Shell scraps 2011 drilling in Alaska’s Arctic waters *Updated*

Royal Dutch Shell will scrap its plans to drill an exploratory well in the Beaufort Sea near Alaska this summer, after failing to secure key permits for the project.

Shell CEO Peter Voser confirmed the drilling will now be postponed until at least 2012, as the company works to obtain necessary environmental permits and convince federal regulators it is prepared to contain an out of control well in remote, icy waters.

This is the latest delay in the company’s five-year quest to drill in the Beaufort and Chukchi seas.

“Despite our investment in acreage and technology and our work with stakeholders, we have not been able to drill a single exploration well,” Voser said in an earnings call this morning. “Despite our best efforts, critical permits continue to be delayed, and the timeline for getting these permits is still uncertain.”

The company’s plans for drilling in the Beaufort Sea last summer were put on hold after the lethal blowout at BP’s Macondo well in the Gulf of Mexico. Shell had hoped to launch after ice cleared this year, but those plans were put in jeopardy by a successful legal challenge by environmentalists and native Alaskan groups.

In late December, two essential air quality permits were revoked by the federal Environmental Appeals Board, which said federal regulators hadn’t sufficiently reviewed potential emissions from a drill ship and support vessels. Shell also was waiting on a green light from the Interior Department.

Pete Slaiby, the vice president of Shell Alaska, said the air permitting problem was more bureaucratic than environmental.

“This is not an environmental issue. This not an issue with the air emissions on the drilling rigs,” Slaiby insisted. “It is the issue of processing a permit application in a timely way.”

Shell plans to use ultra-low sulfur diesel and has invested about $30 million of investments in technology to control emissions from the Beaufort rig, Slaiby said.

“Nobody is saying Shell needs to install more equipment,” Slaiby said. “It’s all about satisfying a process. And this conversation has gone on for five years now.”

Last year’s oil spill ramped up scrutiny of Arctic drilling projects, as environmentalists and federal officials raised new questions about how anyone could effectively remove oil from the slushy waters of the Arctic or when the area is iced over. Environmentalists have warned about the potential damage to seals, whales and walruses that live in the region — home to roughly one half of America’s polar bears.

But Shell launched a nationwide advertising campaign trying to convince the public that the company is better prepared to respond to a disaster than its counterparts in the Gulf of Mexico.  Shell has touted its wide-ranging preparations, including using a blowout preventer with a second set of shear rams that would double the chances of successfully cutting drill pipe and sealing the well hole in case of an emergency. The company also committed to building an Arctic containment system that could trap and siphon oil in case of a blowout.

Shell officials also stressed the distinctions between its Arctic drilling aspirations and BP’s Macondo project in the Gulf. The planned drilling in Beaufort is in roughly 150 feet of water, compared with the 5,000 feet that separated BP’s doomed well from the sea surface. And the geological pressures in the Beaufort Sea are substantially lower, making the well easier to drill and to manage.

Environmentalists cheered Shell’s decision, which they said would give federal officials more time to carefully scrutinize the company’s plans.

The Interior Department had pledged to update a pre-Macondo environmental assessment before approving Shell’s plans. But now regulators can conduct a more far-reaching analysis known as an environmental impact statement, said Erik Grafe, an Anchorage-based staff attorney with Earthjustice.

“This is a chance for the government to step back and make sure it takes a full account of the lessons of the Deepwater Horizon,” Grafe said. “This also gives the government the opportunity to make sure that Shell’s air emissions comply with all now-applicable standards.”

That includes new mandates governing the release of nitrogen dioxide and greenhouse gas emissions from stationary sources.

Susan Murray, the Pacific director for Oceana, said Shell’s move should stop a “bull-headed rush forward to drill in the Arctic.”

There are still too many questions about whether “it is even safe for us to leap into the remote and unforgiving Arctic,” Murray said.

Voser said Shell will continue working with regulators to get the project on track for 2012. And he said the company is still invested in Arctic drilling.

The drilling season in offshore Alaska is brief — just about 105 days each summer, Slaiby said. “So losing any season, of course, is like gold falling out of your hands.”

Federal regulators have extended some of Shell’s Chukchi and Beaufort 10-year drilling leases because of the delays. But “the timer is running on all these leases,” Slaiby said.

Shell paid the government more than $2 billion for the right to drill in the Beaufort and Chukchi seas. The company has spent roughly $1.5 billion more preparing for the work.

Lawmakers from Alaska blamed federal agencies for the delays.

“Shell has now invested roughly $4 billion and five years attempting to get the permits it needs, without success,” said Sen. Lisa Murkowski, R-Alaska. “The federal government’s inability to process a straightforward air permit calls into question its willingness to support a rational energy policy.”

Sen. Mark Begich, D-Alaska, said it was “shameful to see another season lost” after Shell has spent five years and billions of dollars trying to satisfy regulatory requirements.

“I put the blame for this squarely on the EPA and the Obama administration, who have taken virtually every opportunity to block responsible development of Alaska’s resources,” Begich said. “Their foot dragging means the loss of another exploration season in Alaska, the loss of nearly 800 direct jobs and many more indirect jobs.”

