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Shell will not sanction Arctic exploration until at least 2020

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Screen Shot 2015-09-17 at 07.55.40Kamal AhmedBusiness editor: 17 Sept 2015

As it moves, gingerly, through the first stages of exploration 70 miles off the Alaskan coast, Royal Dutch Shell has revealed its commitment to drilling in the Arctic.

And how long it will be before any oil or gas actually comes out of the ground – if at all.

Despite environmental concerns and the low oil price, Ben van Beurden, Shell’s chief executive, told me that as the world’s energy demands increased, the hunt for new resources was as important as ever.

The Arctic, he points out, has long been a source of oil and gas production. Environmental safety would be the priority, he insisted.

Last month Shell received the final permits necessary to begin exploration from the US administration.

It is now putting in place the safety vessels necessary to work alongside the Polar Pioneer exploration rig.

That is the first stage in a lengthy process.

“In terms of finally sanctioning a project, I cannot see that happening this side of 2020,” Mr van Beurden told me.

“And I think by the time we are in production it will be nearer 2030. So these are long term projects that we are developing.

“Our plan for the Arctic is to find out whether there is any oil in the Chukchi Sea.

“We are in the middle of that drilling campaign and we have to see at the end of the season whether we get into the reservoir.

“If these results are conclusively no, then it will probably be the end of the road for our Alaska adventure.

“If it is positive, we [will] probably need a little more of an appraisal but then it will take a long time before we will take an investment decision on this.”

Many experts say that major oil companies are failing to take account of future controls on carbon emissions which it is argued will be needed to limit the effects of global warming.

A recent report by the Carbon Tracker initiative said that up to 80% of coal, oil and gas reserves of publicly listed companies are “unburnable” (or “stranded”) “if the world is to have a chance of not exceeding global warming of 2°C”.

Mr van Beurden says the argument about stranded assets fails to understand the need to increase energy supply simply to keep up with demand, particularly from emerging economies.

If no new exploration took place and no new resources were discovered, oil and gas production would naturally decrease rapidly, leading to a major energy squeeze.

“The stranded asset debate is a red herring, frankly,” he said.

“It detracts from what the real issue is.

“I think ultimately the world needs energy. Fossil fuels will have a role to play simply because there is not an alternative available in sufficient quantities within the timetable we are talking about.

“Of course, ultimately, we will have a completely different energy mix, but it will take decades to get there and in the meantime, we cannot deny people access to energy.

“The problem is a lot more intricate. There’s energy efficiency, yes, we can do a lot more on renewables, and we are great proponents of that, but we also have to do things in terms of lowering the carbon intensity of the energy mix, getting into gas and less into coal and ultimately into carbon capture and storage.

“That part of the debate is not getting traction enough. There seems to be the idea that policies will materialise that will leave assets in the ground. I don’t think so.”

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