20
AUGUST 2015 THE CLIMATE CASE AGAINST ARCTIC DRILLING UNTOUCHABLE:
AUGUST 2015
THE CLIMATE CASE AGAINST ARCTIC DRILLING
UNTOUCHABLE:
August 2015
Conceived, written and researched by Hannah McKinnon with
contributions from Steve Kretzmann, Lorne Stockman, and David Turnbull
Oil Change International (OCI) exposes the true costs of fossil fuels
and identifies and overcomes barriers to the coming transition towards
clean energy. Oil Change International works to achieve its mission
by producing strategic research and hard-hitting, campaign-relevant
investigations; engaging in domestic and international policy and media
spaces; and providing leadership in and support for resistance to the
political influence of the fossil fuel industry, particularly in North America.
www.priceofoil.org
Twitter: @priceofoil
Greenpeace is the leading independent campaigning organization that
uses peaceful protest and creative communication to expose global
environmental problems and to promote solutions that are essential
to a green and peaceful future.
www.greenpeace.org
Cover: ©Cobbing/Greenpeace
SUMMARY 2
KeyFindings 3
UNBURNABLECARBON 4
ARCTICOILFAILSTHECLIMATETEST 5
THEPERCEPTIONOFNEEDANDABETONCLIMATEFAILURE 6
ArcticOilIsTooExpensivefortheClimate 8
LEADINGTHEPACKINTHEHUNTFORUNBURNABLECARBON 10
STRANDEDASSETS 11
FOSSILFUELFATALISM 13
#SHELLNO:PUBLICACCOUNTABILITYRISKS 14
CONCLUSION 16
CONTENTS
2
Thereisaclearlogicthatcanbeappliedtotheglobalchallenge
ofaddressingclimatechange:whenyouareinahole,stopdigging.
Ifweareseriousabouttacklingtheglobalclimatecrisis,weneed
tostopexploring,expanding,andultimatelyexploitingfossilfuels.
Accordingtothebestavailablescience,atleastthree-quarters
ofthefossilfuelsthatwealreadyhaveaccesstomuststay
inthegroundtohaveadecentchanceoflimitingglobalwarming
totwodegreesCelsiusorless(atemperaturethatwillalready
havedevastatingimpactsonmanyoftheworld’smost
vulnerableregions).1
AndyetcompanieslikeRoyalDutchShellcontinuetosinkbillions
ofdollarsintothehuntforunburnablecarboninplaceslikethe
U.S.offshoreArctic.2Supportedbycomplicitgovernments
throughregulatorypermitsandsubsidies,theseeffortsarewholly
irreconcilablewithstatednationalandinternationalobjectivesto
addressclimatechange.
Projectsthatexpandorbreakopennewreservesandgenerate
moregreenhousegasemissionsclearlyfailatestofwhatissafe
fortheglobalclimate.Andthisclimate testprincipleiswhat
governmentsmustbeginapplyingtofossilfuelprojects–just
asPresidentObamahaspromisedtodowiththeKeystoneXL
tarsandspipeline.Anythingthatwouldexacerbatetheproblem
ofclimatechange,andthatisnotinlinewithournationaland
internationaltargetoflimitingglobalwarmingto“safe”levels,
shouldcomeoffofthetable.
Astheworldbeginstograpplewithhowtodivideupalimited
carbonbudget,therearesomefossilfuelsthatwillnotmakethe
cutnomatterhowthebudgetissplit.U.S.Arcticoffshoreoilis
oneoftheseuntouchablefossilfuelreserves.
SUMMARY
1 IntergovernmentalPanelonClimateChange,“ClimateChange2014SynthesisReport,”p.63.https://www.ipcc.ch/pdf/assessment-report/ar5/syr/AR5_SYR_FINAL_All_Topics.pdf
2 OilChangeInternational,GreenpeaceUK,Platform,“FrozenFuture:ShellandtheU.S.OffshoreArctic,”February2015.http://priceofoil.org/2015/02/18/frozen-future-shell-us-offshore-arctic/ ©
Co
bb
ing
/Gre
en
peace
AnicebergspottedincalmwatersontheedgeofKaneBasin,
inlateeveninglight.
3
KEY FINDINGS:
fArctic drilling would unlock new and unburnable carbon that
does not fit in a climate-safe world. Fossilfuelsthathavenot
yetbeenprovenarenotburnableinaclimate-safeworld,given
thatthevastmajorityofthefossilfuelswealreadyhaveaccess
towillneedtobeleftintheground.
f Industry and government claims that Arctic oil is “needed” are
based on oil supply and demand scenarios that will lead to at
least 5 degrees Celsius warming by 2100 – i.e. climate disaster.
f TheObamaAdministrationreliesonthisdisastrousscenario
asitsReferenceCaseforlong-termU.S.oilsupplyanddemand
planning.Underthisscenario,U.S.CO2emissionswouldbe
190percenthigherthan‘safe’climatelevelsin2040.
fArctic oil will mean high oil – and gasoline – prices for decades.
Arcticoilishighcost(i.e.expensivetofind,produce,andship),
andtheglobaloildemandscenariosthatwouldberequiredto
makeitprofitablenotonlyleadtocatastrophiclevelsofglobal
warming,butalsoprojectoilpricesthatare35to50%higher
thanoilpricesinasafeclimatescenario.
fLarge investments in Arctic oil are a multi-billion dollar bet
that the world will fail to address climate change,andcontinue
hazardouslevelsofoiluse,fordecadestocome.
f Fromaninvestorperspective,U.S.Arcticoilisanassetthat
hasahighriskofbecomingstrandedasbillionsarepoured
intoexplorationforaresourcethatultimatelycannotbe
burnedsafely.ArecentstudyinNaturefoundthatnoArcticoil
productionwasconsistentwithaclimatesafescenario.Zero.
fU.S.Arcticoilwillbeexposedtoincreasingrisksassociated
withmountingpublicopposition.Thesepublicaccountability
riskshavecostotherhighcarbonindustries,suchastheAlberta
tarsands,billionsofdollars,andarethemostsignificantbarrier
tofossilfuelinfrastructureexpansion.Concernedcitizensare
increasinglywillingtostepupwheregovernmentsandmarkets
arefailingtoprotecttheclimate,theenvironment,andimpacted
communities.
