AD Header Dropdowns

AD Main Menu

How rapidly is Shell Oil's window of opportunity in the Arctic shrinking?

Alex DeMarban

As predictable as bears roaming and salmon migrating comes the return of another seasonal fact of life in Alaska: Shell Oil waiting for the chance to drill exploratory wells in the Arctic Ocean.

class="western"

The pioneering oil giant's quest to open an industrial frontier in the waters off Alaska's coast has made it no stranger to delay, and this year is no different.

class="western"

Shell moved ships to Alaska the summer of 2010, but a federal drilling moratorium in the wake of BP's Gulf of Mexico spill quashed plans that season. In 2011, the Environmental Protection Agency still hadn't granted Shell the air permits it needed, canceling another round of seasonal activity.

class="western"

Fast forward to 2012. A series of surprises have severely diminished the company's drilling window for its prospects in the Beaufort and Chukchi seas, irking Alaskans who had hoped drilling would be underway now that summer is halfway over.

class="western"

"Seven years and not a single well's been drilled. It's extremely frustrating," said Rick Rogers, executive director with the pro-industry group Resource Development Council.

class="western"

Who knows what surprises lurk as Shell awaits favorable conditions in the challenging regulatory and Arctic environments.

class="western"

Isaac Nukapigak, treasurer for the Alaska Eskimo Whaling Commission, flew home to the North Slope village of Nuiqsut on Thursday. Shell's Beaufort Sea prospect, Sivuliiq, is about 35 miles east of Cross Island, where Nukapigak's river-bound village sets up a base camp each fall for whaling.

class="western"

Nukapigak seemed stunned by ice conditions that will be great for whaling because it will calm the waters for whaling crews in boats. But unusually thick and solid pack ice that starts about 10 miles offshore, past a thin section of open water, might continue to keep Shell out.

class="western"

"It's going to be a tough, difficult year for Shell to even get their exploration going," he said.

Hurry up and wait

class="western"

It was in 2005 that Shell began snatching up federal leases with the hope of punching into undersea oil deposits that company engineers have said could equal vast reservoirs in the Middle East. But getting that oil flowing is no easy feat.

class="western"

Off Alaska's coast, savage winters choke waters with sea ice that strengthens each year it survives a summer. And Bowhead whale hunting will further crimp schedules in the Beaufort, as Shell fulfills commitments to local whalers not to drill during the subsistence hunt that usually starts in September.

class="western"

Even under ideal conditions, US regulators have said drilling can't start until July, leaving the company no more than four months to do its work before ice sets in. But this summer, circumstances have hardly been ideal.

class="western"

Shell had hoped to drill a total of up to five wells this season -- three in the Chukchi Sea and two in the Beaufort. But its drilling fleet of more than 20 ships still sits Unalaska, the staging area that's more than 1,200 miles away from Shell's closest Alaska offshore prospect.

class="western"

The distance the fleet must travel is longer than the U.S. West Coast. Just getting the ships into place will take a week or more. The fleet required two weeks to sail to Seattle in part because one drill rig, the circular Kulluk, must be towed and moves at just a few knots an hour.

class="western"

Shell has already said it's pushing back plans to start drilling until at least August. That would give it time to drill only two wells in the Chukchi, not three as originally hoped. Considering Alaska's fickle weather and other potential surprises, that might be looking on the bright side.

class="western"

The unusually late sea ice was the company's first nemesis this summer, bedeviling Shell's efforts to get its ships on scene earlier this month. The ice had sealed shut the drilling prospects, and satellites observed more of it in the Bering Straight, the doorway to the Arctic Ocean, this May than any other May in past 32 years of monitoring.

class="western"

Other trials have mounted, including the U.S. Coast Guard still not giving final approval of an oil-spill response barge critical to the project. That spill-containment barge remains in Bellingham, Wash., undergoing construction. It awaits additional Coast Guard inspections before its sea-ready.

class="western"

Coast Guard Cdr. Chris O'Neill, chief of media relations, said of the approval process remaining for the barge, “I think it moves the timeline equation to the right for everyone involved.” In other words, it's a serious potential delay.

class="western"

O'Neill couldn't specify how long the certification process would take, but systems that are still being installed have yet to be inspected, and construction and stability standards still have to be reviewed and met, as well as design and review evaluations. “It's not a single thing, it's the sum total of the process,” he said.

class="western"

Also remaining unresolved:

  • class="western"

    Those pesky air permits. Shell is asking for slight revisions, saying it can't meet a few key emissions standards, for such things as nitrogen oxides and ammonia produced by some engines aboard the Noble Discoverer. The Environmental Protection Agency hasn't said when or if it will accept the proposed revisions. That same 500-foot drill ship dragged on its anchor near shore in Unalaska recently, forcing underwater inspections of the hull that reportedly found no damage.

