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August 2009

vol. 14, No. 34 Week of August 23, 2009

Going major on the OCS

Shell opts for major air quality permits for its Alaska offshore drilling operations

By Alan Bailey

Petroleum News

After several years of unresolved litigation over minor air quality permits that Shell had obtained from the Environmental Protection Agency for planned exploration drilling in the Beaufort Sea, offshore Alaska’s North Slope, the company has applied for Prevention of Significant Deterioration permits, a type of air quality permit required for a major emissions source, for its planned exploration drilling in the Beaufort and Chukchi Seas in the open water season of 2010, Pete Slaiby, Shell’s Alaska general manager, told Petroleum News Aug. 18.

The company has submitted separate permit applications for its Chukchi Sea and Beaufort Sea operations.

2008 decision

Following the controversy and litigation surrounding its original permits, Shell decided around November 2008 to go for Prevention of Significant Deterioration permits, even although the company still viewed its offshore drilling operations as involving mobile emissions sources that would normally only require minor permits, Slaiby said.

“At that point we had been through a number of issues, had gone to the Environmental Appeal Court two times,” Slaiby said. Shell also heard from stakeholders such as the North Slope Borough and others, who really wanted the company to apply for Prevention of Significant Deterioration permits, he said.

And Shell submitted a Chukchi Sea permit application to EPA in December 2008, with the new Beaufort Sea application following in May.

“The key there is that we listened … to what people said,” Slaiby said.

In addition, Shell is going to make a $25 million modification to the Frontier Discoverer, the drillship that the company plans to use for the drilling, to install catalytic reducers to scrub the engine exhaust and reduce the emission of pollutants by more than 90 percent, Slaiby said. The diesel engines on the vessel will also use low sulfur fuel, he said.

Much of the contention surrounding the minor permits revolved around claims that Shell was sliding under the bar of major permitting requirements, by treating each drilling operation by a single drilling vessel as a separate emissions source, rather than aggregating the total emissions from its entire drilling program. However, in each of its new permit applications, Shell has aggregated the emissions from all operations, as well as including emissions from its complete fleet of support vessels in its emissions inventories.

“The PSD (Prevention of Significant Deterioration) takes a look more holistically at the program,” Slaiby said. “It will look at all of your operations over a given season … and this is what people have asked us to do.”

Shell has also addressed issues relating to baseline air quality data for the drilling locations by working with ConocoPhillips to install and operate offshore air quality monitoring stations on nearshore islands in the Chukchi and Beaufort Seas, and onshore the North Slope at Badami. When Shell’s Beaufort Sea minor permits were issued for review in 2007, some organizations questioned the use of baseline air quality data gathered in 1999 in the area of the onshore Badami oil field, rather than more recent, site-specific data.

Pivotal pieces

On Aug. 19 the Environmental Protection Agency responded to Shell’s permit applications by publishing a draft Chukchi Sea permit for public review. But the agency has not yet determined the completeness of the Beaufort Sea application, Slaiby said. And those two permits form pivotal pieces of the jigsaw puzzle leading to decisions on the company’s 2010 drilling plan — key issues for Shell are whether the permits will be issued and, if issued, whether they will be appealed through the courts. Shell hopes that the Chukchi Sea permit will be issued around mid-November.

“All of our energies, right now, in this office are really centering around the decisions we’re going to take to mobe or not mobe the drilling spread in 2010,” Slaiby said. “…That’s a difficult decision, with hundreds of millions of dollars at stake in getting it wrong.”

And with Shell having to make a go-no go decision on its 2010 drilling program around the beginning of the year, given the huge expense and extensive work involved in ramping up the program ahead of the drilling season, the company is very concerned about the amount of time that it is taking EPA to process the permits, especially the Beaufort Sea permit.

“Right now, to us, what looks like the largest impediment is the lack of certainty around the air permits,” Slaiby said. “We have been working on this now for 40 months, in some form or another.”

EPA Region 10, the region responsible for Alaska permitting, appears to be understaffed and lacking in recent experience in processing outer continental shelf air quality permits, Slaiby said. And, although air quality permits have in the recent past been issued for drilling on the OCS in the western and central Gulf of Mexico, the Clean Air Act designates the U.S. Minerals Management Service as responsible for the permits in those areas, so that MMS rather than EPA has accumulated the relevant OCS permitting experience and expertise, he said.

Help requested

The Alaska Congressional delegation has sent EPA a letter, asking that the permit processing be expedited, and Shell has asked the Alaska Department of Environmental Conservation for help, requesting the use of DEC’s expertise in preparing Prevention of Significant Deterioration permits and the department’s knowledge of the Beaufort Sea and Chukchi Sea “air sheds.”

“We’re hopeful that we can put this process together fairly efficiently. We’re not asking for anybody to take a shortcut or streamline anything,” Slaiby said.

And Slaiby feels that Shell has now gone above and beyond the essential requirements for air quality permitting. He is concerned about what he sees as a preoccupation with the permitting process rather than environmental improvement in a situation that he views as involving minor quantities of air emissions.

“We’ve committed in the most important way to do this, by agreeing to upgrade our drilling units … and going to PSD,” Slaiby said. “… The equipment is now very well known. The ambient conditions are all known. There’s been a significant move to mitigate. It is time to issue these permits.”

And, with what Shell views as very robust permit applications, the company plans to make a decision at the beginning of the year on preparing for 2010 drilling, regardless of whether any issued permits are appealed.

“This will really become a referendum on what is going on. ... If people say this is a program we want to pursue, it just won’t get any better (in terms of environmental mitigation). There is just very little anybody can do to take more into consideration,” Slaiby said. “… We feel like we’ve really put it all on the line on this.”





EPA: Shell air permits have top priority

Rick Albright, director of the Office of Air, Waste and Toxics for the Environmental Protection Agency Region 10, told Petroleum News Aug. 20 that EPA Region 10 staffing levels are an issue in processing Shell’s air quality permits for the company’s planned exploration drilling in the Beaufort and Chukchi Seas, but that the agency has given the Shell permits top priority, with EPA staff assigned to working the Shell permits at the expense of some other priority work. EPA has processed Shell’s Chukchi Sea permit first, because Shell had indicated that this permit had a higher priority than its Beaufort Sea permit, he said.

“We’ve had several people working full time on the Shell permits and we’ve got a number of other people in the region that are contributing in some way to those permits,” Albright said. “So we really have made a resource shift at a cost to other work that EPA has.”

The Shell permits are the first Alaska Outer Continental Shelf Prevention of Significant Deterioration permits that EPA has had to deal with in more than 20 years, and a lot has changed in environmental management during that period, Albright said.

“We’re getting up to speed on some issues, and there’s been a number of issues … that have just emerged as national issues,” he said. “It’s a challenge to deal with some of those issues.”

—Alan Bailey


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