Thefossilfuelindustrywantsustobelievethatoil,gasandcoal
willcontinuetodominateourenergysupplyfordecadestocome.
Thisfossil fuel fatalism isfarfromreality,yetitisthebasisforflawed
policyaroundtheworldandajustificationforongoingexploration.
Itistimetoalignenergypolicywithclimatescience,andstart
planningfortheenergytransitioneveryoneknowswemustmake
ifwearetomeetourcollectiveclimategoals.
4
UNBURNABLECARBON
Fullythree-quartersofthefossilfuels
thatwealreadyhaveaccesstocannotbe
burnedinordertohaveatwo-in-three
chanceofkeepingglobalwarmingtoless
than2degreesC.3Aclearimplicationof
thisisthatexplorationfornewfossilfuel
reserves-inparticular,highcostfrontier
fossilfuels-isinconsistentwitheffortsto
staywithinourglobalcarbonbudget.
Thiscarbonbudgetgetssmallerevery
yearastheatmospherefillswithmore
greenhousegases,andyetcompaniesand
governmentscontinuetopourhundredsof
billionsofdollarsintoexplorationeffortsto
findnewreserves(Figure1).Fewexamples
ofthisirrationalpracticeareclearerthan
thehuntforoilintheArcticOcean.
OffshoreArcticreservesarenotcurrently
provenreservesandshouldthereforebe
offthetable.Allcredibleanalysesindicate
thattheyaresimplytooexpensivetobe
profitableinaclimate-constrainedworld.
3 IntergovernmentalPanelonClimateChange,“ClimateChange2014SynthesisReport,”p.63.https://www.ipcc.ch/pdf/assessment-report/ar5/syr/AR5_SYR_FINAL_All_Topics.pdf
Proved Oil Reserves Total Coal Reserves
Proved Gas Reserves Remaining Carbon Budget (GtCO2) - IPCC
0
500
1000
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2000
Bill
ion
to
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of
CO
2
2500
3000
3500
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
58% unburnable carbon 75% unburnable carbon
remaining carbon budget
Figure 1: Carbon Content of Fossil Fuel Reserves, Unburnable Carbon, and the Carbon Budget Source:OilChangeInternationalusingIPCC,EIA,IEA
5
ARCTICOILFAILSTHECLIMATETEST
TheUnitedStatesandtheworldhave
agreedinmultipleinternationalforums
tolimitaverageglobaltemperaturerise
tobelow2degreesC.Atthispoint,the
worldisdangerouslyclosetopassingthe
pointatwhichthatgoalcanbeachieved.
Becauseofthisdiresituation,aclimate
testmustbeappliedtoallfossilfuel
relatedpoliciesandprojects.Theclimate
testrequiresenergyprojectsorpolicy
decisionstobeevaluatedonthebasis
ofwhethertheyfitwithintheUnited
States’existingcommitmenttolimitglobal
warmingtonomorethan2degreesC
abovepre-industriallevels.4Ifaproject
doesnotfitwithinascience-based
scenariothatmeetsthisgoal,itisnot
inthepublicinterestandshouldnot
beapproved.
AsPresidentBarackObamanotedin
June2013inregardstotheKeystoneXL
pipeline:
“[O]ur national interest will be served
only if this project does not significantly
exacerbate the problem of carbon
pollution.”
Thinkingabouttheimpactofinfrastructure
onourclimateiscritical,asmanyof
theseprojectshaveoperationallifetimes
thatspandecades.Infrastructurethat
isbeingbuilttoday“locksin”additional
carbon,becauseonceitisoperational
therearefewifanyfinancialincentivesfor
companiestostopproduction.
Thereforethis‘climatetest’shouldbe
appliedtoalllegislation,policyand
permitsrelatedtoinfrastructuretoextract,
transport,orprocessfossilfuels.
DrillingintheArcticclearlyfailsthis
climatetest,asthereisnoexisting(or
imaginable)2degreesCscenarioinwhich
Arcticdrillingplaysarole.
Infact,theonlyscenariospublished
indefenseofArcticoilexploration
areconsistentwithatleast5degrees
Celsiusofglobalwarming–alevelwidely
consideredtobedisastrous.
AddingArcticoiltotheexistingpool
ofcarbon“exacerbatestheproblemof
carbonpollution”byaddingcarbonto
ourglobalreservesthatbyanymeasure
mustbeconsideredunburnableinasafe-
climatescenario.IfthePresidentistobe
consistentinapplyingsuchaclimatetest
beyondoneprojectandtothenation’s
energypolicyoverall,hemustviewShell’s
drillingforoilintheArcticasaproposal
thatfailstheclimatetest.
4 Thiscommitmenttolimitingwarmingtobelow2degreesChasbeenaffirmedbytheObamaAdministrationinanumberofglobalagreements,includingthe2009CopenhagenAccord,2010CancunAgreements,numerousG7/8/20declarations,andinvariousotherinternationalforums.
Because of this dire situation, a climate test must be applied to all fossil
fuel related policies and projects. The climate test requires energy
projects or policy decisions to be evaluated on the basis of whether
they fit within the United States’ existing commitment to limit global
warming to no more than 2 degrees C above pre-industrial levels.
