Analytics

Has Big Oil Turned Its Back On Alaska?

Source: Oil Price, by Haley Zaremba

“Is Exploring For Oil Still Profitable?” Oilprice asked back in August. As the novel coronavirus has swept the world, stalling whole industries, tanking oil demand and prices, leaving legions of people jobless, and upending the natural order of things, everyone who has anything to do with the energy sector has found themselves asking these kinds of existential, world-altering questions. Until 2020, claims of peak oil just on the horizon were easily dismissed as naive and alarmist. Now, peak oil is suddenly upon us, an unforeseen stall in the status quo has afforded the world an unmissable opportunity to reorient the global economy toward decarbonization with not a moment to spare, and global leaders and thinkers such as the World Economic Forum are calling for a “new energy order” and a “great reset.”

For European Oil majors, at least, this has all culminated in a surprisingly simple answer: no. No, exploring for oil is no longer financially worth it. With fossil fuels fast falling out of favor and the clean energy transition fomenting and picking up speed around the globe, we are seeing more and more “stranded assets” as oil company choose to let their already purchased, yet-untapped oil reserves sit stagnant, preferring to accept the sunk cost rather than spend any more cash on drilling ventures that promise few financial returns. 

Instead, Big Oil is quickly transitioning to become Big Energy in Europe, where the oil industry’s most profitable business is no longer oil. In the United States, however, Big Oil has taken a decidedly different track, clinging steadfastly to the shale that catapulted the nation to the top of the energy production food chain instead of investing in alternative, more forward-looking ventures. Until now.

Just this month, a government auction of drilling leases in Alaska turned into an allegory for the state of the entire U.S. oil industry when nearly no one showed up. As one of Donald Trump’s last actions before leaving office, the U.S. president opened up the Arctic National Wildlife Refuge (ANWR) to would-be oil drillers. This contentious move on Trump’s part was actually mandated by Congress in order to raise funds to help make up for the ballooning deficit spurred by the president’s sizable 2017 tax cuts. “Advocates promised that wells in ANWR would generate $1 billion a year and decrease the budget deficit,” The Houston Chronicle reported. 

When auction day arrived, however, not one major energy company made a bid, and only about half of the tracts on offer received any bids at all. What’s more, many of the lots that were sold will likely never be drilled upon. One of the buyers, The Alaska Industrial Development and Export Authority, bought their 400,000 acres at the minimum bid for the purpose of economic development but has never drilled a well in its history. Other buyers included small companies that almost certainly don’t have the capital to explore for oil in the refuge and will have a very hard time securing it, as nearly every conceivable major bank has pledged in writing never to fund such a venture. Last year, Morgan Stanley became the fifth of six major U.S. banks to announce that the financial institution would no longer fund any future oil drilling in environmentally delicate Arctic refuges, adding themselves to the ranks of Arctic drilling divesters that already included Morgan Stanley, Wells Fargo, Goldman Sachs, JPMorgan Chase, and Citigroup.

According to Chris Tomlinson, an analyst for the Houston Chronicle, the message broadcasted from the failed ANWR auction was loud and clear: more oil is no longer wanted or needed. And the fact that the primary bidder was a state-owned economic development organization means that Alaskans are desperate for a new way to find jobs and keep their economy afloat that no longer depends on the oil that has now failed them for so many years. 

Alaska is not alone. Down in Texas, in the Permian Basin and on the Gulf Coast, the winds of change are blowing as well. From North to South, the U.S. energy industry is finally beginning to bid oil goodbye. 

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