ARCTIC DRILLING:

At the top of America, oil brings hope of continued prosperity

BARROW, Alaska -- A small busload of visitors bumped down the gravel road in this Arctic community as Richard Glenn, executive vice president for lands and natural resources at the Arctic Slope Regional Corp., pointed out the city projects that have been built since the oil industry came to town in the 1970s.

New sewer and water lines. The I├▒upiat Heritage Center. The Barrow Arctic Research Center. Ilisa─ívik College. New elementary and high schools. The senior center.

Turning the corner, the vehicle stopped in front of a gleaming new building still under construction. "This is our new hospital," he said as he gestured toward the Samuel Simmonds Memorial Hospital. "It will be four times as large as the existing building and have twice the staff."

Later, standing at the Arctic shore as an end-of-summer snow flurry passed overhead, Glenn, a slender Native geologist, surveyed the Barrow landscape and smiled. Thanks in part to the oil industry, he said, the standard of living has dramatically improved for the Inupiat Eskimo people living on Alaska's North Slope.

"We were afraid of Prudhoe Bay even before it was developed," Glenn said. "We were fighting tooth and nail for it not to happen. But it happened, and look what it has done for our people and the prosperity it has provided."

The Arctic Slope Regional Corp., which is owned by the local Native people, receives property taxes from the oil companies that pump crude through the Trans-Alaska Pipeline System (TAPS) at Prudhoe Bay. The income is based on the volume of oil that flows over the corporation's lands.

This remote 89,000-square-mile region, which is twice as large as Ohio, is governed by the North Slope Borough. Fewer than 10,000 people live in the borough, almost half of them in Barrow, the rest clustered in seven small Native villages sprinkled across the frozen terrain.

The oil revenues translate into more local jobs and services. But the Native leaders fear their regional prosperity could end if Alaska's oil production continues to dwindle. The oil fields, which produced a record 2 million barrels a day in 1988, yielded only 613,000 barrels a day in 2011. Less oil means less money coming to the communities.

To reverse that trend, Barrow's leaders are encouraging the federal government to allow expanded oil development in the borough and off Alaska's northern shores. They support Royal Dutch Shell's plans to explore for oil in the Beaufort and Chukchi seas.

If Shell hits the mother lode of oil in the Chukchi, local leaders want the company to ship the crude from its offshore leases to market through a land-based pipeline to the Trans-Alaska pipeline 350 miles away.

That route would take the oil across lands owned by the North Slope Borough and possibly the Native village of Wainwright, providing the local governments with a new source of property taxes. The state and local communities wouldn't receive royalties from Shell's Chukchi Sea leases because they're located in federal waters.

However, Native leaders are worried that the Interior Department's proposed new ground rules on commercial development in Alaska's National Petroleum Reserve could discourage oil developers from building the pipeline.

The 22.8-million-acre NPR-A in northwest Alaska is owned by the federal government. But it's located within the boundaries of the North Slope Borough and surrounds Wainwright and three other Native villages.

In August, the Interior Department outlined a new management plan that would protect 13 million acres of the NPR-A while allowing drilling on the rest of the reserve. The final version of the proposal is due out in the middle of this month. Interior Secretary Ken Salazar must sign off on the plan before it can take effect (E&ENews PM, Aug. 13).

Salazar and other Obama administration officials adamantly insist that their plan would not prevent a Chukchi pipeline from being built.

But Alaska's state and local leaders warn that the proposal would hike the cost of construction by forcing the oil companies to divert the pipeline around protected areas. They also charge that the plan contains vague language that would encourage lawsuits from environmentalists who want to block oil development in the reserve and in the Arctic's offshore regions.

"This preferred alternative could serve as a roadblock for a pipeline to carry oil from offshore wells in the Chukchi Sea to the Trans-Alaska pipeline," Crawford Patkotak, chairman of the Arctic Slope Regional Corp., said at the Arctic Imperative Summit this summer in Girdwood.

"Even if that pipeline is eventually allowed to be built, new regulatory hurdles will add to its cost and the time it will take to be built," he cautioned. "These delays will have real implications on our shareholders, Alaskans and domestic energy supply."

How will the oil move to market?

Barrow, America's northernmost city, is made up of several small restaurants, hotels and stores mixed among the town's traditional box-style wooden houses and recent construction. All buildings are erected on pilings to keep them from sinking into the permafrost.

From late September to early June, the temperature in town remains below freezing. In the coldest winter months, the thermometer regularly dips below -20 degrees Fahrenheit. About 60 percent of the village residents are Inupiat Eskimos who rely heavily on subsistence hunting for caribou, whale, seal, walrus and waterfowl.

A flight from Barrow is a study of geological contrasts. The North Slope's flat treeless tundra, honeycombed with wetlands and small ponds, spreads 100 miles southward from the Arctic coast.

There it bumps up against the Brooks Range mountains, a massive expanse of wind-swept peaks that top out at more than 9,000 feet. The craggy mounds have historically acted as a barricade to outside explorers searching for a direct passage to the North.

In the 1970s, the oil companies routed the Trans-Alaska pipeline through the Atigun Pass in central Alaska. That system extends 800 miles, from Prudhoe Bay to the industry export facility in Valdez along Prince William Sound.

Alongside the pipeline runs the Dalton Highway, a rough gravel road that provides land access for long-haul truckers and pipeline repair crews.

The industry's federal Beaufort Sea leases are located just offshore from Prudhoe Bay. Such close proximity to the TAPS system would make it easy for successful drillers to ship oil from the Beaufort to market.