  • class="western"

    Interior Secretary Ken Salazar recently told the New York Times he might wait as late as Aug. 15 to decide whether he'd issue the final well permits required before drilling can proceed.

class="western"

If the go-ahead doesn't arrive until mid-August, Shell will have a little more than one month of work-time in the Chukchi and perhaps two months in the Beaufort.

class="western"

Lady luck, it seems, is not on Shell's side. Or maybe it is. Despite the setbacks, Shell has crawled closer each year to tapping the Arctic's undersea riches, estimated off Alaska's coast to be at least 25 billion barrels of oil.

class="western"

Sen. Mark Begich, D-Alaska, said he'll be thrilled if the company taps just a single well this summer -- he's sure they'll complete at least one -- given that there was widespread certainty a few years ago that the region would remain off-limits to development.

class="western"

"When I got elected, people said there's going to be no Arctic drilling any time," said Begich, who's helped open doors for Shell's project with the Obama Administration. "My attitude is they're in the Arctic, we've answered that question. Now it's about managing for the long-term success of jobs for Alaskans and bringing oil to the market."

Whaling curveballs

class="western"

At this point, just how much drilling will happen this summer is anyone's guess. Shell has said one well will take a month to complete, according to recent comment to reporters by Sen. Lisa Murkowski, a ranking Republican on the Senate Energy and Natural Resources Committee.

class="western"

Regulators have said Shell must stop drilling in the Chukchi Sea by the end of September, before the sea ice arrives. If Salazar waits until mid-August, just one well will be drilled there.

class="western"

In the Beaufort, the company has said it will be done by Oct. 31, to avoid sea ice there. There might be just enough time to complete two wells there, as the original plan called for.

class="western"

Or it might not. Another unknown is the how long the Cross Island and Kaktovik bowhead hunts will last this fall. Nuiqsut is allowed to land up to four whales and Kaktovik, another village to the east, can land up to three this fall, said Isaac Nukapigak, Alaska Eskimo Whaling Commission treasurer.

class="western"

Shell has promised the commission it would stop drilling in the Beaufort Aug. 25, and move its fleet away from the drilling site until the hunting ends. Whalers fear industrial noise could force the first pulse of migrating whales to head off course, farther out to sea and away from the whaling crews. If the first pulse of bowheads gets thrown off course, the other groups of migrating whales will follow, he said.

class="western"

The Cross Island hunt often takes about two weeks, but in past years it has dragged on as long as seven weeks, all depending on when the whales show up and whether stormy weather limits whaling crews' time on the water, Nukapagik said.

class="western"

A long whaling season might leave Shell with the time to drill just a single well in the Beaufort, or none.

Staying upbeat

class="western"

Curtis Smith, Shell spokesman, has a stock answer for this year's pinched schedule: "We will make the most of the time we do have," he said in an email to the Dispatch.

class="western"

Smith has said in previous interviews that the company can do preparatory work for the following year to help make up for lost time.

class="western"

The slow progress and repeated delays have irked some Alaskans who hope Shell's discovery boosts crude oil flowing down the trans-Alaska pipeline. The stuff is the state's lifeblood, with the Prudhoe Bay oil patch providing nearly all state revenue.

class="western"

The holdup is aggravating, said Kara Moriarty, head of the Alaska Oil and Gas Association.

class="western"

Oil production falls each year and is now one-fourth of the 1988 peak of 2.1 million barrels. Recently, less than 500,000 barrels daily is flowing through the trans-Alaska pipeline, as summertime maintenance slows production.

class="western"

"Man, I looked at that number and I thought, 'Oh, my God,'" Moriarty said. "It's just a scary proposition."

class="western"

But she said Alaskans should be patient. In a few years, onlookers will know what Shell is sitting on. It could be a bonanza that brightens the state's economic outlook for decades.

class="western"

"There's a buzz of cautious excitement that they'll be successful and that we're on the cusp of the next generation of oil and gas development in Alaska," she said.

class="western"

As for Begich, he said he's working to encourage Interior Department officials to issue the final permits as fast as possible.

class="western"

"We hate to see a delay," he said. "This is important. Everything is about timing and weather and investment and all the different agencies have put a lot of effort into this to put us where we are."

class="western"

Nukapigak said he supports responsible offshore development, though he said the federal government would have been smarter to ease development restrictions on land it owns in Alaska, such as the Arctic National Wildlife Refuge, instead of allowing it in the sensitive Arctic Ocean where whalers get their food.

class="western"

Is he upset Shell hasn't been able to drill? It's not up to him, he said.

class="western"

"It's up to mother nature."

class="western"

Conact Alex DeMarban at alex(at)alaskadispatch.com