(Bloomberg) — President Barack Obama banned new offshore oil and gas drilling in more than 100 million acres of the U.S. Arctic and undersea canyons in the Atlantic Ocean, a move certain to provoke a fight with the Republican-led Congress and his successor in the White House.
In an announcement coordinated between two of the world’s biggest oil producers, Canadian Prime Minister Justin Trudeau also committed to freeze new offshore leasing in his nation’s Arctic waters and review the matter every five years.
"These actions, and Canada’s parallel actions, protect a sensitive and unique ecosystem that is unlike any other region on Earth," Obama said in a written statement. "They reflect the scientific assessment that even with the high safety standards that both our countries have put in place, the risks of an oil spill in this region are significant and our ability to clean up from a spill in the region’s harsh conditions is limited."
The U.S. move — announced a month before Obama leaves the White House — is sure to draw a legal challenge, and there is scant precedent on the matter. President-elect Donald Trump could rescind the order, but the 1953 statute Obama is invoking doesn’t include an explicit provision for reversal and that question could be tied up in court for years.
Although Obama’s decision was cast primarily as safeguarding 31 ecologically precious Atlantic canyons and "fragile Arctic waters," it was a major victory for environmental activists who have been arguing that even broader climate change concerns should drive the White House to rule out drilling in mostly untouched U.S. waters. Environmentalists said the decision sends a message to the world that the U.S. knows the warming Earth can’t afford to burn "extreme oil" locked under now-protected parts of the Arctic and Atlantic.
"Today’s bold bi-lateral announcement between Canada and the United States shows North America is leading the world in preserving the Arctic for future generations," said Rhea Suh, president of the Natural Resources Defense Council. "President Obama and Prime Minister Trudeau have created an indelible legacy as true stewards of the most fragile and threatened ecosystem in the world, and we urge the other Arctic leaders to follow suit."
In the Arctic, Obama is making all of the U.S. Chukchi Sea and the vast majority of U.S. side of the Beaufort Sea — all but 2.8 million acres near the shore — indefinitely off limits for future oil and gas leasing. Only one parcel in the U.S. Chukchi is still leased — to Royal Dutch Shell, which drilled there in 2015.
Beaufort Sea
The Beaufort Sea withdrawals are not expected to affect drilling or production under existing U.S. leases, including 42 parcels that Royal Dutch Shell Plc, Hilcorp Energy Co., Eni Spa, Repsol Sa and other companies own there, according to a government registry last updated in June. It also isn’t expected to affect waters under state jurisdiction, including part of the Beaufort Sea where a Texas company recently trumpeted a potential 6 billion barrel discovery.
Left untouched by the order are U.S. waters in the Pacific Ocean and the Gulf of Mexico, where drilling dates back decades. Obama also left vast stretches of U.S. East Coast waters open for exploration, including territory off the coast of Virginia where local leaders and the oil industry have sought drilling.
In Canada, all Arctic waters will be designated as off-limits to new oil and gas licensing, Trudeau said, without specifying any restrictions on existing leases held by Canadian divisions of energy giants such as BP PLC, Repsol and Exxon Mobil Corp.
He left available for development waters around Newfoundland and Labrador, the heart of Canada’s current offshore production.
In a joint statement, the U.S. and Canada said their actions "set the stage for deeper partnerships with other Arctic nations," including Russia, which has not taken a similar step to broadly rule out drilling in the region.
In the U.S. Atlantic, the massive underwater canyons covered by Obama’s order were carved by glaciers or are the remnants of rivers that once flowed overland. According to a White House fact sheet, they are home to many species of fish, whales and other aquatic life and have been the subject of scientific exploration for decades.
The announcement builds on Obama’s earlier decision to rule out selling new leases in the Arctic, Atlantic and Pacific from 2017 to 2022. But Tuesday’s proclamation, based on the so-called 12(a) provision of the Outer Continental Shelf Lands Act, is different because it explicitly puts certain areas indefinitely off limits for oil exploration and production.
