Showing posts with label BP. Show all posts
Showing posts with label BP. Show all posts

Offshore Oil Drilling in the U.S. Arctic, Part Two: The Legacy of Deepwater Horizon




This article is the second of three in a series on Offshore Oil Drilling in the U.S. Arctic. 

By Nicholas Cunningham
 
On April 20, 2010, the Macondo well controlled by BP and the rig operator, Transocean, experienced a blowout, resulting in the worst environmental catastrophe in U.S. history.[i]The Deepwater Horizon rig suffered multiple explosions causing the death of eleven workers, ultimately sinking in a fiery blaze after two days. The gusher of oil continued for 87 days, with an estimated total of 4.9 million barrels of oil dumped into the ocean before the well was finally sealed.[ii]

The causes of the failure were multiple, with a series of failures along multiple steps in the drilling process culminating in the eventual blowout. The National Commission setup by President Obama to investigate the causes of the blowout detailed the failures in its final report. For one, the regulators responsible for drilling safety had a conflict of interest, responsible for both oversight and revenue collection. The Minerals Management Service (MMS) had the incentive to approve an expansion of offshore oil drilling due to the billions of dollars of revenues from lease sales and royalty payments, which conflicted with its expressed mandate of environmental protection and drilling safety.[iii]

Furthermore, the oversight that was conducted by MMS was often inadequate. MMS regulators would conduct both annual inspections of rigs as well as unannounced inspections, as required under the 1978 OCSLA amendments.[iv]Inspectors would check for compliance in pollution control, drilling, well completion, electrical and personal safety among other requirements. However, over the past few decades, offshore oil drilling has mushroomed and the resources available to MMS have not kept pace.[v]

Safety regulations governing the practices of offshore drilling were also found to be inadequate. Despite several high profile oil spills in the late 1980’s, including the Exxon Valdezspill, MMS failed to enact meaningful reform.[vi]MMS considered several measures to make the regulatory regime more rigorous, but delayed rulemaking, under the pressure from the American Petroleum Institute (API), an industry trade group.[vii]Twenty years passed without an upgrade in regulatory oversight. The BP Commission argues that an informal understanding coalesced between the industry and the regulators, with the oil industry convincing the regulators that technology had progressed so considerably that regulations were not needed.[viii]Instead, MMS merely urged the industry to take voluntary action to operate safely.

REFORMS IN THE WAKE OF THE DEEPWATER HORIZON BLOWOUT

Regulatory Reforms
The Minerals Management Service (MMS) was temporarily reconstituted as the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). However, final reforms were made in October 2011, by dividing the functions of the now defunct MMS into three bodies: the Office of Natural Resources Revenue, responsible for revenue collection; the Bureau of Ocean Energy Management (BOEM), responsible for administering the development of mineral resources on the OCS; and the Bureau of Safety and Environmental Enforcement (BSEE), responsible for environmental regulations and enforcement.[ix]These three agencies were intended to enhance regulatory oversight by reducing the conflict of interest between collecting revenue from the very industry it was meant to regulate.

BOEMRE and its successor agencies issued several regulatory reforms after learning lessons from the Deepwater Horizon incident. BOEMRE issued the “Interim Drilling Safety Rule” on October 12, 2010, which made several reforms to technical drilling safety requirements. For example, industry best practices according to the American Petroleum Institute were made mandatory instead of voluntary.[x]Also, independent third party verification is required for the proper functioning of the blind shear rams, a crucial component of the Blowout Preventer (BOP), which is the last line of defense in the event of a well blowout. Rig operators must demonstrate their preparation for a “worst-case discharge,” and their steps to deal with a blowout scenario.[xi]BOEMRE would also begin using multi-person inspection teams for inspections of offshore oil and gas rigs.

