3 Factors Could Slow Arctic Drilling Despite Shell Go-Ahead

Shell gets preliminary U.S. approval Tuesday to restart drilling this summer in the Arctic, but it still faces obstacles.

 

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During 2012, the Royal Dutch Shell drilling rig Kulluk ran aground off a small island near Kodiak Island.

 

Oil drilling in U.S. Arctic waters may return this summer now that Shell has cleared a key government hurdle. Still, an energy bonanza in the frigid north won’t happen anytime soon.

On Tuesday, shortly after the Obama administration pledged to reduce greenhouse gas emissions, its Department of the Interior gave Shell the preliminary go-ahead. Interior approved its environmental review of Shell’s controversial lease for multiyear drilling in the Chukchi Sea, off the coast of Alaska. The energy-rich Arctic is drawing renewed interest because global warming is melting sea ice and making it potentially easier to develop oil and gas.

Shell, which drilled in the Arctic more than 20 years ago, is the only company now seeking U.S. permission to return. Other companies are drilling off the coasts of Norway and Russia, although low oil prices and international sanctions have prompted some to cut back. (Read about Norway’s offer of new Arctic leases.)

“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,” said Interior Secretary Sally Jewell, adding the region's "often challenging environment requires effective oversight to ensure all activities are conducted safely and responsibly.”

Shell’s plans are not affected by Interior's January proposal to bar drilling in parts of the Chukchi and Beaufort Seas, which are home to whales, walruses, and polar bears. Shell aims to drill two “total depth” wells 8,000 feet deep—more than four times deeper than the “top holes” it attempted in 2012, when its rig ran aground and was rescued by the U.S. Coast Guard. (Learn why the U.S. Coast Guard blamed Shell.) It has not been back since.

Company spokesperson Curtis Smith says Shell now has a “more detailed playbook” of safety steps. Environmentalists aren’t convinced and continue their opposition. Shell also faces other challenges that include getting permits, drilling in a harsh climate, and uncertainty about how much oil it will find.

You have to prove your resources, and it takes years.
Curtis Smith, Shell spokesman

Permits Needed

The U.S. approval isn’t Shell’s final go-ahead. The company still has to submit its specific exploration plan, and the Interior Department’s Bureau of Ocean Energy Management (BOEM) has 30 days to conduct an environmental review. Shell also needs permits for its lease, which it bought in 2008.

“It’s a tight window,” but Shell still expects to get its permits in time to start drilling in July, Smith says. “The goal is two wells,” one by each of two drilling rigs, he says. If those go well, more could follow—for Shell and, possibly later, other companies.

“The industry is letting Shell be the test canary in the mine,” says Robert Bea, an engineering professor emeritus at the University of California, Berkeley and a former Shell engineer.

Environmental groups, which have filed dozens of lawsuits to delay Shell’s work and require more robust U.S. scrutiny, don’t want the company to open the way for more Arctic drilling.

Their ability to deal with an uncontrollable blowout in the Arctic, even in the summer, is limited
Robert Bea, former Shell engineer

“It’s the gateway to potential future leases,” says Dan Ritzman, Alaska program director at the Sierra Club. To curb global warming, fossil fuels need to stay in the ground, he says, adding that the Arctic is too dangerous for drilling. He says a spill there could be disastrous, noting the lingering damage from the 1989 Exxon Valdez spill in Prince William Sound.

Safety Concerns Linger

Ritzman cites a U.S. government report, released in February, that forecasts a 75 percent chance of a large oil spill occurring in the Arctic over a 77-year scenario. The forecast, in BOEM’s 780-page second final environmental impact statement on Shell’s lease sale, says a spill as huge as the 2010 Deepwater Horizon disaster in the Gulf of Mexico is “unlikely to occur,” but if it did, “the impacts would be substantial.”

Bea, who helped Shell design and build its first oil and gas platform in the Arctic, says he has a lot of respect for the company’s “smart and sophisticated” people. Still, he says the risks of a blowout remain too high.

“Their ability to deal with an uncontrollable blowout in the Arctic, even in the summer, is limited,” he says, adding that adequate technology is not yet available and the nearest Coast Guard station is more than 1,000 miles away.

“It’s a constantly changing environment,” says Leah Donahey, Arctic Ocean senior campaign director for the Alaska Wilderness League, noting the Chukchi’s high winds, sudden storms, and 30-foot icebergs. The vicissitudes of Mother Nature posed problems in 2012, when Shell faced risky sea ice and rough seas. At one point, its drilling rig Kulluk drifted out of control with 150,000 gallons of diesel fuel and lubricants onboard.

“The Kulluk incident is unfortunate,” but it was related to transportation—not drilling, Smith says. “We’ve learned from that,” he says, adding that Shell now has better technology and multi-layered safety plans to deal with the Arctic’s “challenging” climate. He says the company has also met hundreds of times with indigenous groups to understand their concerns.

The special U.S. envoy to the Arctic, Admiral Robert Papp, said he worries less about an oil spill than two ships colliding in the Bering Strait. "The oil companies have done this before. They're drilled in areas like this—it's relatively shallow, the wells are not high pressure ... so I think they can do it," Papp told Reuters in an interview Monday.

How Much Oil Remains Uncertain

“We have reason to believe that the Chukchi Sea could be home to the most prolific hydrocarbons in North America, if not the world,” Smith says, noting that Shell drilled in nearly the same waters in the 1980s and early 1990s.

Back then, he says, Shell didn’t think the available technology and pipelines made oil production cost-effective. Now, after sinking $6 billion into its Arctic efforts, Smith says the time might be right.

The Arctic is estimated to hold 13 percent of the world’s undiscovered oil and 30 percent of its undiscovered natural gas—84 percent of which is offshore, according to a 2008 report by the U.S. Geological Survey.

Yet no broad investigation of the Arctic’s oil and gas potential has occurred since that 2008 U.S. study. “It’s remarkable how little it’s been charted,” says Charles Ebinger, an energy expert at the Brookings Institution, a Washington-based think tank. “There’s a lot we don’t know.”

Smith says Shell is looking to the Arctic mostly for oil, because it doesn’t see gas as economically viable. He says it takes a multi-decade view that doesn’t focus on the recent plunge in oil prices but rather on an expected increase in global demand for fossil fuels.

Regardless of the company’s exploratory success this year, Smith says, actual production won’t begin for at least a decade. “You have to prove your resources,” he says, “and it takes years.”

*Shell is sponsor of National Geographic’s Great Energy Challenge initiative, which explores energy issues. National Geographic maintains autonomy over content. For more, visit The Great Energy Challenge.

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