Until now the Outer Continental Shelf Lands Act provision has been used mostly to indefinitely preserve coral reefs, walrus feeding grounds and marine sanctuaries, though some presidents have used it more broadly on a temporary basis.
1938 Opinion
Although presidents have modified predecessor’s decisions under the act, they have never rescinded them altogether. A legal opinion from the U.S. attorney general in 1938 on similar designations under a different law said they “do not imply a power to undo.” And there have been no federal court rulings on the offshore energy statute.
But the law also doesn’t include an explicit statement that the protections are permanent — a potential opening for offshore drilling advocates.
There’s no such thing as a "permanent withdrawal," said Christopher Guith, a senior vice president at the Chamber of Commerce’s Institute for 21st Century Energy. "Any 12(a) withdrawal can be made via presidential memorandum and can be repealed via presidential memorandum."
Trip Van Noppen, president of Earthjustice, said the scientific underpinnings of Obama’s order will buttress it in court. "It’s important in general to have a strong rational basis for the decision, and the fact of local impacts guiding the decisions is important in justifying the decisions."
Although the U.S. Arctic is estimated to hold 27 billion barrels of oil and 132 trillion cubic feet of natural gas, energy companies have struggled to tap those resources amid high exploration costs and long development timelines. Oil companies spent more than $2.5 billion nabbing drilling rights in the region, but relinquished many of those claims as low crude prices forced them to cut spending.
National Security
The industry’s top trade group, the American Petroleum Institute, cast the idea of permanently withdrawing offshore waters as detrimental to national security. API officials expressed confidence that the Arctic withdrawals would be rolled back by Trump and the Republican-led Congress — even if the matter is ultimately decided by federal courts.
"There’s no case law; there is very little precedent," said Andy Radford, offshore senior policy adviser at API. "There’s a number of avenues to explore to overturn a withdraw."
The announcements stem from a joint pledge in March by Obama and Trudeau to collaborate on managing the Arctic, including taking unspecified “concrete steps” to protect at least 10% of its water. In a joint statement Tuesday, the two governments said their actions would ensure "a strong, sustainable and viable Arctic economy and ecosystem," by keeping the region "free from the future risks of offshore oil and gas activity."
Shipping Measures
They also announced steps to reduce the impact of shipping on the region, as melting ice opens up new passageways at the top of the globe. That includes working together to phase out the use of bunker fuel in the Arctic, amid concerns it generates air emissions and black soot that contribute to melting ice.
The restriction comes as Trudeau seeks to balance environmental protection and energy development in Canada, home to the world’s third-largest proven oil reserves. Trudeau recently committed to a national carbon price but also approved two new oil pipelines, angering environmentalists.
Although some oil companies hold exploration rights in Canada’s Beaufort waters, no drilling is currently taking place. Activity there is now stalled or uneconomical, said Michael Byers, a University of British Columbia professor.
Because the Canadian freeze doesn’t jeopardize any imminent oil drilling projects, the action is "a good way for the prime minister to burnish his climate credentials" after the recent oil pipeline approvals, Byers said by phone. "From that perspective, it makes sense both environmentally and politically."
Northwest Territories
The decision drew a rebuke from Northern residents. Bob McLeod, premier of Canada’s Northwest Territories, said he was not involved in the decision. He spoke with Trudeau Tuesday and expressed concern about the economic impact the move will have.
"We thought we would have a collaborative relationship when it came to these types of decisions, and we’re very concerned," he said in an interview, adding such decisions should include Northern residents and not be "based on what would play to people in Vancouver, Toronto, Ottawa, what have you."
The territory will look to the federal government to support other industries if oil and gas development is reined in. "It’s a hard place to live. We need good jobs for people to support themselves and their families," McLeod said.
Jimmy Stotts, head of the Inuit Circumpolar Council, an organization that represents Inuit internationally, said local stakeholders, including regional corporations, were not consulted about the U.S. decision. He described the process as "secretive."
Bloomberg News by Jennifer A. Dlouhy and Josh Wingrove
