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Vol. 16, No. 2 Week of January 09, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

New Shell hurdle

Environmental Appeals Board returns air quality permits to EPA for rework

Alan Bailey

Petroleum News

On Dec. 30 the obstacle race otherwise known as Shell’s plans to drill in the Alaska Arctic outer continental shelf took a new twist, when the Environmental Appeals Board sent the company’s air quality permits back to the Environmental Protection Agency for revision. Shell wants to drill an exploration well in its Sivulliq prospect in the Beaufort Sea in the summer of 2011 and needs a permit for air emissions from its drillship, the Noble Discoverer (formerly the Frontier Discoverer), and the fleet of vessels supporting the drilling operation.

Following past controversy and unresolved litigation over the OCS air quality permits intended for an eventually cancelled 2007 drilling program, in 2009 Shell opted to apply for major permits rather than minor permits for its planned Chukchi Sea and Beaufort Sea drilling in the summer of 2010. But following issuance of these permits by EPA in April 2010, the Native Village of Point Hope and eight environmental organizations, including Resisting Environmental Destruction on Indigenous Lands (or REDOIL), appealed the permit approval to the Environmental Appeals Board, the panel of judges with final authority over EPA decisions.

The Environmental Appeals Board has rejected one argument against the permit approval but has upheld two other arguments, and has remanded the permits to EPA.

And, although Shell eventually had to abandon its 2010 drilling plans when the U.S. Department of the Interior decided not to issue the company’s required drilling permits, as part of the fallout from the Deepwater Horizon disaster in the Gulf of Mexico, Shell wants to use its Beaufort Sea air quality permit for its planned 2011 drilling.

This summer Shell completed a $25 million upgrade to the Noble Discoverer, to install best available emissions control technology on the vessel.

“The EAB ruling is very disappointing given the time and resources Shell has committed to having minimal impact on the Arctic air shed and no practical impact on North Slope residents from air emissions related to these operations,” Shell spokesman Curtis Smith told Petroleum News Jan. 5. “While timelines remain critical, we are still assessing the EAB ruling and exploring a path forward that would allow for a drilling program in 2011.”

Three aspects

In making its ruling, the Environmental Appeals Board addressed three aspects of the Shell permits: whether Shell’s support fleet should be required to use the best available emissions control technology; whether EPA had correctly specified the periods during which Shell’s drillship would be considered a stationary emissions source; and whether the permits’ nitrogen dioxide emission standards were appropriate.

The first of these issues, the use of best available control technology, revolves around the precise wording of the Clean Air Act. Under the terms of the act a stationary emissions source, such as Shell’s drillship in the process of drilling a well, must use the best available technology to control its emissions. And the total emissions inventory for the drilling operation must include emissions from vessels actively supporting the drillship, when those vessels are located within 25 miles of the operation.

But, if emissions from the support vessels count towards the total emissions from the operation, should those vessels, as well as the drillship, have best available emissions control technology?

The EPA in its permit approval said no, while those appealing the permit said yes.

Unclear statute

The Environmental Appeals Board agreed with EPA, saying that the wording of the Clean Air Act is unclear over this point and that EPA had made a permissible interpretation of the law.

However, the board found fault with EPA’s definition of the periods during which Shell’s drillship would be considered as a stationary source — the total length of time during which the vessel is viewed as a stationary source in part determines the volumes of pollutants that need to be permitted for the drilling operations.

According to the wording of the Outer Continental Shelf Lands Act, U.S. laws (including the Clean Air Act) apply to “all artificial islands, and all installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing, or producing resources therefrom.”

So, is the drillship a regulated stationary emissions source when it is anchored over a drill site by at least one anchor? Or does it need to be anchored and configured for drilling? Or, in the case of Shell’s drillship, does it need to be secured by all eight anchors that can be deployed from the drilling turret? And at what point does the drilling vessel simply become a regular ship, plying the ocean?

No legal rationale

EPA took a view that the drillship would be considered a stationary emissions source for the period during which Shell’s on-site representative declares that the vessel is secure, stable and able to conduct exploratory activity. That is not good enough, the Environmental Appeals Board said. First, there is no legal rationale within the administrative record to justify that definition. Second, the definition, in effect, allows the least restrictive specification, the “eight-anchors-down” rule, to determine the period during which emissions are regulated. And third, the definition places regulatory decision making in the hands of Shell, rather than with the regulator, where this decision making rightly belongs.

The issue over nitrogen dioxide emissions relates to a recent rule change that EPA has issued. At the time when the permits were being prepared, a stationary source could not be allowed to generate an annual average nitrogen dioxide concentration in the air of more than 53 parts per billion. However, shortly before EPA finally approved Shell’s permits, the agency issued a new rule, regulating short-term nitrogen dioxide levels and using maximum average concentrations over one-hour periods for each day. EPA erred in issuing Shell’s permits without incorporating the new one-hour rule and, in erring, did not adequately consider the impacts of Shell’s operations on Alaska Natives living in North Slope communities, the board said.

Rework

The two identified permit deficiencies require the permits to be remanded to EPA for rework, the Environmental Appeals Board said. The board also said that it had not reached any view on several other claims in the appeal, but that the board requires EPA to consider these claims when revising the permits. Other claims include concerns about pollution from particulate matter, questions over the use of best available technology to control carbon dioxide emissions and questions over the inclusion of activities such as spill cleanup in the emissions analysis.

EPA will presumably need to arrange another cycle of public reviews of the revised permits before deciding whether to re-issue the permits with appropriate changes.

“It is extremely disheartening that Shell has been unsuccessful in trying to get this critical permit for almost four years,” said Alaska Gov. Sean Parnell in response to the EAB decision. “They have invested tens of millions of dollars in pollution control equipment, and met or exceeded every request made of them, yet they still can’t get a permit to drill a single exploration well off the coast of Alaska. … The federal permitting system is broken and we are paying the price. These appeals are not all about protecting the environment or the health of Alaskans. They are primarily about outside groups opposed to development and a federal administration in Washington, D.C., all too willing to accommodate them.”



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