America: Watching as a Spectator While the World Passes Us By

January 22, 2016 in Blog

A Norwegian-Italian joint venture is set to begin producing oil from the Goliat field in Norway’s Barents Sea as soon as next month after receiving approval from a Norwegian regulator earlier this week. If the byzantine American system of Arctic oil and gas regulations continues to serve as a deterrent for development, this is what the U.S. can expect going forward: Sitting on the sidelines, just watching while other countries reap the benefits of developing the abundant resources in the Arctic.

The International Energy Agency, in its 2015 World Energy Outlook (WEO) report, projected that world demand for energy would grow “in all WEO scenarios” – by nearly 33 percent in the central scenario – and that “the world’s appetite for electricity [would lift] demand by more than 70% by 2040.” While 2040 may appear to be a long way off, there’s a need to plan ahead to ensure that the growing demand for energy will be met. Even though recent technological innovations have ushered in a new era of American energy abundance in the short term, production from the Lower 48 is expected to begin declining within the decade. Fortunately, if Arctic oil and gas development began now, the new supply would come online in the 2030s and 2040s, because Arctic projects take much longer to develop – from ten years to more than 30 years.

Other countries, recognizing the need to meet the growing demand for energy in the coming years, are seizing the opportunity. Aside from Norway and Italy, Russia is driving both oil and natural gas projects in its part of the Arctic. As Senator Murkowski said:

“Development in the Arctic is going to happen – if not here, then in Russia and Canada, and by non-Arctic nations. I personally believe that America should lead the way.”

Yet, instead of leading the way, the U.S. government has made it exceedingly difficult for oil and gas companies to operate in the Arctic. Last fall, regulatory hurdles made costs prohibitively high for Shell’s project in the Chukchi Sea. Just weeks later, the Department of Interior cancelled the Arctic offshore lease sales originally scheduled for this year and the next – effectively blocking future oil and gas development in the Arctic.

Pursuing a regulatory regime of this kind is akin to shooting ourselves in the foot: When the regulations governing Arctic development are already comprehensive, throwing obstacle after obstacle in industry’s way epitomizes a misguided short-sightedness that will close us off from future opportunities.

After all, the existing regulatory apparatus governing Arctic oil and gas projects – 12 federal agencies, 19 state agencies, and four local Alaska agencies (pg. 4-4) – is already robust. For example, when it comes to protecting wildlife, the existing and extensive regulatory regime in place includes the U.S. Fish & Wildlife Service and the National Marine Fisheries Service on the federal level; the Alaska Department of Environmental Conservation, Alaska Department of Fish and Game, and the Alaska Department of Natural Resources on the state level; and the North Slope Borough and the Alaska Eskimo Whaling Commission on the local level.

In Short

Given the sweeping regulatory protections in place, the loud support of local Alaskans for development, and the state of Alaska’s desperate need for oil and gas revenues, the U.S. should be encouraging Arctic development, instead of making it more challenging than it already is. If we continue down this overwrought, over-regulated path, we risk letting a golden opportunity slip away, left to spectate while other countries seize it.