In an announcement widely anticipated by supporters and opponents of Arctic oil development, the Obama administration yesterday gave Royal Dutch Shell PLC the green light to drill into the hydrocarbon zone at its Chukchi Sea leases.
The decision by the Bureau of Safety and Environmental Enforcement marks the first time in 24 years that Shell has secured the federal permits needed to determine how much oil is available on its frontier Arctic leases.
It also represents a dramatic recovery from the company’s ill-fated 2012 effort to explore Alaska’s northern waters. That operation experienced equipment failures, the grounding of a company drill rig and hefty environmental penalties against Shell and its contractors.
BSEE’s decision immediately drew criticism from environmental activists who promised to hold anti-Arctic drilling rallies during President Obama’s upcoming trip to Alaska. The president will be the keynote speaker on the second day of the State Department’s Aug. 30-31 climate change conference in Anchorage.
Obama announced his Alaska trip last week in an online video, stating that he’s visiting the state "because Alaskans are on the front lines of one of the greatest challenges we face this century: climate change."
But now the environmental protesters are questioning the president’s commitments to climate change in light of the Shell decision. "[I]t’s hypocritical for the Obama administration to issue another permit allowing Shell to drill in the Arctic Ocean just weeks before visiting melting glaciers in Alaska," argued May Boeve, executive director of 350.org.
Sierra Club Executive Director Michael Brune asserted that "[g]ranting Shell the permit to drill in the Arctic was the wrong decision, and this fight is far from over. The people will continue to call on President Obama to protect the Arctic and our environment."
BSEE’s new ruling means that Shell can conduct offshore exploratory drilling activities into a potential oil-bearing zone at the company’s Burger J prospect, 70 miles northwest from the Native village of Wainwright.
In late July, federal regulators allowed Shell to drill a top hole at the site but barred the company from drilling deeper until its capping stack was on hand to respond to a potential oil spill (E&ENews PM, Aug. 17).
That piece of equipment is being carried on board Shell’s icebreaker MSV Fennica, which suffered a gash in its hull early last month and had to sail to Portland, Ore., for repairs. The vessel returned to the Arctic theater last week, but not before being delayed by Greenpeace activists who dangled on ropes from a bridge over the Willamette River to impede the ship’s passage.
BSEE officials said yesterday that the ship is now within a day’s sail of the drill site.
In granting Shell permission to move forward with oil exploration, BSEE Director Brian Salerno assured that the company is "being held to the highest safety, environmental protection and emergency response standards."
Salerno, who has been in Alaska monitoring the company’s activities, said regulators "will continue to monitor their work around the clock to ensure the utmost safety and environmental stewardship."
Shell officials issued a statement noting that BSEE’s decision means that "it’s possible we will complete a well this summer."
However, the company didn’t clarify how long it will take to reach the oil-bearing zone at its Burger J prospect.
"[W]e’re not attaching a timeline to the number of feet drilled," Shell spokesman Curtis Smith noted. "Safe, efficient operations will ultimately determine the progress we make."
Alaska officials tout jobs, economic gain
BSEE’s decision to allow Shell to move forward with Arctic exploration won praise from Alaska officials. Alaska Gov. Bill Walker (I) noted that "responsible offshore drilling in Alaska’s Arctic could boost our state’s economy."
Alaska Republican Sen. Lisa Murkowski, chairwoman of the Senate Energy and Natural Resource Committee, argued that Arctic oil development "will create jobs and provide a badly needed long-term supply of oil for the Trans-Alaska pipeline."
Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, recalled that Shell and other oil companies have drilled in the American Arctic in the past and suffered no environmental accidents.
"Regardless of what protesters would like others to believe, drilling in America’s Arctic is not new, as 42 wells have been drilled safely in the past," Moriarty said.
"We wish Shell the best as their Alaska operation moves into the next phase," she continued. "Much is riding on their success, especially with the U.S. assuming a larger role in the Arctic’s future as chair of the Arctic Council."
Shell is not a newcomer to Alaska’s icy waters. During the late 1980s and early ’90s, the company sank more than a dozen exploratory wells in the federal waters of the Beaufort Sea and four in the Chukchi Sea. At the time, Shell did not announce a commercial discovery.
Ultimately, the company abandoned its development and relinquished the leases, blaming record low world oil prices and lack of equipment that could withstand the Arctic winters.
The company also foresaw problems in getting its oil to market because the Trans-Alaska Pipeline System was full to capacity. Today, however, the pipeline is operating at about one-quarter capacity.
In 2008, Shell jumped back into the Arctic oil market, investing $2.1 billion for its current Chukchi leases.
The payoff would come if the company is able to tap into the 26 billion barrels of recoverable oil and 130 trillion cubic feet of natural gas that the U.S. Geological Survey estimates could be available in Alaska’s Arctic offshore region.