Another reform implemented by BOEMRE is the requirement for offshore oil rig operators to implement Safety and Environment Management Systems (SEMS), known as the “Workplace Safety Rule.”[xii]The SEMS requires performance-based standards for equipment, management, safety practices, environmental safeguards, and clear protocol to address hazards in all of these categories. The Workplace Safety Rule was established in order to address the human error that was so evident in the Deepwater Horizon disaster.

Legislative Reforms
In the immediate aftermath of the blowout, a flurry of activity occupied the time of the U.S. Congress, as public outrage was at a peak. The House of Representatives held 32 hearings on the matter while 27 hearings were held in the Senate.[xiii]Over 150 pieces of legislation were introduced to reform the offshore drilling process and regulatory regime.  However, Congress has failed to take steps to address drilling safety and incorporate lessons learned from the Deepwater Horizon incident. While there were several attempts to pass legislation, particularly in the first few months after the blowout, enough bipartisan support could not be mustered to implement legislative changes. Once the well was contained, and the oil stopped flowing, the impetus for reform melted away.

The White House pushed a legislative package three weeks after the blowout to increase funding for regulatory oversight, raise liability limits on responsible parties for disasters, and increase a tax on the oil industry to pay into the Oil Liability Trust Fund from 8 cents per barrel to 9 cents.[xiv]The White House bill did not pass. More recently, the RESTORE Act passed as part of a larger transportation bill in March 2012, which would dedicate 80% of penalties BP might pay in the future under the Clean Water Act to restoration of the Gulf of Mexico.[xv] While this bill may be signed into law and will benefit restoration activities, it does not affect regulatory oversight.

With the oil industry and some members of Congress upset over a temporary drilling moratorium enacted by the President and the perceived intentional delays in permitting, political attention shifted from a regulatory regime that was not strong enough, to one that was overly burdensome. A bill introduced in March 2011 sought to establish deadlines for permitting, forcing the Department of Interior to accelerate the permitting process.[xvi]While this too did not pass, the significant support it received from a sizable faction of Congress demonstrated the political momentum for strengthening the regulatory regime had passed. The U.S. had experienced its worst environmental disaster in history, and not only did Congress not tighten oversight, but now the political winds had shifted to weaken it.

ACTIONS TAKEN TO ADDRESS DRILLING SAFETY IN THE ARCTIC
With warming temperatures from climate change causing glaciers to retreat, and an increasing global need for energy supplies, the Arctic is the next frontier for energy development. However, offshore oil drilling in the Arctic involves higher innate risk relative to drilling in warmer waters such as the Gulf of Mexico, including harsher weather, shorter days, varying amounts of ice coverage, and less developed infrastructure. The memory of the Deepwater Horizon blowout remains fresh, and with the failures leading to that incident in mind, the Obama administration and the oil industry have taken a series of steps to enhance safety for Arctic exploration.

President Obama signed Executive Order 13580 on July 12, 2011, to establish the Interagency Working Group on Coordination of Domestic Energy Development and Permitting in Alaska.[xvii]The working group, chaired by the Deputy Secretary of Interior David Hayes, will coordinate efforts across all federal agencies to develop energy in the Arctic. The move is meant to streamline governmental work on offshore oil development, share information, and more efficiently issue permits for drilling. Engaging with local Alaskan communities as well as preparedness and response to an emergency situation is also a key objective of the working group.            

Shell Gulf of Mexico, Inc. promises to be at the forefront of oil exploration in the Arctic, specifically in the Chukchi Sea and the Beaufort Sea. It acquired leases for exploration in the Chukchi Sea during Lease Sale 193, which took place in February 2008. Figure 2 shows the leases issued in Lease Sale 193 in the Chukchi Sea.

The lease sale drew criticism from environmental groups that opposed Arctic drilling on the basis of a lack of understanding of the effects of an oil spill on the marine environment. Earthjustice filed a suit against the Minerals Management Service on behalf of a variety of stakeholders [xviii]and in July 2010 a federal judge ruled that MMS had not adequately considered the environmental impacts of oil and gas development on the surrounding environment as required under the National Environmental Policy Act.[xix]The court also ruled that MMS had failed to consider the impacts of increased natural gas development in the Chukchi Sea. The ruling halted all oil and gas activities in the area, effectively suspending Lease Sale 193 until MMS conducted a proper environmental impact statement.

