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Shell Arctic Setback Shows Risks, Environmentalists Say

Royal Dutch Shell Plc (RDSA)’s decision to abandon oil drilling in Alaska’s Arctic waters this year underscores the risks of working in harsh maritime conditions, environmentalists said.

“We think it’s crazy,” said Niel Lawrence, senior attorney for the New York-based Natural Resources Defense Council, which has opposed exploring in the region. “And the evidence is mounting that shows it’s crazy.”

Sub-freezing temperatures, high sea swells and ice floes make the Arctic off the Alaska coast a particularly difficult location for offshore drilling, the NRDC and other critics of drilling in the region say.

President Barack Obama sought to fend off criticism from Republican opponent Mitt Romney, who said the administration has spent too much time and money promoting green energy sources like wind and solar power, by highlighting an increase in oil production during his first term.

Interior Secretary Ken Salazar defended Shell and the administration’s decision to let The Hague-based company to start preparatory work before winning a final permit.

“The department has set rigorous safety, environmental- protection and emergency-response standards for any exploration activities in the Arctic, and throughout this process, Shell has demonstrated a commitment to those standards,” Salazar said in a statement. “Tremendous progress has been made and valuable lessons will be learned as the company carefully and deliberately moves forward with Arctic exploration activities.”

Chukchi Halt

Shell said on Sept. 17 that it was scrapping plans to drill into oil reservoirs this year in the Chukchi Sea off Alaska’s north coast after a containment dome designed to cap the spill was damaged. The company had agreed to stop drilling in the Chukchi by Sept. 24, to avoid the onset of ice that might interfere with spill-response actions.

The company said it will proceed with drilling so-called top holes that don’t extend all the way down into oil reserves.

Shell said it was disappointed the equipment hadn’t met its “stringent acceptance standards.”

“But, as we have said all along, we will not conduct any operation until we are satisfied that we are fully prepared to do it safely,” the company said in the statement.

Shell has spent seven years and $4.5 billion in preparation for drilling in the Arctic, an area that may hold the biggest source of U.S. oil outside the Gulf of Mexico.

Arctic Setbacks

Damage to the containment dome was only the latest setback for the company.

A day after announcing on Sept. 9 that drilling had started in the Chukchi -- the first time in two decades that the U.S. Arctic sea floor had been touched by a drill bit -- Shell was forced to disconnect its rig from the well to avoid encroaching sea ice.

In July, the U.S. Coast Guard had to inspect the vessel Noble Discoverer when it slipped its mooring and drifted toward shore in the Aleutian Islands. The crew didn’t report any damage.

Shell said the Noble Discoverer will return to the site in days. The company said it will begin an exploratory well in the Beaufort Sea after the conclusion of a whale hunt. Work in the Beaufort can continue until the end of October.

Shell is still seeking a final permit to complete its exploratory wells. It won the go-ahead to begin limited preparatory work, including drilling to 1,400 feet under the seabed. The oil reservoirs lie 4,000 feet deeper.

Pete Slaiby, Shell’s head of Alaska operations, in August said on a conference call that it would be difficult to complete the exploratory wells this year.

“Shell’s announcement is recognition of what we’ve been saying all along: The company cannot safely drill in our Arctic waters,” said Michael Brune, executive director of the Sierra Club, which is based in San Francisco.

To contact the reporter on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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