For years, Shell Oil Co. claimed that a byzantine regulatory process was impeding its progress in the Arctic. Now, if it gets frozen out of the region, it has no one to blame but itself.
The company had a lot riding on the tow ropes pulling its conical drilling rig across the stormy seas near the Alaskan coast on New Year’s Eve. Shell itself had seven years and almost $5 billion invested in the project, and as the first company allowed to drill in Arctic waters, it carried the burden of not botching the effort for other companies also awaiting permits.
Then, the line snapped, engines on the tugs pulling the rig failed and the 266-foot rig hit the rocks, dashing along with it public confidence that Arctic drilling can be done safely.
The Kulluk grounding handed environmentalists, who have long opposed Arctic drilling, new ammunition in efforts to halt the project. The potential dangers, they argue, will be far greater when oil production begins.
“There’s just a greater sensitivity to anything like this since the Deepwater Horizon,” said Larry McKinney, an expert in risk assessment and executive director of the Harte Research Institute at Texas A&M University Corpus Christi.
Ironically, many of the same groups opposed drilling in the Arctic National Wildlife Refuge, which would have been far less risky than going offshore.
Drilling in such harsh offshore environments creates two separate kinds of risk, McKinney said.
“One is the actual drilling in those climates and the narrow window you have in getting it done,” he said. “The other is getting to and from.”
That’s a distinction that Shell has been quick to make, too. In a statement, the company stressed its compliance with “robust permitting and regulatory standards,” while acknowledging that it “experienced challenges in supporting the program, especially in moving our rigs to and from the theater of operations.”
What Shell doesn’t seem to fully appreciate is that to the public, it’s irrelevant whether Shell’s problems involve actual drilling or the maritime operations that support it.
So far, Shell’s been lucky that the Kulluk incident wasn’t worse. While there was no oil or fuel leaking from the damaged rig, Coast Guard officials said Thursday that as much as 272 gallons of diesel fuel may have leaked from lifeboats swept off the rig in the storm. Shell was able to get the rig off the rocks a few days later and tow it to a safe harbor.
A big question
But it raises the question: If the company can’t handle basic support operations, how can it handle the technological complexities of actually drilling in such an environment? If it can’t find dependable maritime tow trucks, how can it manage the moon-shot-caliber expertise needed to produce oil safely?
“The real analysis of how well they do is how they handle the accident now and recover from it,” McKinney said.
The company faces a 60-day review by the Interior Department that could result in more regulations or further delays, which could stymie other companies, such as Houston-based ConocoPhillips and Norway’s Statoil that have plans to drill there.
Next season in question
While a complete ban on Arctic drilling is unlikely, Interior Secretary Ken Salazar on Wednesday cast doubt on the next drilling season, saying that Shell may not be ready to move forward in 2013 because of concerns raised by the Kulluk incident and possible damage to the rig.
“There is a troubling sense I have that so many things went wrong,” he told reporters in Washington.
While Shell battled the permitting processing for years, it finally got the go-ahead to begin operations in the Beaufort Sea last summer. Since then, Shell has grappled with a series of mishaps that have included damage to Shell’s unique spill containment system during a deployment drill and propulsion problems and a fire on the drillship Noble Discoverer.
Shell has a good track record in offshore operations, but the nagging problems it’s faced in the Arctic raise the possibility that drilling there by any company may not be worth it. Drilling technology may not be advanced enough to safely cope with one of the harshest environments on Earth.
Shell is one of the world’s biggest oil companies, and it clearly believes the Arctic has enough potential to justify the $5 billion it’s already invested there and more. Now it faces an uphill battle to restore dashed hopes of its shareholders and the tattered confidence of regulators and the public.