To comply with the court order, the reformed BOEMRE issued a supplemental environmental impact statement (SEIS), published in the Federal Register on August 26, 2011, which detailed a revised environmental analysis, including the effects of a hypothetical Very Large Oil Spill (VLOS).[xx]

Shell Gulf of Mexico also produced an Oil Spill Response Plan, detailing their preparedness for a worst case discharge in the Arctic. The plan commits Shell to planning for several contingencies that were not required before the Deepwater Horizon incident. For instance, Shell must have ready access to a “capping stack,” to shut off the flow of oil in the event other systems fail.[xxi]Additionally, Shell must be prepared to drill a relief well within a few days in the event of a blowout, a process that took BP months to do. Shell committed to having an oil spill response fleet onshore near the drilling rigs, 24 hours a day, 7 days a week, during drilling operations. Also, if a well were to blowout, Shell promised to have its response fleet onsite within 60 minutes. Finally, Shell has agreed to limit drilling when whales are present, and also cease drilling if ice coverage returns earlier in the year than expected.

Part 3 of this series will be published on Thursday, July 19.
[i] Lavelle, M. (2010, May 27). Gulf Oil Spill Worst in U.S. History; Drilling Postponed. National Geographic, pp. http://news.nationalgeographic.com/news/2010/05/100527energy-nation-gulf-oil-spill-top-kill-obama/.
[ii] U.S. Geological Survey. (2011). Assessment of Flow Rate Estimates for the Deepwater Horizon/Macondo Well Oil Spill. Washington DC: Department of Interior.
[iii] National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. (2011). Deep Water: The Gulf Oil Disaster and the Future of Offshore Drilling. 56.
[iv] Ibid. 68.
[v] Ibid. 68.
[vi] Ibid. 70.
[vii] Ibid. 71.
[viii] Ibid. 71.
[ix] Bureau of Ocean Energy Mangement, Regulation and Enforcement. (2011). The Reorganization of the Former MMS. Washington DC: Department of Interior. Retreived from BOEMRE web site: http://www.boemre.gov/reorganization.htm
[x] Bureau of Ocean Energy Mangement, Regulation and Enforcement. (2011). Fact Sheet: The Drilling Safety Rule. Washington DC: Department of Interior.
[xi] Bureau of Ocean Energy Mangement, Regulation and Enforcement. (2011). Regulatory Reform. Retrieved from BOEMRE web site: http://www.boemre.gov/Reforms.htm
[xii] Ibid.
[xiii] Hagerty, C., & Ramseur, J. (2010, September 19). Deepwater Horizon Oil Spill: Highlighted Actions and Issues. Retrieved April 18, 2012, from Environmental Legislation: http://environmental-legislation.blogspot.com/2010/09/deepwater-horizon-oil-spill-highlighted.html
[xiv] The White House. (2010, May 12). Fact Sheet: Deepwater Horizon Oil Spill Legislative Package. Retrieved April 18 http://www.whitehouse.gov/the-press-office/fact-sheet-deepwater-horizon-oil-spill-legislative-package, 2012, from White House Office of the Press Secretary.
[xv] Editorial Staff. (2012, April 17). Momentum for Restore Act in Congress: An Editorial. The Times-Picayune.
[xvi] Congressional Research Service. (2011). Offshore Oil and Gas Development: Legal Framework. Washington DC: CRS. 6.
[xvii] Department of Interior. (2011, December). Interagency Working Group on Alaska Energy. Retrieved March 25, 2012, from DOI web site: http://www.doi.gov/alaskaenergy/index.cfm
[xviii] Earthjustice represented the Native Village of Point Hope, City of Point Hope, Inupiat Community of the Arctic Slope, Alaska Wilderness League, Center for Biological Diversity, Defenders of Wildlife, National Audubon Society, Natural Resources Defense Council, Northern Alaska Environmental Center, Oceana, Pacific Environment, Resisting Environmental Destruction on Indigenous Lands (REDOIL), Sierra Club, The Wilderness Society and World Wildlife Fund.
[xix] Center for Biological Diversity. (2010, July 21). Federal Court Halts Oil and Gas Activities Under Chukchi Sea Lease Sale. Retrieved March 25, 2012, from CBD web site: http://www.biologicaldiversity.org/news/press_releases/2010/chukchi-leases-07-21-2010.html
[xx] Bureau of Ocean Energy Mangement, Regulation and Enforcement. (2011). BOEMRE Releases Final Supplemental Environmental Impact Statement for Chukchi Sea Lease Sale 193.  Retrieved from BOEMRE web site: http://www.boemre.gov/ooc/press/2011/press0818a.htm
[xxi] Bureau of Safety and Environmental Enforcement. (2012, February 17). Obama Administration Announces Major Steps toward Science-Based Energy Exploration in the Arctic. Retrieved March 27, 2012, from BSEE web site: http://www.bsee.gov/BSEE-Newsroom/PressReleases/2012/press02172012.aspx.