If a project does not fit within a science-based scenario that meets this
goal, it is not in the public interest and should not be approved.
6
Todate,boththeObamaAdministration
andtheoilindustryhavedefended
explorationofArcticoilasnecessary
tomeetfutureU.S.energyneeds.
Unfortunately,thatperceptionofneedis
basedonprojectionsofoildemandthat
willclearlyleadtoclimatedisaster.
TheBureauofOceanEnergyManagement
(BOEM),whichispartoftheDepartment
oftheInterior(DOI),releaseditsDraft
ProposedProgramforoilandgasleasing
intheU.S.OuterContinentalShelf(OCS)
fortheperiod2017-2022inJanuaryof
2015.5Theleasingprogramincludes
additionalleasingintheChukchiSea.
Inasectionofthedocumententitled
“NationalEnergyNeeds”theBOEM
referstotheObamaAdministration’s
“nationalstrategytomeetU.S.energy
needs,”whichisarticulatedinaMay
2014documentcalled,“TheAll-of-the-
AboveEnergyStrategyasaPathto
SustainableEconomicGrowth.”6Inthis
documenttheAdministrationcitesthe
EnergyInformationAdministration’s(EIA)
ReferenceCaseforecastforU.S.oilsupply
anddemandanddiscussestheneedto
pursueadditionaldomesticoilproduction
inordertoenhanceU.S.energysecurity.
ItalsolistsfurtherleasingintheOCS
asoneofaselectionof“initiatives”the
Administrationisundertaking.
TheEIAReferenceCaseisaclimate
disasterandshouldnotbeusedto
formulateenergypolicy.Itisaforecast
thatshowswhereU.S.andglobalenergy
supplyanddemandwillgoifpoliciesto
safeguardtheclimatearenoturgently
implemented.TheEIAReferenceCase
resultsinthepreciseoppositeofthe
statedpolicygoaloftheAdministration
whenitcomestoclimatechange.Basing
thenation’senergypolicyontheEIA
ReferenceCaseisakintoplanningto
achieveclimatedisaster.
TheInternationalEnergyAgency(IEA)
alsoproducesenergyforecastsand
itsforecastsincludeaCurrentPolicies
Scenario(CPS),whichisbroadlyaligned
withtheEIAReferenceCase.7Inaddition
itpublishesa450Scenario(450S),which
modelswhattheworld’senergyand
emissionstrajectorieswouldlooklike
ifcarbonintheatmosphereweretobe
limitedto450partspermillion(PPM),a
recognizedthresholdthatclimatescientists
believewillgivea50percentchanceof
containingaverageglobaltemperature
risetowithinthe‘safe’benchmarklimit
of2degreesC.TheIEAstatesthatthe
CurrentPoliciesScenarioislikelytoleadto
acatastrophic5.3degreesofwarming,
alevelthatwillfundamentallyundermine
lifeontheplanetasweknowit.8
THEPERCEPTIONOFNEEDANDABETONCLIMATEFAILURE
5 BOEM,“2017—2022OuterContinentalShelfOilandGasLeasingDraftProposedProgram”January2015.http://www.boem.gov/2017-2022-DPP/Seepage4-1forthediscussionofenergyneeds.
6 ExecutiveOfficeofthePresidentoftheUnitedStates,“TheAll-Of-The-AboveEnergyStrategyasaPathtoSustainableEconomicGrowth”.May2014,https://www.whitehouse.gov/sites/default/files/docs/aota_energy_strategy_as_a_path_to_sustainable_economic_growth.pdf
7 TheIEAoutlineitsvariousscenariosat:http://www.iea.org/publications/scenariosandprojections/8 Onpage52oftheWEO2012,theIEAstatesthatemissionsassociatedwiththeCurrentPoliciesScenariowillleadto5.3°Cofaverageglobalwarming.http://www.
worldenergyoutlook.org/publications/weo-2012/
The Arctic is an important component of the Administration’s national energy strategy, and we remain committed
to taking a thoughtful and balanced approach to oil and gas leasing and exploration offshore Alaska.
–SecretaryoftheInterior,SallyJewell,March2015
Why pursue Alaskan exploration and development now? The answer to this question lies in the long lead times
involved in exploration and development in Alaska, compared with other sources of U.S. oil production, and the
potentially transitory nature of the current world oil supply/demand situation. If development starts now, the long
lead times necessary to bring on new crude oil production from Alaska would coincide with a long-term expected
decline of U.S. Lower 48 production. Alaskan opportunities can play an important role in extending U.S. energy
security in the decades of the 2030s and 2040s. … However, these new sources of crude oil production in the 2030s
and 2040s will only be available if new offshore exploration drilling can ramp up in Alaska during this decade.
–NationalPetroleumCouncilReport,March2015
9 BOEM,“2017—2022OuterContinentalShelfOilandGasLeasingDraftProposedProgram”January2015.http://www.boem.gov/2017-2022-DPP/Page4-1.
Figure2showsthedifferencebetween
U.S.energy-relatedCO2emissionsinthe
EIAReferenceCase,theIEA’sCPSandthe
IEA’s450S.IntheEIAReferenceCase,U.S.
CO2emissionsin2040wouldbeover3.6
billiontonsayear,or190percent,morethan
theyshouldbeaccordingtotheIEA450
Scenario.Itcouldnotbeclearerthatbasing
energypolicyontheEIA’sReferenceCaseis
arecipeforacatastrophe.
