Association.
Joshua Kindred, an attorney for AOGA, said he's hopeful the timeline can be accelerated since the agency already did an environmental review for potential Arctic lease sales, including gathering public input and data. If the new administration is interested in revisiting Arctic sales, federal regulators can potentially engage in an analysis that looks for time-savings in the process without running afoul of law, Kindred said.
And a two-year process launched early in a new administration would not be "fatal from an Alaska perspective" since lease sales in the Arctic were not going to be held until 2020 and 2022, Kindred said.
Nevertheless, Alaska's all-Republican congressional delegation expressed dismay over the decision and pledged to work to reverse it.
Sen. Lisa Murkowski said she was "infuriated" Obama "has once again ignored" the voices of Alaskans who support offshore drilling. "And it is even more stunning that just one day after urging the new administration to stand up to Russia, he continues to cede leadership on Arctic energy production to them. I will do all that I can to counteract this shortsighted decision," she said.
Among her options to change course, she said in an interview Friday, are writing legislation or using her authority over nominations for new officials to press the importance of Alaska's oil prospects. But the most likely change could come from the Trump administration, Murkowski said. And even if it starts on Day One, it would likely take a full two years to do a new environmental review, she said.
"If it was just a plan on the Arctic it would be different," Murkowski said, noting that she has asked about splitting the Alaska lease sales from those in the Gulf of Mexico. "But apparently you can't separate that out," she said.
Rep. Don Young criticized the decision to cancel the Arctic leases as "politically driven and meant to appease the nation's most extreme environmental groups." He asserted the decision would be overturned.
Alaska Gov. Bill Walker said he was disappointed with the decision and argued the state was willing and able to support "subsistence concerns" and "economic development."
"With the trans-Alaska pipeline three-quarters empty, we must spur more oil production. When Alaska became a state, the federal government mandated that we live off of our resources — but we must be able to access them," Walker said, promising to investigate possible next steps.
Pro-drilling advocates widely accused Obama of putting his own legacy first.
"Today's move will undoubtedly be cheered by activists as 'saving' the Arctic, when nothing could be further from the truth — the Arctic is already being developed by other countries," said Kara Moriarty, president of the Alaska Oil and Gas Association.
Environmental groups — some of which got advance notice of the dropped Arctic leases — indeed cheered the announcement. They argued Arctic drilling is too risky and is unnecessary given ample world oil supplies.
Cindy Shogan, executive director of the Alaska Wilderness League, said the Obama administration had "ample reason to stop these leases," citing decisions by Shell and ConocoPhillips to relinquish leases and the high risk to the environment in the event of an oil spill.
The Interior Department announcement said its decision to eliminate the leases was based on "the fragile and unique Arctic ecosystem" and "significant risks to sensitive marine resources and communities from potential new leasing in the Arctic."
But they also noted a declining oil industry interest.
Cook Inletkeeper Bob Shavelson noted in an email that no bids and no active leases resulted from the last three lease sales in the Inlet. The remaining lease sale on the Interior schedule "promises more of the same," he wrote. "So, we're wasting tens of millions of dollars to study and hold lease sales in Cook Inlet, when instead we should be exploring renewable energy options in federal waters."
Meanwhile, Shell is in the process of transferring some of its leases to a subsidiary of the Alaska Native corporation, Arctic Slope Regional Corp.
ASRC announced Wednesday it had agreed to take ownership of 21 Shell leases in Camden Bay, including at a site where Shell began drilling in 2012 but never returned to complete the well. Federal regulators must approve the lease transfer.
In its 2012 Beaufort effort, Shell was not allowed by federal regulators to drill into zones expected to contain hydrocarbons, since the company did not have the required system in place to capture oil in the event of a spill.
If ASRC explores the tracts and acquires new data suggesting a large discovery, the company may hit a wall in its attempts to expand beyond the 21 leases if no lease sale is held in the Beaufort in 2020, said Alaska Natural Resources Commissioner Andy Mack.
"It limits what they can explore, and that could be a problem," said Mack.
Alaska Dispatch News reporter Alex DeMarban contributed to this report.