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Shell and beyond: Toward an Arctic standard in the new North

A.L. Parlow
Courtesy Vigor Industrial

In 2011, the first visit by a U.S. secretary of state to a meeting of the eight-nation Arctic Council elevated the Arctic in American diplomacy. It also underscored the region's geostrategic significance and the role that the U.S. wants to play amongst the other Arctic nations, each of which seeks to commercially exploit the Arctic's once-inaccessible resources.

The Arctic Council nations are all vying to both compete and cooperate in what Interior Secretary Ken Salazar called a “shared stake in a sustainable future.” In a 2012 visit to Norway, Secretary Hillary Clinton acknowledged U.S. support to advance Arctic development in a manner that is “economically sustainable and environmentally responsible.”

The potential scale of Arctic resources is enormous and could account for 30 percent of global undiscovered natural gas and 13 percent of the estimated total of undiscovered oil. The U.S. Geological Survey estimates that the Beaufort and Chukchi seas combined could hold as much as 27 billion barrels of oil and 132 trillion cubic feet of natural gas, with enormous consequences for the nation’s strategic, energy, economic, and environmental interests.

That Senator Lisa Murkowski accompanied the Secretary to the 2011 Arctic Council meeting reinforced the fact that America is an Arctic nation, and highlighted that Arctic offshore energy is very much an Alaska play, with the capability of extending the life of the trans-Alaska oil pipeline, currently operating at one-third capacity.

Elevated Arctic activity has underscored a debate that places the U.S. at a crossroads in energy development: Either deepen production of oil and gas in a wide range of newly accessible energy fields in the western hemisphere, including the Arctic, now feasible due to advances in technology, or put a halt to such exploration on environmental grounds, and, instead, improve the viability of renewable energy sources.

The world’s most scrutinized energy play

With Shell Oil expecting to receive final permits in the coming days to explore for oil in the Beaufort and Chukchi Seas, Europe’s largest oil company is preparing to conduct what is likely to be the world's most scrutinized exploratory drilling operation.

Shell officials point out that the company has earned its “social license to operate” in the fragile Arctic, where the oil potential brings into full view the national and state challenge to balance energy demand with environmental and coastal community impacts.

Having invested nearly $5 billion over the past five years, Shell has satisfied countless statutory and regulatory requirements, and received all but a remaining few permits. However, the oil company has been slowed by a flurry of lawsuits that have challenged most of the federal regulatory agency approvals on environment and response capabilities. Shell, or any other oil company that plans to operate in Arctic waters, are likely to be required -- by regulation or political demands -- to develop an Arctic Standard to protect the region, its people, wildlife and marine ecosystem from harm. Such expectation is clearly in the early stages of discussion.

During the past five years, Shell’s actions have reflected a real corporate interest in going beyond any other Arctic operation on social and environmental protections, and heightened responsiveness to the “genuine” concerns of its critics. Shell conducted over 450 meetings with coastal community stakeholders over the past five years, agreeing to stop drilling during the bowhead whale migration; built a containment system based on the BP model that capped the Macondo well in the Gulf of Mexico; and is strengthening its spill response and prevention capabilities after the commandant of the Coast Guard warned Congress that the country is unprepared to respond to a major spill in the Arctic, however unlikely.

But despite Shell's determined and virtually unprecedented efforts, the global insurer, Lloyds of London, often the first to ensure new, unusual or complex risks, called Arctic risks in general, "daunting." Lloyds warned that it is "highly likely that future drilling and production in the Arctic, [by any company from any nation] will disturb the ecosystem already stressed by the consequences of climate change.”

Lloyds further warned that large-scale petroleum production in Arctic waters brings a "unique set of risks with the Arctic’s ecosystem weak and political sensitivity to danger high."

Lloyds’ warning was perhaps reinforced by Natural Resources Defense Fund President, Frances G. Beinecke, also a member of the BP Spill Commission, who called Arctic drilling in a New York Times opinion piece a “reckless gamble” and that the “administration should put on the brakes” until the government and industry has the “infrastructure, knowledge and experience” to cope with a major spill should it occur.

