Shell bets on the Arctic to beat sliding oil prices

ROYAL Dutch Shell’s plan to return to the Arctic this year shows exploration in one of the world’s most remote regions is proving resilient against the slide in crude prices.

The US Interior Department on Monday endorsed Shell’s plan to have two rigs drill as many as six exploratory wells in the Chukchi Sea off the coast of Alaska. Shell wants to resume work halted in 2012 when its main drilling rig ran aground and was lost. It also was fined for airpollution violations.

Shell, which has committed $6 billion (R72bn) to the Arctic project, is seeking to unlock Arctic resources that may total 10 times the amount of oil and gas produced from the North Sea so far, according to its website.

Arctic oil is also being chased by Russia, though drilling has been slowed by sanctions. While exploration drilling in Norway’s Arctic will slow this year to half last year’s level, at least seven wells are planned in the Barents Sea.

The activity shows the long-term opportunity of Arctic oil trumping the drop in oil prices in a world where few large fields remain to be discovered.

“The Arctic is the next big frontier,” said Ahmed Ben Salem, a Paris-based analyst with Oddo, which has a buy rating on Shell. “It’s also an expensive place to drill, even as Shell and other oil companies are looking to cut drilling expenditures because of lower oil prices.”

Shell was planning a twoyear drilling programme in the Arctic, starting this year if all approvals came through, chief financial officer Simon Henry said last month.

It plans to use two rigs in the programme to explore about 112km from the village of Wainwright. The drilling will take place in 43 metres of water.

Shell, which discovered oil in the same part of the ocean in 1986, is the first explorer to return to the region since the last offshore Arctic drilling boom fizzled almost 30 years ago amid slumping crude prices.

Opposition

Exxon Mobil, BP and other producers have discovered more than 10 billion barrels of oil in North American Arctic seas since the early 1970s. Those resources remain locked beneath the sea floor because of a lack of pipeline capacity to haul them to markets.

Oil exploration and production companies in the past decade stepped up plans to drill in the Arctic, using technology that may let them reach the reserves trapped in the sea floor beneath ice.

The Arctic seas contain an estimated 24 billion barrels of oil, according to the US Geological Survey.

Shell’s plan to return to the Arctic and the US approval itself are being resisted by the environmental groups. Greenpeace activists occupied Shell’s oil rig in the Pacific last month in their latest effort to stop drilling in Alaska.

Shell drilled two test wells in 2012 after spending about $6bn over almost a decade in preparation. – Bloomberg COMPETITION authorities would launch an investigation on the retail industry to ascertain if there was sufficient competition, a cabinet minister said yesterday. Ebrahim Patel, the Economic Development Minister, authorised a similar market enquiry into the healthcare sector two years ago, which showed signs of high prices. “It will examine, among others, the tenancy arrangements in shopping malls, the growth of township enterprises (such as) small shops, spaza shops and so on and it’s intended to ensure that we’ve got a competitive but also inclusive retail sector.” Patel would also instruct the International Trade Administration Commission to tie any future commitments on reducing tariffs to manufacturers’ agreeing to invest, train, create jobs and increase productivity. – Reuters

ENERGY

THE SOUTHERN African Development Community (SADC) has approved the first R43.3 million allocation for the development of an energy transmission line project that would involve South Africa, Zimbabwe and Mozambique. The allocation, which is part of SADC’s project preparation and development facility that is managed by the Development Bank of Southern Africa (DBSA), will be funded by the German government and the EU through its regional office in Gaborone. DBSA chief executive Patrick Dlamini said the project would involve the development, construction and operation of a 400kV or 500kV high-voltage transmission infrastructure over a distance of about 935km. It would be sponsored by member state’s power utilities including Eskom. – Sechaba ka’Nkosi

LOGISTICS