Developing North American Arctic Offshore Oil and Gas: A Comparative Study - Part 2




The article is based on an ongoing study that the author is conducting within the international research programme Geopolitics in the High North. For more please go to www.geopoliticsnorth.org. 

By Andreas Østhagen As mentioned in the part 1 of this article, in the 1970s and 80s onshore development and rising oil prices in Alaska and the Northwest Territories led the U.S. and the Canadian governments to allow, and even push for, several exploratory drillings in the Chukchi and Beaufort Seas. These wells were eventually capped as prices fell and the findings did not warrant commercial activity at the time. New technology, melting sea ice, and a significant increase in petroleum prices worldwide have now led to the reconsideration of these and other Arctic offshore fields by governments and companies alike for economic development. 

The development of North American Arctic offshore oil and gas is arguably not only a consequence of these international developments, but also determined by a number of internal factors that vary across the region. Simplified, they can be categorized accordingly:

1. Federal/regional relationship
2. Commercial interests and viability 
3. Civic interests and engagement 

The specific pace of the development of new offshore oil and gas fields in Greenland, Canada and Alaska revolve around these factors, which will be outlined briefly in the following sections. The areas in question in this study are the Chukchi Sea in Alaska, the outer Beaufort Sea in Canada, and the offshore continental shelf of Greenland. 

1. Federal/Regional Relationship 

The relationship between the local/regional government where the specific Arctic offshore development is taking place and the federal/national level, often located far away from the Arctic, is crucial for the development of the Arctic oil and gas resources. 

Of particular importance is:
  • national interests in developing new Arctic offshore fields 
  • regional autonomy in oil and gas development
  • regional dependence on oil and gas revenues 
Alaska (Chukchi Sea) – The United States
The decision to include the Chukchi Sea in the 5-year Outer Continental Shelf (OCS) program for 2002-2007, made by the Bush administration and the Secretary of the Interior Gale A. Norton, was a political decision taken by an administration that has been characterized as industry friendly. The Chukchi Sea sale was eventually postponed to 2008, to be included in the 2007-2012 5-year program, as additional environmental considerations were needed. The lease sale, termed 193, became the most profitable lease sale ever conducted in Alaska, providing over $2.6 billion in high bids. At the federal level, the motivation to open up for lease sale stemmed from the renewed interest of commercial actors and a strong desire in the administration to decrease dependence on foreign oil imports as prices rose internationally. 