15 Comments

  1. Tex

    Shell or the industry for that matter does not have a containment system and the marine resources to handle oil spill from a prolific well in the arctic this year unless the feds relax the requirements.

    Ask Shell how they would be able to work in a containment and relief well mode in an environment with extreme VOC and LEL levels from a well in 150-ft. water-depth. There are plenty of challenges.

    #1
  2. Get A Clue

    Tex there are hundreds of pages in Shell’s application for permits that explain your very questions.. Why comment if you haven’t even read the article, much less work in the industry, much less understand the factors at play.

    Don’t let your ignorance get in the way of voicing a useless opinion…

    #2
  3. Miarno

    why don’t the people with 600 lost jobs try working in renewable energy? thousands of jobs there. it is a field with a future.

    #3
  4. IgnoranceIsBliss

    Wow TEX – impressive use of TLAs. Do you even know what they mean, much less how completely inapplicable they are to the questions at hand in the article?

    #4
  5. DeeGee

    600 jobs in renewable energy? Are you in this industry? You do realize that at this time, 2010, that it TAKES MORE OIL to create a gallon of bio-fuel than regular gasoline? That wind energy only works to a limited degree / distance? How would solar panels help you this week?

    That entire industry is in such an infancy stage. It’s totally naive to believe those technologies are financially feasible / viable at the present time. When the money [aka evil profis] is worth the risks, you’ll see that grow. Until now, we need to keep researching and DRILL for domestic oil so we are NOT at the mercy of socialist / fanatical extremists regimes around the world.

    #5
  6. politicaldecongestant

    .

    4 billion would definitely jump start a few companies trying to help humanity with renewable energy, which is the way the earth’s future will eventually go.

    It’s reprehensible to say in a ‘chicken little’ voice that we have to drill for oil in so many environmentally challenged places so that some can maintain a status quo of elitism and narcissism.

    ‘Get A Clue’ and ‘DeeGee’ are completely discombobulated from reality.

    .

    #6
  7. Tex

    I am not sure what Get A Clue and IgnoranceIsBliss are about. Obviously ignorance since they buried their heads during Macondo. They appear to believe “hundreds of pages” of paper and “inapplicable” are the answers to response to an incident in the arctic. They may be correct if Shell plans to install a pump jack. That’s probably not the case since an offshore well in the arctic has to be prolific to be economic. Uncontrolled prolific wells will include high VOC and LEL levels that will make it extremely challenging to respond in 150-ft. water depth without depending on a relief well(s). Please do your homework before you spew out silly comments.

    #7
  8. Phil

    Tex,
    Do you really believe the drivel you write? The country is going to hell in a hand basket because of the Bozo we have in the White House. Thousands of people are out of work because he shut down the deep water drilling. The companies will move elsewhere and make other countries rich. One good thing about it is when we are all living like the poor folks in Somalia we can thank people like you that we have a clean environment.

    #8
  9. Tex

    Phil,
    Yes I believe what I write.

    You missed my point, I fully agree with your Washington assessment and I am pro drilling.

    I stated initially: “Shell or the industry for that matter does not have a containment system and the marine resources to handle oil spill from a prolific well in the arctic this year unless the feds relax the requirements”. Please note the word “relax”.

    The Feds regulate and set the standards, which have become extremely stringent whether you like it or not.

    Look at the resources and the infrastructures you had available on the Gulf Coast during Macondo. Airports, jets and huge transport airplanes, machine shops, roads, great port facilities, an abundance of drilling rigs and production vessels, supply vessels, large state-of-the-art construction vessels, helicopters, aircrafts, office facilities, perfect met-ocean conditions etc. etc.

    Then look at the infrastructure in the arctic. There is not a whole lot, your response season is extremely short and your met-ocean conditions should be considered difficult. These issues together with new government restrictions are what make it so difficult getting all the permits to start operations.

    #9
  10. TexPol42

    The federal government is a creation of the States. It is high time for the States to get a leash on their creature and to curb it.

    #10
  11. Dave C

    Looks like the US energy industry is dead until Mr Obama gets thrown out of office. No coal permits since inaguration, and no drilling permits since last May. Can you say $5 gas? Oh, and no jobs to pay for it.

    #11
  12. Dave C

    Shell has a valid point in that the Arctic well isn’t 2,000 feet under water. Shallow water technology is pretty mature.

    #12
  13. Ben

    Try doing it right without cutting corners and it will probably happen. Maybe todays todlers will get to see caribou and polar bears.

    #13
  14. cannedspaghetti

    Apparently Dave and some of the faux news-tards forgot that we already had $4+ gas for no other reason that letting the oil companies and speculators gouge us during the phony Iraq war. But I guess that war was Obama’s fault too like the bush depression that we are in now.

    #14
  15. TransAmer99

    If the environmentalists and native groups in the area were required to abide by the same clean air standards that Shell is being subjected to, they wouldn’t be allowed to be there, either.
    -
    This delay isn’t about what they could or could not do in the event of a spill, it’s about the quality of air surrounding normal operations.

    #15