Administration studies Arctic requirements

WASHINGTON — The Obama administration is closer than ever to imposing the first minimum standards for oil and gas activity in U.S. Arctic waters, as Shell pursues permits that could allow it to resume drilling in the region next year.

The Interior Department sent a draft of those Arctic regulations to the Office of Management and Budget on Friday, marking the launch of an interagency review process that typically spans months. The rule’s arrival at OMB was disclosed online by Sunday evening.

Conservationists say the standards are urgently needed to ensure oil and gas companies working in the remote and unforgiving Arctic use ice-worthy vessels and have enough emergency equipment stashed nearby. A government advisory panel offered similar recommendations in 2013.

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Right now, there are no specific mandates governing Arctic oil development. Federal agencies regulate drilling in the Arctic using the same basic rules that apply generally offshore, whether the target is in the balmy Gulf of Mexico or icy Chukchi. Some critics worry that without Arctic-specific requirements, safeguards voluntarily adopted by Shell Oil Co. in 2012 would not be followed by other oil companies planning to drill in the region.

It is unclear how far the new rules may go. Interior Department officials have suggested the measure is likely to focus closely on drilling in the Arctic — and not on potential development and production activities later on. So while the measure may mandate companies have at the ready oil spill response equipment and the personnel to deploy it, the proposal is widely expected to steer clear of requirements for installing pipelines and other infrastructure in the region.

Regulators have signaled that the rule will largely codify steps took voluntarily, including a possible requirement for a containment system in case of a runaway well. Shell built a specialized, first-of-its-kind containment system for the company’s Arctic operations two years ago, although that equipment did not make it to the waters north of Alaska in time.

If a requirement for similar equipment or containment capability is written into new Arctic mandates, other oil companies that hold oil and gas leases in the region, including ConocoPhillips and Statoil, might have to procure such a device before they could begin drilling.

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Other possible mandates include requirements for redundant emergency equipment to control blowouts and close well holes in emergencies. The proposal also could force companies to have a drilling rig ready to bore a relief well during an emergency close by.

When it drilled the first stages of two exploratory wells in the region two years ago, Shell had two rigs working simultaneously. A requirement for an idle drilling rig could  boost the cost of drilling operations significantly. Rigs designed for more temperate waters can cost up to a million dollars a day in rental rates, and there are few geared toward Arctic conditions.

Offshore operators also could be forced to harden their fleet of vessels, ensuring they are Polar Class ships capable of working in icy conditions. Although exploratory drilling is confined to the “open-water” season, an emergency late in the drilling operations could require vessels and workers to be on the scene after ice starts encroaching on the area.

The proposed rule, drafted by the Bureau of Safety and Environmental Enforcement, has been deemed “economically significant,” a category that means it will have an annual impact on the economy of $100 million or more — or will have a material adverse effect on the economy, productivity, jobs, or state, local and tribal governments.

Some environmentalists say even minimum standards aren’t sufficient to protect the fragile Arctic ecosystem; they say an oil spill at the top of the globe would be devastating, in part because most cleanup methods are geared toward warmer, calmer waters. And they point to the mishaps Shell experienced two years ago, including air pollution violations and the grounding of its Kulluk drilling unit during a failed tow mission, as evidence that even a well-heeled oil company can’t ensure operations are error-free.