In the United States, the decision to open up for lease sales and the subsequent exploratory drillings in the Chukchi Sea lies within the Bureau of Ocean Energy Management (BOEM), which is a part of the Department of Interior (DoI). The State of Alaska can only act as a facilitator and promote their specific interests when the federal government is making its decision. The state is, on the other hand, a very strong supporter of continued oil and gas exploration in the Arctic, as revenues from companies operating in the state and from the Trans Alaskan Pipeline System (TAPS) are essential for the state economy. As the throughput of the TAPS is declining, Alaskan governors and senators from both parties have been pushing for increased Arctic offshore development. In combination, both the federal and the regional level desired the opening up for a lease sale in the Chukchi Sea. 

Northwest Territories (Beaufort Sea) - Canada
In Canada, the Department for Aboriginal Affairs and Northern Development (AAND) is in charge of conducting outer continental shelf lease sales, but only in the Arctic part of Canada. Any subsequent approval of exploratory drilling plans is then to be made by the semi-independent National Energy Board (NEB), which also covers only the Arctic region. This board is subject to the nation-wide body National Resources Canada. The structure for conducting lease sales in the Beaufort Sea is arguably less politicised and more geographically separated in Canada than in the United States, where the Department of Interior manages the whole process.  

With regards to autonomy, the Northwest Territories has less than its American counterpart of Alaska, as the AAND manages any potential national resource development. There are ongoing debates on the transfer of regional governance to the Territories, but currently the federal government is very much in control of developments both onshore and offshore. The region is, on the other hand, also less dependent on revenues from oil and gas production when compared to Alaska, as the current production levels are very low. Consequently, the decision to open offshore lease sales and approve exploratory drillings in the Beaufort Sea is more closely linked to interests in Ottawa than locally. These interests without a doubt play into the fact that Canada is already developing into an international heavy weight in oil and gas production, due to oil sands in Alberta and oil and gas production in the provinces of New Brunswick and Newfoundland. A federal push, similar to the one seen in the 1970s, to develop costly and remote Arctic gas fields is therefore not given, as Canada is not largely dependent on developing these resources.

Greenland (offshore) – Kingdom of Denmark
Greenland has, as a part of Denmark, gradually acquired more and more autonomy starting with Home Rule in 1979, and continuing with more self-determination transferred in 2009. This included the management of Greenlandic natural resources, including outer continental shelf oil and gas. In comparison with both Alaska and the Northwest Territories, Greenland can therefore exploit potential resources as they see fit, without having to balance interests in Copenhagen. However, due to being connected to, but not part of, the European Union, Greenlanders have experienced the effect of Brussels-based interests trying to meddle in the island’s resource management. 

The 2008 EU import ban on seal products, as well as negative statements against Greenlandic Arctic petroleum exploration, have caused resentment amongst a population that perceives resource development to constitute the fastest way for economic development. In the current situation, Greenland is heavily dependent on economic transfers from Denmark. The self-government has therefore been very positive towards oil and gas exploration, hoping to provide means for economic, and maybe full-fledged, independence.  

2. Commercial Interests and Viability

Naturally, the commercial prospects for oil and gas development is a given for any exploratory drilling discussions to occur. However, the amount of interest, and the nature of this interest in combination with commercial viability and infrastructure, arguably determines a great portion of the development pace. 

Of particular importance is:
  • Infrastructure/transport
  • Lease sales and sunk investment
  • Previous commercial activities
Alaska (Chukchi Sea) – The United States
The commercial interests in developing the Chukchi Sea should not be underestimated – Shell in particular, as well as some other onshore companies in Alaska, perceives there to be vast economic potential under the seabed. Out of the five exploratory drillings that were conducted in the 1980s, four were drilled by Shell. They undoubtedly hold a unique knowledge of the area, which should explain why Shell has spent more than $3 billion acquiring and developing their offshore leases from the 2008 lease sale. ConocoPhillips and Statoil follow closely behind, seeing Shell’s struggle for exploratory drilling approval as the litmus test for the region. Onshore in Alaska the mentioned TAPS pipeline from the North Slope to Valdez constitutes a commercial interest on its own, as declining throughput has caused the operator, Alyeska pipeline, to proclaim that new oil-field production will be essential to keep the pipeline running. Although Chukchi development has a long term time frame, it seems clear that commercial interests stemming from both drilling companies and from operators onshore are driving the development in the area. 

