ARCTIC:

Drillship grounding sparks new fears over offshore safety

Royal Dutch Shell PLC's quest to tap billions of barrels of oil below the Arctic Ocean suffered a major setback this week when one of its two drillships ran aground near Alaska's Kodiak Island, lending fresh ammunition to critics who warn that the company is unprepared to drill safely in the region's remote and volatile environment.

The incident late Monday night raised fresh political opposition to Arctic drilling and may also pose new financial and regulatory hurdles as the company gears up for its 2013 summer drilling season.

Federal officials this morning said there are no signs that fuel has spilled from the Kulluk drillship, which is rocking gently on gravelly shores off Sitkalidak Island, a small, uninhabited island separated by a narrow strait from Kodiak.

All 18 personnel on board the Kulluk had been evacuated before it ran aground after breaking loose from towboats amid hurricane-force winds and 50-foot waves. So far, three minor injuries have been reported.

But the 30-year-old ship still holds about 143,000 gallons of ultra-low-sulfur diesel and 12,000 gallons of other petroleum products, raising fear that some could spill into surrounding waters that are critical habitat for endangered Steller sea lions.

The 266-foot-long, circular drillship was being towed to Seattle for maintenance after concluding preparatory drilling activities in the Beaufort Sea.

It is unclear what impact this week's accident will have on Shell's plans to drill up to five exploration wells this summer off Alaska's North Slope, where it recently concluded its first drilling season in roughly two decades.

The Kulluk in fall drilled a "top-hole" in the company's Sivulliq prospect in the Beaufort, a procedure that stops short of penetrating oil-bearing zones.

Shell acquired the Kulluk in 2005 and invested $292 million in technical upgrades, part of almost $5 billion it has invested over several years in its Arctic drilling program. It is unclear what the ship is worth or how expensive repairs will be.

Sean Churchfield, incident commander and operations manager for Shell Alaska, yesterday said a unified command team led by the Coast Guard plans to put people on board to inspect the Kulluk as soon as it is safe to do so.

Oil spill response equipment is also being moved into the area, he said.

Coast Guard Capt. Paul Mehler, the federal on-scene coordinator, said a salvage plan is in place but that it is unclear how officials will remove the ship from the beach.

"The Kulluk is sound," Mehler said in a news conference with reporters yesterday. "There is no sign of a breach of the hull. There is no sign of a release of any product."

While extreme weather is common in Alaska, Mehler said the agency had not contemplated this particular scenario during its contingency planning.

For opponents of Arctic drilling, Monday's grounding was a stark example of the unique challenges Shell and other major oil companies will face in developing the region, which is believed to contain roughly 26 billion barrels of oil.

The grounding of the Kulluk was the latest in a string of mishaps last year for Shell, including the near-grounding in July of its other drillship, the Noble Discoverer, which stopped about 100 yards short of the Dutch Harbor shore (Greenwire, July 16).

Drilling activities were also delayed significantly by lingering sea ice; delays in the Coast Guard's certification of Shell's Arctic Challenger oil spill response vessel; the company's failed test of its oil spill containment dome; and Shell's inability to meet initial air pollution standards.

"We are learning, again and again, that Alaska's seas are unforgiving," said Michael LeVine, Pacific senior counsel for Oceana. "It is obvious that Shell is not ready to drill in the Arctic Ocean."

Levine said it was fortunate that this week's incident occurred close to the Coast Guard's station in Kodiak, rather than in the Beaufort or Chukchi seas, which are as far as 1,000 miles away.

Greenpeace campaigner Ben Ayliffe this morning said the incident was an example of how companies are unprepared to drill in the Arctic's remote and extreme environment.

"Shell has lurched from one Arctic disaster to the next, displaying staggering ineptitude every step of the way," he said. "Were the pristine environment frozen north not at risk of an oil spill, it would be almost comical. Instead, it's tragic."

But proponents of Arctic drilling were quick to point out that Monday's grounding was a transportation accident far from Shell's drilling sites, and that it did not involve any crude oil.

Shell has taken unprecedented steps to ensure that a blowout does not occur off the North Slope, pledging to allow 24-hour monitoring by federal inspectors; to use double shear rams on its blowout preventers; and to have a fleet of oil spill response vessels on guard nearby, proponents said.

"This had nothing to do with drilling," said Robert Dillon, a spokesman for Sen. Lisa Murkowski (R-Alaska). The senator backs Arctic drilling and was briefed on the incident yesterday in Alaska.

"Weather is always a challenge in Alaska, but you manage for it," Dillon said. "That's what Alaskans do. You manage it and overcome it. Otherwise, we would not be able to live there."

Dillon said he would rather have Arctic drilling occur in the United States than in other countries.

Other oil backers noted the new political challenges the company will surely face following this week's incident.

"For those people who will oppose drilling and continue to oppose drilling up there, they're obviously going to use this," said Dan Kish, senior vice president for policy at the industry-backed Institute for Energy Research. "It's clearly not good news."

Rep. Ed Markey (D-Mass.), the top Democrat on the House Natural Resources Committee, said yesterday that Monday's accident is proof that Arctic drilling could lead to catastrophic spills.

"Oil companies keep saying they can conquer the Arctic, but the Arctic keeps disagreeing with the oil companies," Markey said. "It's clear from multiple incidents that oil companies cannot currently drill safely in the foreboding conditions of the Arctic, and drilling expansion could prove disastrous for this sensitive environment."