Transporting oil from the industry's distant Chukchi Sea leases would be far more difficult.

This summer, Shell began preliminary work at its Burger prospect in the Chukchi Sea, 70 miles off of Wainwright's coast. ConocoPhillips plans to follow in 2014; Statoil has pushed off exploration until 2015.

If Shell hits a significant reservoir of oil, company officials say they'd like to bring the crude to shore through a subsea pipeline. From there, they envision building a cross-land pipeline to the existing Trans-Alaska pipeline.

Curtis Smith, the company's Alaska spokesman, said Shell is not currently focused on other transportation alternatives, such as shipping the oil to market by tanker. "One of the factors that makes the Alaskan OCS attractive to Shell is the availability and long-term viability of the TAPS," Smith said in an email.

Shell officials note that a Chukchi pipeline could also spark energy development in the National Petroleum Reserve. So far, the government's effort to auction lands in the reserve has encountered only lukewarm interest from oil companies. Those companies that have bid for leases have not begun production.

Industry officials blame the high cost of transporting fuel to the TAPS. A new Chukchi pipeline would provide the necessary industry access to international markets.

The U.S. Geological Survey estimates that the NPR-A holds about 900 million barrels of oil. By comparison, the American Arctic offshore region could contain as much as 27 billion barrels of oil and 132 trillion cubic feet of natural gas.

'Our culture is built on change'

The Bureau of Land Management's proposed new management plan bans oil drilling on lands along the Chukchi Sea just east and west of Wainwright's village boundaries. Those regions, the Kasegaluk Lagoon and Peard Bay, are ranked as important habitat for seals, polar bears and other marine mammals.

However, the proposal would allow construction of "nonsubsistence infrastructure" -- including a pipeline -- along the coast, according to Jim Ducker, environmental program analyst for BLM's Alaska office.

The management plan also would prevent oil development near Teshekpuk Lake and its adjacent wetlands, in the petroleum reserve's northeastern corner. Those central Arctic lands are crucial breeding grounds for millions of international migratory birds and home to caribou, wolves and polar bears.

Although all commercial development would be barred near the lake, the management plan would allow a pipeline to be routed through the region's outer boundaries.

Shell has made no decisions on where it would propose to build a future Chukchi pipeline. One route would take it straight west from Wainwright to Prudhoe Bay. An alternative would be to direct the pipeline toward Umiat at the southwestern corner of the petroleum reserve before connecting to the TAPS.

Environmentalists want the BLM to restrict all commercial activity on the petroleum reserve's coastal regions near Wainwright and on the outskirts of the Teshekpuk Lake. Chuck Clusen, director of the Natural Resources Defense Council's national parks and Alaska projects, said the government's management plan "leaves the door open in these areas to be carved up with roads and pipelines."

The environmental opponents are backed by a handful of Native groups, including the tribal council of the Inupiat Community of the Arctic Slope, which also favors tougher restrictions in the region to protect local caribou herds.

"Our villages depend on the [caribou] herd for our subsistence lifestyle, which must be protected from oil and gas leasing to ensure our way of life," George Edwardson, president of the ICAS council, said this summer in a statement.

But a Chukchi pipeline would face far greater hurdles than the NPR-A management plan. Before beginning construction, Shell must submit an exhaustive environmental impact statement that will face serious scrutiny, noted Lois Epstein, Arctic program director at the Wilderness Society.

"Chukchi Sea oil likely will be among the most expensive oil in the world to produce and transport to market," she predicted.

Shell has already begun gathering the scientific data it needs to characterize the lands it might use for future onshore pipelines, staging areas and pumping stations for the Chukchi Sea pipeline project.

Dozens of new faces have poured into Wainwright and Barrow this summer as Shell has begun exploration and accelerated its scientific studies. Glenn of the Arctic Slope Regional Corp. noted that the oil activity isn't new.

Oil developers have been eyeing Alaska's northern lands for at least a century. In 1923, President Harding set aside the petroleum reserve as a potential source of oil for Navy ships. In the 1940s and 1950s, the government drilled test wells in the region. In 1968, the oil industry discovered a gusher in Prudhoe Bay.

"Looming changes have always been here," Glenn said.

Not all of the changes have been positive, acknowledged Forrest "Deano" Olemaun, general manager of the Ukpeagvik Inupiat Corporation, Barrow's Native corporation.

"The main impact on our people that everyone tends to shy away from is the social element that when success comes in, so does the prospects of attracting those that are trying to make a quick, fast buck. They'll do it by selling drugs and alcohol, and then pretty soon it just becomes rampant abuse," Olemaun said at a lunch meeting in Barrow.

"Those are some of the things that we are making sure that we don't repeat from the early formation of the North Slope Borough. The village of Barrow was impacted heavily during those times," he recalled. "If we're going to be bombarded with exploration and development opportunities, we want to make sure that our people are mentally ready to accept these impacts."

Although environmentalists and some Native groups oppose drilling, Glenn says Alaska's indigenous people need to make the best of the changes that are coming their way while also protecting their Inupiat Eskimo culture and subsistence lifestyle.

"Our villages just can't roll back, because we're more than skin tents and sod houses," he said. "We have water and sewer plants, telephone poles. We have a GPS in our skin boat now. Our culture is built on change."

Glenn said he is frequently asked whether the Native communities are selling out by working with the oil companies.

"I asked that to my mom, and she said: 'What do you want, Richard? Do you want us all to wear skin clothing and die at a young age like my grandparent's generation?'" Glenn recalled. "Death from strep throat and things like that. That's when you say, get real. It's not a sellout. It's survival."

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