Northwest Territories (Beaufort Sea) - Canada
Although many companies, including ExxonMobil, Chevron, BP, Statoil, and Imperial, have acquired numerous leases in the outer continental shelf parts of the Canadian Beaufort Sea, there are questions concerning the commercial viability of petroleum activity in the area. Especially important are transport and infrastructure issues. Canada never built a pipeline equivalent to the TAPS in Alaska, as indigenous and environmental concerns halted the process of building the Mackenzie Valley gas-pipeline throughout the 1970s and 1980s. As the Canadian Beaufort Sea is expected to contain mainly gas deposits, any development would be dependent on finding viable options for transportation. LNG facilities onshore have been mentioned as a possibility, as current gas prices might not warrant construction of the Mackenzie project should it clear its legal hurdles. Additionally, local communities in the region have focused extensively on developing mineral deposits instead of oil and gas, as they are perceived to provide more direct benefits for the communities. It seems clear that although commercial petroleum interests undoubtedly exist in the region, they are not as defined nor as strong as those found in the Chukchi Sea development in Alaska. 

Greenland (offshore) – Kingdom of Denmark
In contrast to the other two regions, Greenland has not had extensive experience with oil and gas production. There were exploratory wells drilled in the 1970s, but they did not warrant any further development. As prices rose internationally, and the United States Geological Survey published their resource appraisal in 2008 stating huge deposits in the waters around Greenland, the Greenlandic government actively went out internationally and promoted the oil and gas potential in their region. The aim was to attract multinational companies that could supplement local companies and provide capital and experience. Scottish Cairn Energy has been the most active since then, drilling exploratory wells in 2010 and 2011. Their findings did not justify development, but other companies like Shell, Huskey, Dong, and Statoil are conducting seismic studies further north along the west coast in 2012 and 2013. Potential oil findings seem the most likely to be developed, given that any resource production would need to be exported to the international market. 

3. Civic Interests and Engagement 

Any local, regional, and national government, in addition to the private companies in question, have to take into consideration the political and civic environment in which the debate of whether or not to open up for oil and gas development is taking place. 

Of particular importance is: 
  • Dynamics between NGOs and public/private actors
  • Role of indigenous communities 
  • Popular opinion 
Alaska (Chukchi Sea) – The United States
Of the three parts of the North American Arctic, Alaskan development is arguably the most contentious. Popular engagement has been intense in both the state of Alaska and in the lower 48. After the 193-lease sale in 2008, litigation from environmental NGOs has halted the process. Daily news coverage from different interest groups continuously criticize the federal government’s decision to uphold the lease sale and award Shell the permits needed to commence drilling in 2012. As mentioned, a recent lawsuit against Arctic offshore drilling attracted 1 million signatories across the United States. Parts of the resentment stems from lack of cohesion amongst the indigenous population inhabiting the northern parts of Alaska. There are almost as many viewpoints on offshore development as there are communities, and the most negative are joining together with NGOs to contend government decisions that favor the oil companies.

Northwest Territories (Beaufort Sea) - Canada
In Canada the popular environment has, until now, been less volatile than in the United States. The Canadian government argues that a continuous dialogue between the Territory, the indigenous population and the federal department in question, the AAND, has led to less tension and common solutions. One could also argue that it is a natural consequence of a slower development pace, where no company is set to drill exploratory wells yet. A more geographically divided and less politicized governmental structure for Arctic oil and gas might also be another factor. However, this does not mean that there has been no popular resentment against Arctic drilling. But only the future processes will show if it is going to be as controversial for companies to acquire the final drilling permits as in the U.S.  