TheBOEMleasingprogramdocument
furthercitestheEIAReferenceCaseto
supportgreateroilandgasproduction,
statingthatthe“EIAexpectstheUnited
Statestorelyonmoreoilandnaturalgas
tomeetitsenergydemands,evenas
alternativesourcesofenergyprovidean
increasingshareofU.S.energyneeds.”9
Again,therelianceontheEIAReference
Caseforecastforoilsupplyanddemand
misleadsthepublicandpolicymakersinto
believingthattheU.S.requirementforoil
25yearsfromnowwillinevitablybethe
sameasitistodaydespiteclearevidence
thatifthatweretobethecase,wewillhave
failedtoachievethenation’sstatedclimate
policygoals.
TheIEAdoesnotprovidedatainthe
450SforU.S.oilsupplybutitsforecastfor
globaloilsupplyin2040isover34million
barrelsperdaylessthantheEIA’s,a30
percentdifference(seeFigure3).Asthe
U.S.generallyconsumesover20percentof
globaloil,itisclearthatU.S.oildemand,and
supply,mustbesubstantiallycurtailedina
climatesafeworld.
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on
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EIA Reference Case IEA WEO Current Policies IEA WEO 450 Scenario
Climate Safe Scenario
Basis for Arctic Drilling >5°
2°
Figure 2: EIA and IEA Forecasts for U.S. Energy Related CO2 Emissions Source:OilChangeInternationalusingEIA(2015)andIEA(2014)
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2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040
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ion
Barr
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per
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>5°
Climate Safe Scenario
3 Million bpd‘LBasis for Arctic Drilling
Figure 3: Global Oil Supply in EIA Reference Case and IEA 450 Scenario Source:OilChangeInternationalusingEIA(2015)andIEA(2014)
8
ARCTIC OIL IS TOO EXPENSIVE FOR THE CLIMATEExtractionintheU.S.ArcticOceanis
atthetopendofestimatedglobaloil
productioncostcurves–inotherwords,
itispotentiallyamongthemostexpensive
sourcesofoilontheplanet.10Thecollapse
ofglobaloilpricesinthepastyearhas
servedasaclearreminderthatoilmarket
dynamicsarehighlyvolatile.Yetevenin
anindustrybest-casescenario,Arcticoil
productionwouldnotbeginforanother
decade,meaningtheprofitabilityofArctic
oildependsonsustainedhighoilprices
decadesintothefuture.11
Accordingtorecentresearchfromthe
InternationalEnergyAgencyandthe
NewClimateEconomy,oilpriceswillbe
35to50percentlowerinaclimatesafe
scenario.14Astheworldmovestotackle
climatechange,oildemandwillnecessarily
decline(wearealreadyseeingadeclinein
globaldemandgrowth),andsubsequently
priceswillbelower.15AsFigure4shows,
theIEAforecastsglobaloilpricesunder
threescenarios.TheRystadEnergyUCube
databaseshowsthatU.S.ArcticOCSoil
productioniscurrentlyuncommercial
undercurrentoilpriceforecasts.While
precisebreakevenpricingcanonlybe
estimatedforfieldsinwhichoilisyetto
bediscovered,Rystadmodelsabreakeven
priceofbetween$150and$250perbarrel
forvariousfieldsintheU.S.ArcticOCS.
Theverybottomofthisrangeiswherethe
IEApredictsoilpriceswillbeina5degree-
plusscenario.Itcouldnotbeclearerthat
Arcticoilisonlyviableinascenarioin
whichtheclimateisirrevocablydestroyed.
Forthisreason,Shell’smulti-billiondollar
investmentinArcticexploration–oilthat
willnotcomeonlineforadecadeandonly
inasustainedhighoilpricescenario–
isabetthatgovernmentswillfailtolive
uptotheircommitmentstotackleclimate
change.16Aworldwherethereisdemand
forArcticoilwillbeaworldthathas
soaredpastsafeclimatelimitsandis
en-routetoglobaltemperaturesthat
aremultipletimeshigherthanwhatis
considered‘safe’.
Thisbetonfailurehasbeenconfirmed
byrecentresearchpublishedinthejournal
Nature.17Thisapproachtomodeling
identifiedglobalreservesthatwould
remainunburnedifan“economically
rational”approachtoaddressing
climatechangeweretaken.Amongits
conclusionswasthatno Arctic oil would
be exploitedgiventhehigh-costand
long-termtimeframe.
10 CarbonTrackerInitiative,“Carbonsupplycostcurves:evaluatingfinancialrisktooilcapitalexpenditures,”May2014.http://www.carbontracker.org/wp-content/uploads/2014/09/CTI-Oil-Report-Oil-May-2014-13-05.pdf
11 OilChangeInternational,GreenpeaceUK,Platform,”FrozenFuture:Shell’songoinggambleintheU.S.Arctic,”February2014.http://priceofoil.org/2014/02/26/frozen-future-shells-ongoing-gamble-us-arctic/
12 NationalPublicRadio,“Arcticiswarmingtwiceasfastasworldaverage,”December2014.http://www.npr.org/2014/12/18/371438087/arctic-is-warming-twice-as-fast-as-world-average
13 NationalSnow&IceDataCentre,“Arcticseaicemaximumreacheslowestextentonrecord,”March2015.http://nsidc.org/news/newsroom/arctic-sea-ice-maximum-reaches-lowest-extent-record
14 TheGlobalCommissiononEconomyandClimate,“Oilpricesandthenewclimateeconomy,”2015.http://2014.newclimateeconomy.report/wp-content/uploads/2015/05/Oil-prices-and-the-New-Climate-Economy.pdf
15 DavidSheppard,“Oiltostaylowerforlonger;Chinesedemandgrowthtoslow–Goldman,”Reuters,January2005.http://www.reuters.com/article/2015/01/27/us-oil-goldman-currie-idUSKBN0L024220150127
16 HannahMcKinnon,“Fossilfuelfatalismandtheuntouchablearctic,”OilChangeInternational,May2015.http://priceofoil.org/2015/05/20/fossil-fuel-fatalism-untouchable-arctic/17 ChristopherMcGladeandPaulEkins.‘Thegeographicaldistributionoffossilfuelsunusedwhenlimitingglobalwarmingto2°C.’Nature.January8,2015.Page187,vol517.
