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Vol. 15, No. 40 Week of October 03, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Balancing risk & reward in Arctic OCS

Panelists at Alaska offshore drilling forum weigh the benefits of offshore oil development against the potential downsides

Alan Bailey

Petroleum News

With Alaska Arctic outer continental shelf drilling currently on hold following the Deepwater Horizon disaster, the University of Alaska Anchorage and the Anchorage chapter of the International Association for Energy Economics convened a forum on Sept. 22 to review the balance between risk and reward in Alaska offshore drilling.

Big bonanza

And in a video presentation to the forum, U.S. Sen. Mark Begich, D-Alaska, commented on the continuing need for oil and gas in the United States, saying that plentiful oil and gas resources beneath the Alaska outer continental shelf are the “big bonanza” in meeting that future energy need.

“Each year this nation consumes about 7.5 billion barrels of petroleum and another 23 trillion cubic feet of natural gas, serving each of us towards the transition to renewable energy resources,” Begich said, adding that a lot of that oil and gas comes from countries that are unfriendly towards the United States.

Begich said that he supports the safe and environmentally sensitive development of the huge oil and gas resources under the waters offshore Alaska and that he has been disappointed with the Obama administration’s stance in its current ban on Alaska OCS drilling.

Going for the resources

Panelist Peter Slaiby, Alaska vice president for Shell, the company whose plans to drill in the Beaufort and Chukchi Sea have remained stymied for several years in the face of vigorous opposition, said that Shell is intent on exploring in the Arctic Alaska OCS because that is where the needed oil resources are located. The Beaufort and Chukchi seas could become the next chapter in Alaska’s economic story, with more jobs, more revenue and more oil to keep the trans-Alaska pipeline going, he said.

Shell has an exemplary record of safe drilling and seeks a safe way forward in which the environment is protected and in which offshore drilling can proceed, he said.

Asked about the challenges of recovering spilled oil from under ice in the middle of the Arctic winter, Slaiby responded that exploration drilling in the Arctic offshore ends by October and that Shell has the necessary assets to respond on-site within an hour in the unlikely event of an oil spill. Continuing Arctic oil spill research being conducted in Norway shows that responders can recover oil from the sea in ice conditions, he said.

“We have recognized from the very beginning … that there may be an issue with a low probability, high impact event,” Slaiby said. Shell has spent hundreds of millions of dollars in acquiring and deploying the assets to be able to respond to that possibility, he said.

Slaiby said that Shell focuses on oil spill prevention through a tiered approach to well planning, personnel training, the remote monitoring of drilling operations and well blowout prevention. However, the company has very robust oil spill contingency plans that do not require 5,000 to 7,000 vessels of opportunity, as in the Gulf of Mexico, he said. And Slaiby downplayed concerns about limited U.S. Coast Guard capabilities in the Arctic, saying that the USCG role in a spill response is to participate in the management of the response, not to pick up oil.

Insufficient knowledge

John Schoen, Audubon Alaska’s senior science advisor, said that, with the Arctic being ground zero for the impacts of climate change and with the Arctic Ocean being the least understood of any of the world’s oceans, the risks involved in Arctic offshore development currently outweigh the benefits. Offshore leasing should be deferred until industry can demonstrate its ability to respond to an Arctic offshore oil spill, he said.

“Uncertainty over climate change and lack of scientific data increase the risk of offshore drilling,” he said. “… We know that major accidents happen.”

Schoen said that he applauds the Arctic oil spill response research being done in Norway but that the ability to scale up the techniques tested in research, to use those techniques on a major oil spill perhaps in darkness and at a remote location, has yet to be demonstrated.

“We don’t want to bet on the fact that we can do it. We want … some high probability of assurance,” Schoen said.

Harold Curran, the North Slope Borough chief administrative officer, representing borough Mayor Edward Itta, said that Itta applauds the Norway-based research but regrets that the data supporting the research results have not been released to the public. And there are some conditions, such as slush ice, that require further investigation, he said.

Responsible approach

Curran said that the Native people of the North Slope, inhabitants of the region for 10,000 years, know how to manage the Arctic environment and insist that any outer continental shelf industrial activity be done appropriately. The North Slope Borough favors onshore oil and gas development but understands that the federal government will ultimately make decisions on whether to allow OCS drilling to proceed. So, Mayor Itta is working with Shell and government regulators to push stipulations that he views as essential to a responsible approach to offshore development, Curran said.

North Slope communities depend on offshore marine resources that would be impacted by an oil spill and by industrial noise, Curran said. And spilled oil would be difficult to clean up in the Arctic, so that fail-safe systems to prevent oil spills are critical, he said.

However, both Shell and the government regulators have improved their approach to addressing the unique concerns of the North Slope communities, Curran said.

Regulation

Schoen slammed the MMS record in regulating the oil industry, saying that the regulators had become too close to the regulated and citing sloppy Gulf of Mexico oil spill response plans as evidence of slack industry oversight.

But Slaiby said that, while everyone in the industry has been horrified by events in the Gulf of Mexico, a single incident should not be reason “to throw the industry under the bus.” Until the Deepwater Horizon disaster, the drilling of 34,300 offshore wells since 1971 had only resulted in the spilling of 1,600 barrels of oil, he said.

Slaiby said that the approximately $500 million that government and industry has already invested in the gathering of Arctic science have resulted in sufficient research to at least enable Arctic offshore exploration to proceed. Schoen disagreed, saying that, while he applauds Shell’s investment in Arctic research, there is still insufficient environmental information available to mitigate the risk.

David Ramseur, Begich’s chief of staff, representing Begich in the forum, argued for more Arctic research and the establishment of an Arctic USCG station, saying that a bill that Begich had introduced in Congress would levy a tax on oil of 3 cents to 7 cents per barrel to provide $300 million in annual funding for Arctic science.



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