Greenland (offshore) – Kingdom of Denmark
With a population of 57,000 and almost complete self-determination, Greenland is no doubt better placed to make executive popular decisions than its regional counterparts. In contrast to the other two regions, Inuit comprise the majority in the country therefore the government is representing the interests of the indigenous population. They are also the ones deciding whether to open up for oil and gas development or not. You therefore bypass some of the internal dispute, although there has been tension between some of the smaller traditional communities and the larger regional capital of Nuuk. Devolving the final development decision to the local population has undoubtedly set the rapid pace of the development, although there have been critical external voices. Greenpeace especially has been active through illegal actions trying to block drilling platforms, highlighting that even though there is internal homogeneity on Greenland, Arctic drilling cause popular resentment outside of the region. 

Summary 

Looking at the Arctic offshore development pace, Greenland is no doubt further ahead than Canada, while the U.S. finds itself in between the two. Although renewed Arctic interest can be attributed to rising commodity prices and cheaper technology, this does not account for the internal differences in the region. This article is based on a study that analyses the internal drivers and hinderers of offshore development in this particular region. 

As highlighted in the previous sections, three dominant factors seem to stand out. In the U.S., the combination of an industry friendly administration, strong commercial interests, Alaskan-state pressure, and the potential role of Arctic resources for enhanced national energy security have all driven the potential exploration of the Chukchi Sea by Shell this summer. The development is, however, hindered by a very active civic environment which constrains the federal and the regional governments. 

In Canada, the dividing of competencies between governmental agencies, lack of commercial infrastructure and regional pressure, and a varied national energy mix, has led to a slower development pace in the Beaufort Sea than in Alaska. Greenland has, as the odd one out, experienced more rapid development due to internal homogeneity, regional self-government, and agreement with regards to the need for resource development, motivated by economic independence.

In conclusion, it is in the interest of the general public, and media and politicians in particular, to disperse of the traditional one-size-fits-all attitude when discussing Arctic offshore development and look rather at the internal, nation-specific factors actually driving development. 

This is a simplified version of a more detailed study. For more information about this study, please contact the author or look at www.geopoliticsnorth.org. 


[1] Map courtesy of Arctic Portal, oil and gas estimates based on USGS.





ExxonMobil Gains Access to Arctic Oil and Gas Reserves in Deal with Rosneft





by Malte Humpert Exxon Mobil, the world's largest company, and OAO Rosneft, Russia's largest oil producer, signed a deal to develop oil and natural gas reserves in the Russian Arctic. The two companies plan to invest an initial $3.2 billion developing East Prinovozemelsky Blocks 1, 2, and 3 in the Kara Sea. 

The total investments envisioned under the agreement could reach $500 billion, of which $200-300 billion would be direct investments in the region. According to Prime Minister Putin "new horizons are opening up. One of the world's leading companies, ExxonMobil, is starting to work on Russia's strategic shelf and deepwater continental shelf." He ensured full support of the Russian government and welcomed the Texas-based company as a "reliable, strategic, and good partner." 

The plan appears to supersede a now-defunct partnership between Rosneft and BP. The British oil company's attempt to gain access to the Arctic through its joint venture TNK-BP was blocked by stakeholders earlier this year. 

As part of the deal Rosnet will be granted access to some of the Exxon's American assets and gain experience in deep-water exploration and the extraction of shale gas. Exxon's expertise in developing unconventional natural gas reserves may have played a crucial role in getting access to the Arctic. Exxon acquired XTO Energy, the largest producer of natural gas in the U.S., for $31 billion in 2009 and gained access to the company's formidable expertise and experience in hydraulic fracturing, a process used to extract shale gas out of tight rock formations. 

A number of leading oil companies have been vying to gain access to yet untouched oil and gas reserves in the Arctic as access to reserves in the Middle East, e.g. in Saudi Arabia, has been getting harder for foreign oil companies and few easy to exploit hydrocarbon reserves remain. 


