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Ottawa, Washington to ban offshore oil and gas licences in Arctic waters

Nanisivik, Nunavut, is pictured in December, 2012.

Steven Chase/The Globe and Mail

The Liberal government has joined with U.S. President Barack Obama to restrict oil and gas development in Arctic waters, and regulate fisheries and shipping lanes as the ice cover recedes as a result of climate change.

In a joint release Tuesday, the two governments said the measures would ensure "a strong, sustainable and viable Arctic economy and ecosystem," although there is currently little interest in additional leasing in Canadian Arctic waters.

In addition to limiting future oil and gas development, the two governments also indicated they would work together to find the safest shipping routes as Arctic waters become more ice-free, and to ensure well-regulated fisheries for the benefit of the local population.

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For his part, Mr. Obama designated the vast majority of U.S. waters off Alaska in the Chukchi and Beaufort Seas as well as a large section of the Atlantic coastal area as "indefinitely" off limits to future oil and gas leasing. President-elect Donald Trump and Republicans who control Congress have championed offshore oil and gas development and will no doubt look to reverse that decision.

U.S. environmental groups applauded Mr. Obama's presidential order, and said it would be difficult for the next administration to undo. However, the order would not affect drilling or production under existing leases owned by Royal Dutch Shell PLC, Eni SpA, Repsol SA and other companies.

Industry supporters were immediately urging the Republicans to act after Mr. Trump is inaugurated next month. "With the stroke of a pen, today's action also defies the will of the American people, who in poll after poll have expressed their strong support for offshore energy development," said David Holt, president of the pro-industry, Houston-based Consumer Energy Alliance.

Prime Minister Justin Trudeau's government will designate all Canadian waters in the Arctic as indefinitely off-limits to future oil and gas licensing, a ban that will be reviewed every five years. Existing industry leases remain in place and producers have no plans to drill over the next few years due to poor economics and technical challenges.

It remains unclear whether the prohibition will affect them if they relaunch their efforts to win regulatory approval for exploration activity.

"It's a good day for the Arctic," Paul Crowley, head of Arctic conservation for WWF-Canada, said in an interview. "In terms of being realistic about what can be done in the Arctic in an environmentally sane way, it's a huge statement. There was a lot of magic thinking going on about these potential reserves and their exploitation."

Imperial Oil Ltd., together with its partners, Exxon Mobil Corp. – which is Imperial's parent company – and BP PLC, hold a number of leases in the deep waters of the Beaufort, about 175 kilometres north of Tuktoyaktuk, NWT.

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In 2015, the companies suspended their effort to win regulatory approval for an exploration program portion of the Beaufort Sea.

They had planned to drill in water depths up to 1,500 metres, with the initial well planned for the summer of 2020 at the earliest. However, the partners said they needed more time to study the Arctic's harsh conditions. Imperial has sought to extend the life of permits that are set to expire in 2019 and 2020 to 16 years, up from nine currently.

One of the biggest obstacles is meeting National Energy Board requirements that compel companies to drill a so-called relief well in the same season as a producing one in order to have the ability to cap any possible blowout.

Imperial and U.S. oil major Chevron Corp. had both sought exemptions from the rule, arguing it was not feasible given the short northern drilling season. Chevron also cited weak oil prices when it scrapped its own exploration program in 2014.

It could take more than a decade before such plans are revisited, given current projections for future prices, said John Hogg, president of Skybattle Resources Ltd. in Calgary.

"If oil was north of $75 and stable, I think that they could start looking at it again," he said."There's a potential for billion-barrel oil fields out there, so I don't see the super majors ever losing sight of the fact that they've acquired the seismic [data]. They know where they'd like to drill."

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About the Authors
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

Jeff Lewis is a reporter specializing in energy coverage for The Globe and Mail’s Report on Business, based in Calgary. Previously, he was a reporter with the Financial Post, writing news and features about Canada’s oil industry. His work has taken him to Norway and the Canadian Arctic. More

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