Climate irony
TheArcticisdisproportionately
impactedbyglobalclimatechange,
warmingtwiceasfastastheworld
average.12Recentdecadeshaveseen
unprecedentedmeltingofArctic
seaice–oneofthekeyregulators
ofglobaltemperaturesandocean
currents.Itisthisdisappearance
ofseaice,andthelongerice-free
seasonthatisallowingoilcompanies
toexplorewellbeyondwhatwas
possibleevenafewyearsago.Arctic
seaicereacheditslowestmaximum
everrecordedinMarchof2015.13
Itistragicironythattheimpactsof
thechallengeweneedtosolveare
beingexploitedbytheveryindustry
thatcreatedtheminthefirstplace–
allinanefforttodigusevendeeper
intothesamehole.
9
18 TomRandall,“Thesechartsshowclearlywhyoilpricescrashed,”Bloomberg,March2015.http://www.bloomberg.com/news/articles/2015-03-30/these-charts-show-clearly-why-oil-prices-crashed
19 DavidSheppard,“Oiltostaylowerforlonger;Chinesedemandgrowthtoslow–Goldman,”Reuters,January2015.http://www.reuters.com/article/2015/01/27/us-oil-goldman-currie-idUSKBN0L024220150127
20Bloomberg,“Americaisshakingoffitsaddictiontooil,”December2014.http://www.bloomberg.com/graphics/2014-america-shakes-off-oil-addiction/21 WorldResourcesInstitute,“Tracking2020climateactionpledgesontheroadtoParis,”March2015.http://www.wri.org/blog/2015/03/tracking-2020-climate-action-pledges-road-
paris22 OilChangeInternational,“Forecastsofconvenience:whyisthefossilfuelindustrymappingourenergyfuture?”July2015.http://priceofoil.org/2015/07/01/forecasts-convenience-
fossil-fuel-industry-mapping-energy-future/23 MaxFawcett,”IsTesla’sModel-Sthebeginningoftheendforoil?”AlbertaOilMagazine,July2,2015.http://www.albertaoilmagazine.com/2015/07/is-teslas-model-s-the-beginning-
of-the-end-for-oil/
Figure 4: Oil Price in Three IEA Scenarios and the Cost of U.S. Offshore Arctic Oil Source:OilChangeInternationalusingIEAandRystadEnergyUCube
ConsidertheassumptionsthatShellmust
bemakingtoassumeaprofitablefuture
forArcticoil.Itiscountingontheworld
lookingidenticaltowhatitlookedlike
fiveyearsago:highoilprices,growing
oildemand,weakornon-existentglobal
climatepolicies,andlimitedtechnological
changeinenergysupplyanddemand.
Allofthesefactorshavebeenshownto
beinfluxorshifting:
fGlobaloilpricesnose-divedlatelast
yearpartlyasaresultofslowing
demandgrowth,partlyasaresult
ofanoilsupplyglut;18
f thelinkbetweenGDPgrowthandoil
demandgrowthisgettingweaker;19,20
fgovernmentsaregearingupformore
ambitiousclimateactionintheleadup
toParis;21
fgrowthanduptakeinrenewables
hasexceededallforecastsand
expectations;22and
f electricvehiclesandbattery
technologyhasgrowingpotentialto
beadisruptiveforceonoildemandfor
transportation.23
Collectively,theseassumptionsamount
towillfuldenialofthefutureenergypaths
thattheworlddesperatelyneedstoavoid
climatecatastrophe.
2010 2030 2020 2040
150+
100
50
-
Do
llars
per
barr
el (2
013
)
Current Polices Scenario New Policies Scenario 450 Scenario
U.S. Arctic OCS >5°
2°
4°
10
LEADINGTHEPACKINTHEHUNTFORUNBURNABLECARBON
Comparedtoitspeers,Shelliswaging
thebiggestbetonthefailureofclimate
action.Itleadsallotherinternationaloil
companiesinspendingonexploration
capitalexpenditure(expex)–leading
thechargeinthehigh-cost,high-risk
huntforunburnablecarbon(Figure5).
Between2010and2012Shelldoubled
itsexplorationspendto$8.7billion,a
significantportionofwhichhasgone
towardsitsArcticprogram.
Despite$7billionandcounting,Shell’s
Arcticprogramhasbeenanobjective
failureforthecompany,withoutasingle
wellcompletedandcountlessmishapsand
legalcasesfollowinginitswake.Whilethis
isgoodnewsfortheclimate,theArctic
environment,andthosewhodependonit,
itisbadbusiness.24
23 MaxFawcett,”IsTesla’sModel-Sthebeginningoftheendforoil?”AlbertaOilMagazine,July2,2015.http://www.albertaoilmagazine.com/2015/07/is-teslas-model-s-the-beginning-of-the-end-for-oil/
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ion
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S
Figure 5: Exploration Expenses (Expex) of International Oil CompaniesSource:OilChangeInternationalusingCompanyAnnualReports
11
Giventhathugeportionsofthe
world’scarbonmustremainunburned,
investmentsthathavebeenmadein
manyfossilfuelreserveswillbeloston
whatareoftenreferredtoasstranded
assetsorunburnablecarbon.Companies
areincreasinglyfacingdemandsfrom
campaigns,investors,andshareholders
aliketotesttheirportfoliosagainstclimate
scenariosandprovehowtheyplantobe
resilientagainststrandingshareholder
moneyinunburnablecarbon.25
Shell,aswellassomeotherinternational
oilcompanieslikeBP,haverecently
respondedtoshareholderpressure
andsupportedshareholderresolutions
tostresstesttheirportfoliosagainst
low-carbonscenarios.28Whilethisisan
importantadmissionthatthecompanies
understandthattheproblemexists,it
alsoremainsclearthattheyaremissing
ordenyingthecruxoftheproblem:
explorationandexpansionoftheirreserves
willinevitablyresultinstrandedassetsin
aclimate-safeworld.