The Kara Sea, where the two companies will begin exploration, may hold as much as 100 billion barrels of oil equivalent. This part of the Arctic Ocean has become the focus of attention as sea ice continues to recede earlier during the year allowing for less challenging drilling operations. 

Despite the rapid melting of sea ice, however, conditions vary starkly from year to year and oil and gas platforms across the High North are built to withstand significant ice flows. Rosneft has been developing the Prirazlomnaya Offshore Ice-Resistant Fixed Platform (OIRFP) and expects to need at least a dozen such platforms by 2030.


Greenland Releases Oil Spill Plan - U.S. Coast Guard Lacks Arctic Response Capabilities





by Malte Humpert Greenland's government released Cairn Energy PLC's oil spill plan for its deep-water operations off the west coast of Greenland. Cairn won drilling rights in May 2011 and may drill up to seven exploratory wells. The Scottish oil company's contingency plan was published on a government website. 

Greenpeace and other environmental organizations have continually critiziced drilling operations in the fragile Arctic environment and reiterated concerns about the lack of oil spill response capabilities. According to comments made by Joern Skov Nielsen, deputy minister at Greenland's Bureau of Minerals and petroleum, Cairn is capable of handling spills up to 10,000 barrel a day; the plan however is based on a 5,000 barrel-a-day spill. In comparison, the 2010 BP oil spill in the Gulf of Mexico released up to 57,000 barrels a day.


The plan also contains measures to protect drilling rigs and equipment against icebergs and floating ice sheets along Greenland's west coast, also known as "iceberg alley." As Arctic melting continues more and larger chunks of sea and land-based ice may find their way into the Atlantic and ice-protection measures may yet prove to be inadequate.


In an effort to prevent continued harassment by Greenpeace ships, the exclusion zone around oil rigs has been expanded from 500 meters to 5 kilometers. The Danish coastguard is expected to dispatch vessels to prevent Greenpeace from approaching or boarding the oil rigs. Besides Cairn Energy, bigger rivals such as Exxon Mobile, have acquired exploration licenses in Greenland and are expected to start drilling.

Arctic response capabilities were also discussed by U.S. Senate Subcommittee on Oceans, Atmosphere, Fisheries and Coast Guard, chaired by Sen. Mark Begich (D) of Alaska. Shell Oil has applied to drill exploratory wells next year in the Beaufort Sea and Chukchi Sea off Alaska's northern and northwestern coast.

The company's spill response plan lists more than a dozen vessels accompanying the drilling ship, a second drilling ship to relieve pressure in a blowout well, and an oil spill containment system that could cap a blowout. The Coast Guard has been working closely with oil companies and informing them about their responsibilities in the event of an oil spill. 

Ultimately, however, says Adm. Robert Papp, Commandant of the Coast Guard, responsibility for spill cleanup lies with his agency.

Currently Coast Guard Arctic capabilities are extremely limited. The Coast Guard's heavy icebreakers Polar Star and Polar Sea have both been decommissioned and the only remaining icebreaker, the Healy, is not capable to sail through the region's thick winter ice. The agency plans to reactivate the 35-year-old Polar Star by 2013, but the Coast Guard's Arctic capabilities are dwarfed by Russia's fleet of six nuclear icebreakers. China recently commissioned construction of a second $300 million icebreaker expected to enter service in 2013.

At a time when Congress is looking to make major spending cuts, the Coast Guard will be expected to take on a new range of responsibilities. Arctic melting not only opens the door to resource development, but also to commercial shipping and tourism. 

The Coast Guard base nearest to the drilling sites and future shipping lanes is located in  Kodiak, more than 1,600 kilometers away. Adm. Papp stated that "we do not have any infrastructure on the North Slope to hangar our aircraft, moor our boats or sustain our crews. [...] Prudence dictates that we also acquire an appropriate level of Arctic pollution response capability. Presently, we have none."

The issue of Arctic response capabilities is also being addressed by the Arctic Council's Emergency Prevention, Preparedness and Response program.