Shell still betting on Arctic oil

Shell photo

Shell Offshore Inc. has applied for a federal permit to drill a single well in the Beaufort Sea next year, but won't move ahead with exploration plans in the Chukchi Sea until legal issues are resolved, the company's Alaska vice president said Wednesday.

Pete Slaiby, Shell Alaska vice president, called the Beaufort "an easier path forward" given legal challenges brought by environmental groups against the federal government's lease sale and permitting programs in the Chukchi Sea.

But the path may still be blocked with the usual political and regulatory icebergs. Environmental attorneys on Wednesday immediately raised concerns about Shell's ability to clean up an oil spill in the Arctic and indicated legal action would again be likely if the federal government approves the Shell permit.

And the Shell announcement came on the same day the presidential commission examining BP's Gulf of Mexico spill released a draft report on "The Challenges of Oil Spill Response in the Arctic" that questions the adequacy of Shell's oil spill contingency plan for the Arctic.

Slaiby said the company already has an approved exploration plan for the Beaufort Sea area, which was recently upheld by the 9th U.S. Circuit Court of Appeals. Shell feels more comfortable spending money on a drilling program in the Beaufort than it does in the Chukchi, and Slaiby said the company may apply to drill a second well, depending on how things go with the first.

The company also unveiled plans for a new "oil spill containment system" that includes a containment dome similar to technology used in the Gulf of Mexico oil spill this summer, and said it has "designed and equipped the most robust oil spill response system in the Arctic known to the industry."

(Animation video courtesy of Shell Offshore Inc.) The company is committed to engineering "an oil spill containment system" that's "designed to capture hydrocarbons at the source in the extremely unlikely event of a shallow water blowout."

The "application for a permit to drill" (or APD, as it's commonly called) was filed Tuesday with the federal Bureau of Ocean Energy Management Regulation and Enforcement and is for the Sivulliq prospect in the Camden Bay area, about 12 to 15 miles off the northern Alaska coast, just west of Kaktovik.


Parnell applauds Shell, but feds withhold judgment

Slaiby said the company estimates as many as 800 jobs are generated from a single rig, and the company's announcement was greeted with enthusiasm by Gov. Sean Parnell, who, along with U.S. Sens. Lisa Murkowski and Mark Begich, has been urging the federal government to allow Shell to move forward with its offshore drilling program.

"I commend Shell's persistence in pushing federal regulators to come down on the side of Americans who want an expansion of the jobs base and greater national security through increased domestic energy production," Parnell said in a press release.

The government hasn't approved the drilling application yet. Slaiby said regulations require a decision within 30 days but he expects the BOEM (formerly the Minerals Management Service) to ask for an extension. He said the company would need approval by December in order to be able to plan and prepare for the 2011 operation.

Slaiby said he met with Interior Secretary Ken Salazar when he was in Alaska recently and that the two discussed Salazar's misgivings. "We've been working to make sure we address his concerns," Slaiby said.

At issue is the industry's ability to respond quickly to a spill and clean it up in some of the harshest environmental conditions in the world. Industry permits and plans are receiving much closer scrutiny since the Deepwater Horizon blowout in April in the Gulf of Mexico, after which President Barack Obama stopped all deepwater drilling offshore. That moratorium is still in place.

Alaska's offshore is not considered deepwater and there is no moratorium on Alaska drilling, but Shell's exploration plans for the Chukchi and the Beaufort, along with BP's proposal to drill from an existing island to its Liberty prospect, have been slowed by the administration's more careful review process.

Shell has submitted the only contingency plan for Arctic offshore spill response, and it was deemed adequate by the government earlier this spring. But after the Deepwater Horizon disaster, the BOEM decided to take a closer look at the plan.

On Wednesday, Slaiby reiterated that Shell has substantially beefed up its response capabilities, exceeding what's required for a worst-case scenario. Since the BP disaster, Shell "has taken extraordinary steps to build confidence around our 2011 program," he said.

In addition to the containment dome system, Shell also plans to have a second drilling ship available to quickly drill a relief well if needed, Slaiby said.

Shell Alaska spokesman Curtis Smith said Wednesday the containment dome is still being designed and built but is expected to be ready by the time drilling begins next summer. It would be staged on a barge that would be located near the drilling site; the barge also would contain substantial recovery equipment including separators for handling oil and water and a way to transfer recovered oil to other ships.

Government report questions spill preparedness

A draft "working paper" from the presidential commission investigating the BP Gulf spill raises concerns that even Shell's oil spill response plan may not be good enough when it comes to the tough Arctic environment. The report says Shell's plan "appears to go beyond" standards required for a worst-case scenario.

"While Shell's plan acknowledges many of the challenges of spill response in the Arctic, questions remain as to whether its solutions to those challenges are realistic," the report said.

The draft report acknowledges that a Beaufort Sea oil spill cleanup would be less difficult than cleaning up a spill in the Chukchi Sea, and that summer operations pose less of a problem than trying to respond to a spill in severe ice conditions. But the commission needs to delve more deeply into issues involving Arctic spill response, including the lack of a Coast Guard presence in the Arctic and a lack of icebreakers and equipment that can operate in Arctic waters.

The report also recommended that the commission consider "whether increased Coast Guard capacity should be a prerequisite for offshore activity or whether the government is comfortable with accepting responsible parties (and private contractors) as primary spill responders -- especially in light of widespread public concern about BP's role as the responsible party in the Deepwater Horizon response."

Smith, the Shell spokesman, said the role of the Coast Guard in a spill is to help oversee the cleanup but not carry it out; that responsibility lies with the oil company involved in the spill and the contractors that are in place to carry out a response.

"The reason we put together the oil spill response kit we did for the Arctic is because we knew the Coast Guard wouldn't be there," Smith said. "We knew we'd have to be doing everything ourselves."

Smith pointed out that Shell's Arctic contingency plan has been reviewed and approved by the Coast Guard and federal and state regulators. "To not be humbled by the conditions you see in the Arctic would be a mistake, but we think we are ready for it," he said.


Environmental concerns persist

Still, environmental groups say they are prepared to go to court if the BOEM approves a Shell drilling permit in the Beaufort and concerns remain about the company's ability to respond to a spill.

Until that fundamental issue is addressed, "one well is one well too many," said Brendan Cummings, senior counsel for the Center for Biological Diversity. "It's an unacceptable risk."

Cummings pointed to the presidential commission's report and its concern about lack of Coast Guard presence and the current operating practice of letting the oil company clean up its own spill.

He called Shell's new containment dome system a "technofix" and said it's not a substitute for cleanup techniques and technology that have been proven to work in the Arctic. Overall, Cummings contends, "it's not wise policy to put cleanup in the hands of the oil company."

"I think the primary problem and the most intractable is there is no credible oil spill response in the Arctic," he said.

The application for the drilling permit "puts the ball squarely in Obama's and Salazar's court," Cummings said. "Will they demonstrate they've learned nothing from the Gulf spill?"

Contact Patti Epler at patti(at)