‘Angry Bergs’ and Native Alaskan hopes

Other environmental groups are finding new, creative ways to track Shell’s drilling operations. ‘Yes Lab,’ in cooperation with Greenpeace launched a hoax publicity campaign, called Angry Bergs. Greenpeace activists also plan to shadow Shell’s drill-ships with its 237-foot-long Esperanza ship from which the environmental organization will launch submersible vessels and acoustic monitoring equipment to document marine habitats, wildlife and underwater sound. A federal injunction bars the advocacy group from encroaching upon Shell’s drilling rigs or support ships, by the advocacy group that has coordinated one million signatures in a global petition to oppose any activity in the Arctic’s pristine environment.

Native Alaskan coastal communities, sometimes divided on the subject of increased domestic Arctic oil production, have strongly advocated for an approach to drilling that would to protect a heritage and culture based on subsistence marine hunting and fishing as a centerpiece of traditional culture. At the same time, coastal mayors and other indigenous leaders express the utility of oil revenues for the development of schools, clinics, hospitals, and electricity and vehicles that depend upon revenues from the North Slope oil, currently diminishing.

Former North Slope Borough Mayor Edward Itta, who is known for convincing Shell to stop drilling during bowhead season, cautioned that Native communities are generally more worried of loss of revenues if Shell, or any other company, opts to load offshore oil directly onto tankers, and not pay the much-needed fees to pipe the oil through Alaska.

In a view consistent with strong bipartisan support for offshore oil and gas by Alaska Senators Mark Begich (D) and Lisa Murkowski (R), the North Slope’s former Mayor Edward Itta told National Public Radio, “If there was no economic benefit up there, we [Native Alaskans] would be opposed, period.”

Revenue sharing and uncertainties

Much remains in motion in such a high stakes play in icy and sometimes raging waters. In June, Interior Secretary Ken Salazar promised a “targeted leasing” approach that would consider marine ecosystem and subsistence implications, and announced that the government will soon release its five year plan for oil and gas leasing in the Chukchi Sea in 2016 and the Beaufort Sea in 2017.

But, both Senators Murkowski and Louisiana Senator, Mary Landrieu, developed a bi-partisan initiative, supported by Senator Begich and other coastal legislators, to introduce legislation that would provide all coastal states with a revenue share from offshore oil and gas production in federal waters, including offshore renewable energy development.

On July 25, Senator Murkowski introduced legislation with a broader five-year leasing plan, the Offshore Petroleum Expansion Now Act, that would return 37.5 percent -- a “fair share” -- of revenue generated offshore back to the coastal states. According to Murkowski, one of six co-sponsors, the purpose of the Act, that includes offshore wind energy, is to “create good jobs and get our economy back on track.”

Senator Begich had earlier told KTUU that revenue sharing for state and local communities are a crucial “part of the equation of a long-term energy policy for this country.”

While substantial attention is devoted to a much-needed response capability for a worst-case scenario -- the lack of infrastructure and a staging area that is more than 1,000 miles away from Shell’s closest drill site -- battle lines are being drawn to develop an Arctic standard that would address more day-to-day concerns.

Many proponents of an Arctic-specific standard point out that an Arctic plan is vital to protect one of earth’s most fragile yet formidable offshore environments. Further, according to Alaska’s political leaders, federal revenue-sharing with all of the coastal oil or gas producing states (set at 37.5 percent in Gulf Coast contexts, not yet available to Alaska despite the ongoing efforts of its congressional leadership) is a core component for an emerging an Arctic Standard.

On the day-to-day impacts that would help define the Arctic standard question, the Pew Charitable Trust, for example, with fourteen independent marine ecology experts, recently conducted an independent review of the USGS Report that identified gaps in Arctic Ocean research.