IfShell’sbetonclimateactionfailureis
wrong,shareholdersarepoisedtolose
multiplebillionsofdollarsinmoney
wastedoncarbonthatwillhavenoreturns
becauseitmustbeleftintheground.
TheCarbonTrackerInitiativehasidentified
$2.8trilliondollarsofpotentialcapital
expenditure(capex)inArcticprojects
throughto2050thatwouldrequire
anoilpricehigherthan$95,manyof
whichwouldrequireapricehigherthan
$150.Companiesthatcontinuetoinsist
onexplorationandexpansionofthese
high-costnewresourcesareputting
shareholdersatincreasinglyhigh-risks
ofstrandedassets.
STRANDEDASSETS
Divestment
Thedivestmentmovementhasbeen
gainingglobaltractionoverrecent
years,callingoninstitutions,individuals,
andbusinessestodivestfromfossil
fuelscompletely.Whileshareholder
activismandpressurehaslongbeen
usedtopressurecompaniesfromthe
inside,divestmentinsteadasksthatall
investmentsbemovedoutoffossil
fuelcompanies.
Divestmentcampaignshavebeen
powerfulforcesofchangeinplaces
suchasSouthAfricaduringapartheid,
oragainsttobaccocompaniesinrecent
decades.Whenitcomestofossilfuel
divestment,manyuniversitieshave
committedtodivestment,andeven
somemajornationalfundssuchasthe
NorwegianPensionFund,whichplans
todivestcompletelyfromcoaland
tarsands.26,27
Whilethedivestmentmovementis
havingamodestfinancialimpacton
theindustry,thecentralobjectiveof
themovementismoralbankruptcy:
tomakeinvestmentinfossilfuelsakin
toinvestmentintobacco,arms,orother
ethicallyunacceptablethings.
Divestmentfromfossilfuelsis
predicatedontheultimatereality
thatthebusinessmodeloffossilfuel
companiesisbasedontheexploration,
expansion,andexploitationoffossil
fuelsandthattweakswithinthat
modelwillnotleadtothemassive
decarbonizationweneedtoavoid
dangerousclimatechange.
25 MichelleMcGagh,“BPandShellinvestorsdemandanswersonclimaterisk,”Citywire,January2015.http://citywire.co.uk/money/bp-and-shell-investors-demand-answers-on-climate-risk/a794196
26ResponsibleEndowmentsCoalition,http://www.endowmentethics.org/27 JohnSchwartz,“Norwaywilldivestfromcoalinpushagainstclimatechange,”TheNewYorkTimes,June2015.http://www.nytimes.com/2015/06/06/science/norway-in-push-
against-climate-change-will-divest-from-coal.html?_r=0
12
Theverycoreofthefossilfuelindustry’s
businessmodelisthreatenedbythe
imperativetoaddressclimatechange.If
yourhealthasacompanyismeasuredin
largepartbyhowfastyoucanexplore,
expand,andexploitnewfossilfuels–then
therealitythatthevastmajorityofthe
world’scarbonmuststayinthegroundisa
hardpilltoswallow.
Shell’sleadership(alongwithallother
majorfossilfuelcompanies)hasavested
interestinconvincingtheworldthat
fossilfuelswillbethecenterpieceofour
energyfuture.Despitetheundeniable
highcostofArcticOil,Shellarguestoits
investorsandtoregulatorsthatitsoilwill
benecessary.Statementssuchas,“[M]
odernlifewouldnotbepossible”without
oilfromShell’sCFOSimonHenrydrivethis
sensethatfossilfuelgrowthisnecessary
andinevitable.29
Evenwithaheavydependenceonthe
stillmythicalcarboncaptureandstorage
technology(CCS),neitherofShell’sown
scenarios(called‘mountains’and‘oceans’)
areinlinewiththegloballyagreedupon
goaloflimitingglobalwarmingto2
degreesCelsiusorless.Shellhasonly
investedintwoCCSprojectsaroundthe
worldandthefirm’sCEOBenvanBeurden
recentlysaidthefirmcannotinvest
moreheavilyinthetechnologybecause
shareholderswouldbeunhappywiththe
lowreturns.30
WithoutmassivedeploymentofCCS
(whichremainsanunproventechnology
atscale)bothscenarioswouldseeglobal
warmingbeyond4degreesCelsius(see
Figure6).
Fossilfuelfatalismisclearinallofthe
majorenergyforecasts,wherefossilfuels
stillplayacentralrolewhiletherealworld
exponentialgrowthinrenewables
isignored.
