Alaska to BP to Conoco Count On Shell Arctic Bounty
(Corrects name of lake in first paragraph of story published Sept. 29.)
The parking lot at the Millennium Alaskan Hotel in Anchorage was as jammed at 6:30 a.m. on a Thursday as the float-plane marina at neighboring Lake Spenard. About 170 oil executives, tribal entrepreneurs and state employees entered through a lobby adorned with stuffed polar bears and mounted moose heads.
They came because Shell’s good fortune may also be their own. The offshore fields the company is seeking U.S. permission to develop may contain oil valued at as much as $2.4 trillion. Drilling would set off a cascade of revenue for contractors, 54,700 jobs across the U.S. and $176 billion in federal, state and local tax revenue through 2057, according to a study Shell commissioned from consulting company Northern Economics and the University of Alaska Anchorage.
“You’re looking at decades of economic impact,” Kara Moriarty, deputy director of the Alaska Oil and Gas Association, said in an interview. Production in the Beaufort and Chukchi seas “would be a tremendous boost,” she said.
Among the winners if the Obama administration gives the required permits to The Hague-based Shell: Owners of the Trans Alaska pipeline, including BP Plc (BP/) and Exxon Mobil Corp., which say they need more oil to keep it running; Statoil ASA (STL) and ConocoPhillips, which want to win approval to develop their own federal leases in the Arctic; and Noble Corp., which will supply a drilling vessel.
‘A Big Opportunity’
“This is a big opportunity,” Slaiby told the audience at the Sept. 8 meeting, showing them an animation of Shell’s spill- response plans over a breakfast of eggs and bacon.
Shell’s spending since winning Arctic leases in federal waters in 2005 is approaching $4 billion for drilling rights, engineering, government-ordered studies and research, according to the company. The Chukchi and Beaufort sea deposits may hold 25 billion barrels of oil, Shell says, citing government estimates, for a value of $2.4 trillion based on the average price of oil on the New York Mercantile Exchange this year.
Until now, the native village of Point Hope, which juts into the Chukchi Sea, and environmental groups staved off the company by contending in court and in comments to government agencies that drilling may disrupt a fragile land, putting at risk the animals that provide the Inupiats with whale blubber for fuel, pickled-flipper snacks and sealskin for the drums they beat in time to traditional dances.
White House Meetings
The delay may end soon. In August, the company won Interior Department approval for exploratory drilling in the Beaufort Sea near the North Slope towns of Deadhorse and Kaktovik. The Environmental Protection Agency issued air-quality permits on Sept. 19 for a ship Shell plans to use for drilling.
Slaiby said Shell executives met three times with White House officials, most recently on Sept. 20, to talk about Arctic drilling.
The company expects Interior Secretary Ken Salazar to uphold the Chukchi Sea lease sale by Oct. 3, and the Bureau of Ocean Energy Management, Regulation and Enforcement to give the go-ahead for the Chukchi exploration plan in December, Slaiby said at the hotel breakfast in Anchorage.
Shell says it must decide by the end of October whether to gamble that it will get all 35 permits needed and start lining up about 18 vessels and 1,200 workers to drill the first offshore wells in U.S. Arctic waters in July.
Alaska’s Republican Governor Sean Parnell has backed Shell’s plans partly as the best bet to restore the flow in the state’s largest oil pipeline to 1 million barrels a day within 10 years.
Trans Alaska Pipeline
Oil flowing through the 800-mile (1,287-kilometer) Trans Alaska Pipeline shrank to about 570,000 barrels a day this year from a record 2 million barrels in 1988, as output from onshore tracts fell. The pipeline’s owners, including BP, Exxon and ConocoPhillips (COP), say that less petroleum in the pipes allows ice to form, wax to build up and metal to corrode.
Shell, which said it expects Arctic offshore production to start after 2020, would use the pipeline to deliver its crude across the state to Valdez, the northernmost ice-free port in the U.S.
“Beaufort and Chukchi are critical for our long-term future,” Tom Barrett, president of Trans Alaska operator Alyeska Pipeline Service Co., said in an interview. Alyeska employs more than 800 workers, according to its website.
Shell said it also plans to build a connector, half the length of the Trans Alaska pipeline, across the North Slope to bring Chukchi oil to the existing line.
“It will be hugely expensive, it’s in the billions,” Slaiby said in an interview at his office in an Anchorage high- rise with a view of the Chugach Mountains, blue and shrouded in clouds.
Shell’s investments will bring $3.7 billion of tax revenue to the North Slope Borough, which borders both seas, according to the Northern Economics-University of Alaska analysis, which was released in February. Alaska’s state government would gain about $4.8 billion from property, corporate and income taxes through 2057, and the federal government would collect $161.3 billion.
U.S. approval for Shell to drill 10 Arctic offshore wells over the next two years may encourage more investment from Statoil of Stavanger, Norway, and Houston-based ConocoPhillips. Those companies also purchased Chukchi Sea leases and aren’t as far along in the process.
Statoil in Anchorage
“We’re following what’s happening with the other operators closely, and we hope that Shell is successful in drilling next year,” Lars Andreas Sunde, head of Statoil’s Anchorage office, said in an interview. “It will of course be a positive to the industry.”
Statoil opened its Anchorage office this year, as did Noble Corp. (NE), owner and manager of the Discoverer rig that Shell plans to use for the 2012 to 2013 drilling season. Shell rented the Discoverer in January to use in New Zealand this year at a rate of $155,000 a day, according to the website of Baar, Switzerland-based Noble.
Pledging to benefit local residents, Shell hired North Slope native corporations to write permit applications, engineer oil-spill response and containment and dispose of waste once exploration begins.
Among Shell’s Eskimo contractors is Tikigaq Corp., which provides financial support for the Inupiat villagers in Point Hope, the center of opposition to Shell’s plans.
Tikigaq’s waste-management contract with Shell, renewed every year since 2007, is more profitable than services sold to its main client, the U.S. Department of Defense, according to the corporation’s Chief Operating Officer Troy Izatt.
Because exploration hasn’t begun, Tikigaq has allotted only two workers to Shell, both based in Anchorage. One is a native of Point Hope.
“Tikigaq Corp. and its board of directors support the offshore development if it’s responsible,” Izatt said in an interview at his office, where a fur-trimmed wooden tribal mask hangs on the wall.“I always look forward to good news for Alaska, what helps all Alaskans, including natives.”
To contact the reporter on this story: Katarzyna Klimasinska in Anchorage, Alaska, at firstname.lastname@example.org
To contact the editor responsible for this story: Larry Liebert at email@example.com