That a Shell Oil drilling ship, the 571-foot Noble Discoverer, slipped anchor in Alaska’s Dutch Harbor two weeks ago, and drifted close to shore, reinforces the views not only of those who oppose drilling in Arctic coastal waters under any circumstances, but also the cautions of those who are concerned about the safety of a drilling operation that must be able to withstand storms and ice events that can occur in the Bering, Beaufort and Chukchi no matter the season.

The final permits for Shell's project may be approved shortly, but time is closing in for a company that has made commitments to local whalers not to drill during the subsistence hunts that typically start in September, and can last up to seven weeks. Shell’s spill-response containment vessel, still docked in Washington state, remains a work in progress as it is refitted as a first responder in case of an accident.

The distance Shell’s drill ships and rigs must travel from its staging area, more than 1,200 miles away, to its closest site in the Chukchi, would take a week or more from Dutch Harbor, according to the Alaska Dispatch, in part because one of the drill rigs, the circular Kulluk, must be towed. In part also because the sea ice has slowed operations.

Because time is closing in and uncertainties both technical and political are reaching a crescendo, it might be prudent to take this time to pause, reflect and adjust the approach.

Corporate social responsibility, setting an Arctic standard

Shell has demonstrated that it employs and understands the tools to develop technologies and bridge genuine gaps of concern from a state citizenry strongly bound to the marine ecosystem and its resource revenues. The company has also indicated that it is prepared to develop a worst-case capacity to meet an Arctic standard.

Further, although U.S. policy appears to lag, Alaska Lt. Gov. Mead Treadwell said that the environmental risks can be managed and the benefits well worth it.

In mid-July, Senators Begich and Murkowski wrote to President Obama, cautioning that the United States is the “only Arctic nation, which lacks a formal strategy which ties together all the individual agencies, policies and visions.”

Alaska’s senators, perhaps mindful of Secretary of State Hillary Clinton’s promise for Arctic leadership, additionally wrote that the “development of a comprehensive national Arctic strategy would be a logical and needed extension” of the administration’s leadership on Arctic issues.

Perhaps to help shape the inevitable regulatory curve, Shell might use a one-year pause to more closely reflect upon a more integrated use of the tools supplied by Corporate Social Responsibility/Sustainability strategies that the company clearly draws upon as it navigates what has been called the “last frontier for international oil companies.”

Without doubt, Shell’s operations will set the standard for those that follow.

What’s at stake in the Arctic can’t be understated. As Shell grapples with its large-scale complex energy play, it appears to be a poster-child for Alaska -- and the nation -- as Arctic offshore oil and gas development involves a cacophony of social and scientific events that must be coordinated and pushed to their outer edges.

Drilling, and eventually production by the many companies to follow, involves an interlinked combination of events: a promise of energy resiliency, the health of marine eco-systems and the environment, coastal communities threatened by softening permafrost, maintenance of subsistence hunting and fishing in icy waters referred to as “our garden,” increased shipping lanes, accelerating global warming and, international law, and national security.

Despite the considerable added costs of a Shell decision to rethink the start-date, all of the key stakeholders -- government, corporate and community -- are, in agreement that offshore Arctic oil and gas is a high-stakes energy play capable of causing great imbalance yet remarkable long-term growth.

In the absence of a fully developed, coordinated and tested Arctic regulatory regime and revenue sharing framework, one instituted at the federal level, the fragile situation demands actions well beyond compliance for the private company to keep its “social license to operate” meaningful, and credible.

This next year can be used to adjust the approach, mend fences, and improve upon what will undoubtedly become an Arctic standard.

Then start again next year.

A.L. Parlow from A.L. Parlow & Associates, has advised CEOs, top managers, government and non-governmental organizations on corporate social responsibility strategies, both in the United States on BP-related projects and worldwide. Parlow’s most recent project involved drilling operations in offshore Namibia. See: www.sustain-the-globe.com.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch. Alaska Dispatch welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.