Considerthepastfewyearsasrenewable
energysourceshavemovedfromthe
marginstothemainstream.Lastyear,
renewableenergygrowthtoppedthat
offossilfuelsintheelectricitysector,
adding135gigawattsofpowerfrom
29SeanFarrell,“ClimatechangedominatesmarathonShellAnnualGeneralMeeting,“TheGuardian,May2015.http://www.theguardian.com/business/2015/may/19/climate-change-shell-annual-meeting-oil-global-warming-resolution-shareholders
30TerryMacalisterandDamianCarrington,“Shellbossendorseswarningsaboutfossilfuelsandclimatechange,”TheGuardian,May2015.http://www.theguardian.com/business/2015/may/22/shell-boss-endorses-warnings-about-fossil-fuels-and-climate-change
31 Seehttp://www.shell.com/global/future-energy/scenarios/new-lens-scenarios.htmlforShellscenariosandwww.iea.org/etp2015forIEA.32 KarlRitter,“Renewableenergygrowthoutpacesfossilfuels,”TheAssociatedPress,June2015.http://www.ctvnews.ca/sci-tech/renewable-energy-growth-outpaces-fossil-
fuels-1.2427639
FOSSILFUELFATALISM
2010 2012 2020 2025 2030 2035 2040 2045 2050 0
10
20
30
40
50
60
Bill
ion
To
ns
of
CO
2
Shell Mountains Shell Mountains no CCS Shell Oceans IEA 6DS IEA 4DS IEA 2DS
2°
4°
6°
Figure 6: Shell Projections of Global CO2 Emissions in ‘Mountains’ and ‘Oceans’ Scenarios, Compared to IEA
Scenarios for 2°C, 4°C and 6°C Warming Source:OilChangeInternationalusingShellandIEAscenariosdata31
13
renewablesources.32Growthrateshave
beenexceedingeveryone’sexpectations,
largelybecauseBigOilandtheinstitutions
theyheavilyinfluencehavebeen
underestimatingthemforyearsdespite
theobviousmarkettrendsandsignals.
Theonlywaythattheindustrycan
sustainitsfossil-friendlyprojectionsis
bypredicatinganimmediatedropin
thegrowthrateofrenewables.Thisis
downrightillogicalasrenewablecosts
plunge,incentivizingpolicieskick-in,and
demandgrowthforfossilfuelsbegins
toslow.Lastyear,forexample,global
emissionsdidnotriseforthefirsttimeever
outsideeconomicrecessions,whileChina’s
coalconsumptionremainedflat.
Totackleclimatechange,onestepmust
betoliberateourimaginations–andour
policies-fromthegripofthisfatalism.
Mission Impossible
TheArcticOceanisahigh-risk
locationforfossilfuelexploration
formanyreasons.Itremainsone
ofthevast,relativelyuntouched
regionsoftheworld,defined
byunpredictableweatherand
unforgivingseaicemovements.The
operationalchallengesassociated
withoilexplorationintheregion
areunprecedented,andintheface
ofaspill,thechallengeswouldbe
insurmountable.
Andaspillisnotunlikely.TheU.S.
Governmentidentifiesa75%chance
ofalargespilloverthelifetimeof
projectsintheChukchiSea.Yet,Shell
hascontinuouslyfailedsafetytests
andhasnotdemonstratedanyability
toapplyclean-upstrategiesinthe
extremeArcticenvironment.
Shellalsohasahumiliatingtrack
recordwhenitcomestoitsArctic
explorationprogramasoutlinedin
thetimelineonpage15.
©A
sso
cia
ted
Pre
ss,R
ichP
ed
ron
celli
IrrigationpipessitalongadriedirrigationcanalonafieldinStockton,California.
14
33OilChangeInternational,“MaterialRisks:Howpublicaccountabilityisslowingtarsandsdevelopment,”October2015.http://priceofoil.org/2014/10/29/material-risks-how-public-accountability-is-slowing-tar-sands-development/
34ChristopherMcGladeandPaulEkins.‘Thegeographicaldistributionoffossilfuelsunusedwhenlimitingglobalwarmingto2°C.’Nature.January8,2015.Page187,vol517.35 MattMaiorana,“#ShellNo!Reflectionsontwoweeksofaction,”OilChangeInternational,May27,2015.http://priceofoil.org/2015/05/27/shellno-reflection-on-two-weeks-action/
TheArctichasbecomeafocalpointfor
citizensaroundtheworldconcernedabout
climatechangeandthesensitiveArctic
environment.Arcticoilexplorationisa
reminderthatBigOilreallyisprepared
togototheendsoftheearthinsearchof
aproductthatneedstobekeptin
theground.
Andthismovementofconcernedcitizens
isgrowing.Thisyear,publicactivismhas
putShell’sArcticprogramfrontandcenter
withtheriseof‘Kayaktivism’andthe
widelypublicizedcampaignagainstShell’s
drillingfleetusingSeattle’sportasahome
base.Thishasbeenpartofabroader
efforttosavetheArcticthatcontinuesto
gaintractioninternationally.
Activismshouldnotbeunderestimated
inthefaceofmountingurgencyto
addresstheclimatecrisis.Where
politicalleadershiphaslapsed,citizens
havesteppeduptoleveragelitigation,
financial,andpoliticaltoolstoslowand
stopexpansionofhighcarbonresources.
Theimpactofsuchcampaignshas
beenparticularlyclearintheAlbertatar
sands,wherepublicconcernwasvastly
underestimated,buthaseffectively
blockedanddelayednecessary
infrastructureformarketaccess.
Thislackofmarketaccessdrivenby
concernedcitizenshascosttheindustry
upwardsof17billionUSDandispoised
tokeepsignificantamountsofcarbonin
theground.33
#SHELLNO:PUBLICACCOUNTABILITYRISKS
Publicpressurehasthepotentialto
delayandultimatelyevendrivethe
cancellationofArcticexplorationinthe
future.Accordingtoestimatespublished
inNature,thereisover100billionbarrels
ofoiland35trillioncubicmetersofgas
withintheArcticCirclethathavenotyet
beenexploited(asof2010data).34Ifthis
oilandgasisburneditwouldemitatleast
61billionmetrictonsofCO2,equivalent
totheemissionsof400typicalU.S.coal
plantsover40years.Thisisasignificant
amountofcarbonatstake.
