While Russia is fully embracing drilling offshore in its Arctic region, exploration off Alaska’s northern coast was dealt yet another set back when federal permitting uncertainty forced Shell to defer its 2011 Beaufort Sea drilling program.
The recent remand of air permits issued by the Environmental Protection Agency (EPA) was the final driver behind Shell’s decision to defer drilling to the 2012 summer season.
“This is not an environmental issue,” said Pete Slaiby, Vice President for Shell in Alaska, during a press briefing February 3 in Anchorage. “We have made significant and voluntary capital improvements in the air emissions technology we have applied to the entire program that will allow us to have almost no material impact on the Arctic air shed. It is an issue of processing a permit application in a timely way, now for five years.”
Slaiby said that as a result of Shell’s inability to get needed permits from the federal government, it expects to release most of the vessels earmarked for the drilling program to other projects abroad, costing Alaskan jobs and lost economic opportunities.
The 2011 drilling program would have created about 800 jobs in Alaska alone. In addition, deferral of the program will further delay the opportunity to bring more domestic oil into production.
The EPA issued the air permit, but the agency’s review board granted an appeal because of what it deemed a limited analysis by the agency of the effects of emissions from drilling ships and support vessels.
Slaiby noted Shell’s program will have no impact on Alaska villages. He also pointed out that Shell has invested $15 million in its Arctic drilling assets “to put together what’s really a world-class program.”
Shell has invested more than $3.5 billion in exploration off Alaska’s northern coast since 2005. More than $2 billion was spent on buying leases in the Chukchi Sea and over $1 billion has been spent on assets and other preparations for drilling.
The company had hoped to drill exploration wells last year in the Chukchi Sea, but Interior Secretary Ken Salazar put a hold on all permitting in the Arctic following the Deepwater Horizon incident in the Gulf of Mexico. In October, Shell said it would focus on drilling one or two exploration wells in the Beaufort Sea during next summer’s open water season, but that sharply scaled back plan was ultimately extinguished by the EPA appeals board.
Shell has stressed that Arctic drilling would be in shallow water and that the risk of a spill is minimal. It also agreed to position a second drill ship in Alaska as a safety measure, as well as having spill response vessels, equipment and personnel on site during drilling operations.
Shell’s primary drilling ship has now been moved to New Zealand.
Alaska officials were furious over federal permitting delays and are concerned with declining throughput in the Trans-Alaska Pipeline, which is now running at less than one-third capacity. Alaska Governor Sean Parnell said it is unfathomable that a company could spend billions of dollars in federal leases but years later still be struggling to obtain permits.
“It’s unfathomable that they cannot get an air permit after five years when they can get one in the Gulf of Mexico within months,” Parnell said. “This is just another delay resulting from the federal government dragging its feet, killing jobs and making us even more reliant on oil from the Middle East and elsewhere.”
Republican Senator Lisa Murkowski said the multi-year permitting delays and litigation against drilling will result in higher gasoline prices and a loss of jobs and revenue. “We talk a lot about the economy, but rarely do our actions match our rhetoric,” she said. “That’s unfortunate.”
Democratic Senator Mark Begich also blamed the federal government for the most recent delay. “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. Their foot dragging means the loss of another exploration season in Alaska, the loss of nearly 800 direct jobs, and many more indirect jobs. That doesn’t count the millions of dollars in contracting that won’t happen either at a time when our economy needs the investment,” Begich said. “Shell has been working diligently for five years and has invested billions of dollars to meet the regulatory and permitting requirements of the federal agencies. It is shameful to see another season lost.”
Begich also said that the President’s own Oil Spill Commission, in its final report released last month, found a moratorium on development in the Arctic is not justified and recommended moving forward on an Arctic energy development plan.
Republican Congressman Don Young blamed the decision on “bureaucracy and an overabundance of unnecessary regulations.” Young called the administration’s talk about jobs as lip service and said, “Any attempt at project development is shut down by the EPA. They won’t be happy until we’ve run all business out of the country and we’re back to traveling on dirt roads in covered wagons.”
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