While it is true that the U.S. won’t be able to quit oil use overnight, oil extracted from beneath the Arctic Ocean is no “transition” fuel. Arctic oil is likely to be an expensive proposition and even Shell admits that any oil found in the Chukchi Sea won’t reach market until the 2030s and the fields will have to produce for decades in order to recoup the initial investment. A recent report put out by Oil Change International and Greenpeace entitled Untouchable makes the case that Arctic oil drilling is simply incompatible with President Obama’s climate goals.
There is a maximum amount of greenhouse gases we can emit if we are to have a chance of limiting global warming to 2 degrees Celsius, and with every passing year of inaction this “carbon budget” gets smaller and smaller. If we don’t change course, the budget will be exhausted by 2040. The hard fact is that oil companies have already discovered more oil reserves than we can safely burn. Any new Arctic discoveries would be in addition to those existing reserves and would be less economical due to a short drilling season, harsh environmental conditions and high transportation costs.
It is difficult to say for certain what the “breakeven” price will be for Shell’s offshore projects. When production costs are compared across projects, Arctic oil is the most expensive. Shell’s Ann Pickard has claimed that oil from the Chukchi would be “competitive” at $70 per barrel, but some analysts estimate that it would only make economic sense if prices were greater than $100 per barrel. An influential database from Rystad Energy “models a breakeven price of between $150 and $250 per barrel for various fields in the U.S. Arctic OCS.” Oil is currently trading at under $50 per barrel. The International Energy Agency has published future scenarios for oil production, and in its Current Policies scenario the price of oil does reach $150 per barrel sometime in the mid 2030s. Unfortunately, that scenario predicts a disastrous temperature rise of 5.3 degrees Celsius.
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