Driveninpartbyabroaderconcernfor
theclimate,theenvironment,andthelives
andlivelihoodsofthosethatlive,work,and
dependontheArcticenvironment,the
#ShellNocampaignhasalsocrystalized
aroundShell’smultiplefailures,disregard
forlocallawandregulations,andinstance
ondrillingintheArcticatallcosts.35
KullukagroundonthesoutheastsideofSitkalidakIslandon1January2013(PublicDomain)
15
REPEATEDMISHAPS-SHELL’STRACKRECORDINTHEU.S.ARCTIC
June, 2012
Shelladmitsinabilitytocomplywithairpermissionpermits.
July, 2012
Plannedcommencementdatedelayedbyicecover.
July, 2012
DrillshipNobleDiscovererslipsitsmoorings.
August, 2012
Shellreceivespermissionforlimitedpreparatorydrilling.
September, 2012
Shellbeginspreparatorydrillingbutisforcedtostopwithin
36hoursbecauseoficeincursionintothedrillingarea.
September, 2012
Shell’soilcontainmentdomeis‘crushedlikeabeercan’intesting.
September, 2012
Shellofficiallyabandonsattemptstodrillforoilduetodamage
tovitalspillequipment.
November, 2012
SmallfirecausedbyanexplosionreportedonNobleDiscoverer.
December, 2012
ConfirmationthatUSCoastGuardfindsdeficienciesonNoble
Discoverer.
December, 2012
Shell’sdrillingrig,theKulluk,runsaground.
January, 2013
ConfirmationthattheUSCoastGuardhaslaunchedacriminal
investigationintoNobleDiscoverer’ssafetyviolations.
February, 2013
Shellannouncesa‘pause’initsArcticdrillingplansfor2013.
March, 2013
USDepartmentoftheInteriorpublishesreviewwhichishighly
criticalofShell.
October, 2013
ShellannouncesplansforscaledbackArcticdrillingin2014.
January, 2014
US9thCircuitCourtofAppeals’decisionmakes2014drilling
highlyunlikely.
January, 2014
Shellconfirmsitwillnotdrillin2014.
April, 2014
USCoastGuardpublisheshighlycriticalreportintotherunning
agroundoftheKulluk.
December, 2014
NobleDrillingLLCpleadsguiltytoeightfelonyoffenceswith
regardtotheNobleDiscovererandpays$12.2millioninpenalties.
NobleretainsitsArcticcontractwithShell.
June 2015
U.SInteriorDepartment’sFishandWildlifeServicerulesthatShell
mustadheretoregulationrequiringa15-mileseparationbetween
exploratorydrillingoperationsinordertoprotectwalrusesand
othermarinelifefromexcessivenoiseanddisturbance.Shellhad
soughttodrillwells9milesapart.
July 2015
MSVFennicatearsagashinitsballasttankonleavingDutch
Harbor,AKfortheChukchiSea.TheFennicawasredirectedto
Portland,ORforrepairs.Thevesselcarriesequipmentforcapping
awellblowoutanddrillingcannotproceedwithoutit.TheFennica
leftPortlandnearlyamonthlateronJuly31.
16
Atthe2015AnnualGeneralMeeting,ShellCEOBenvanBeurden
calledeffortstotieArcticoilinparticulartoclimatechange,
“illogical.”36Butasthisbriefingshows,Arcticoilisfundamentally
tiedtoourcollectiveeffortstoaddressclimatechange.
Arcticoilfailstheclimatetestandrepresentsafuturethatwe
cannotafford:afuturewhereoildemand,andsubsequentlyprice,
remainshighandglobalclimatechangehasgoneunabated.
Theimpactsofclimatechangearealreadybeingfeltaroundthe
world,andalsoclosetohomewitharecord-breakingdrought
inCalifornia,orunprecedentedhurricanesontheEastCoastas
recentexamples.
Butenergyisbeingredefined.AndwhileBigOilandthefossil
fuelindustrywillcontinuetolayclaimtoafossil-fueledfuture,
theworldischangingaroundthem.Thischangeisbeingdriven
inlargepartbyconcernedcitizensandorganizationswhoare
steppinguptofillleadershipvoidswhenitcomestoclimate
actionandenvironmentalandhumanrightsprotection.
Atthetimeofpublication,RoyalDutchShellispoisedfor
anotherseasonofexploratorydrillingintheU.S.ArcticOcean
withpracticalapprovalfromtheU.S.Government.Whilethisis
apoliticalfailureandincompatiblewiththegovernment’sown
climateobjectives,itisnottheendofthestory.
Nowmorethanever,pressureandactioniscriticaltoensureShell
neverproducesoilfromtheU.S.ArcticOcean.Wemustbreakthe
gripofthefossilfuelindustryonpoliticsandenergyandputan
endtothefossilfuelfatalismthatisonlydelayingtheurgent,yet
inevitable,shifttoacleaner,saferandmorejustenergyfuture.
36HannahMcKinnon,“Fossilfuelfatalismandtheuntouchablearctic,”OilChangeInternational,May2015.http://priceofoil.org/2015/05/20/fossil-fuel-fatalism-untouchable-arctic/
CONCLUSION
ActivistsarehangingofftheStJohn'sbridge
inPortland,Oregon,tostoptheFennicafrom
reachingtheArcticwhereShellplanstodrillforoil.
©G
reen
peace
Oil Change International714 G Street SE, Suite 202Washington, DC 20003www.priceofoil.org
August 2015
Greenpeace702 H Street NW Suite 300Washington, DC 20001www.greenpeace.org
