U.S. OCS Drilling: EPA vs Alaska

By Gustavo Coronel | May 9, 2011

In 2010 the Environmental Protection Agency (EPA) issued Shell Offshore, Inc, an affiliate of Shell Oil Company, an air permit for exploration drilling in Alaska’s Beaufort Sea. The permit regulated air emissions from Shell’s Frontier Discoverer drill ship and covered the period July to December. Such a permit, Rick Albright, Director of EPA’s Air, Waste & Toxic office in Seattle, said at the time “reflected the goal of the Administration to explore options for increasing domestic oil production in a way that protects the environment.”

This was more a reflection of the lifting of the offshore oil drilling ban by President George W. Bush in July of 2008 making available for the first time in over two decades exploration of the Outer Continental Shelf (OCS). Senator Barack Obama, who had opposed lifting the moratorium at the time, issued strict regulations through the EPA, after he became president, impeding domestic oil production.

In releasing the 2010 permits the agency listened to the opinions of the small communities near the area where operations were to take place. This permit was issued on the basis that the company installed pollution reduction controls according to BACT, Best Available Control Technology.

However, the EPA’s Environmental Appeals Board has withheld this year’s permit, forcing Shell to stop its 2011 operations in the area (“Energy in America: EPA rules force Shell to abandon Oil Drilling Plans,” Fox, by Dan Springer, April 25, 2011). The suspension of the activities is a temporary one, based on what EPA considers to be excessive emissions from the drilling ship and icebreaker involved in the operation. Still, the decision has brought again to the surface, with renewed passion, the high degree of political tension existing in the U.S. about drilling for oil in the Arctic region. According to the Fox report, “the move [by EPA] has angered some in Congress,” including calls for “stripping EPA of its oil drilling oversight,” particularly since the air permits for oil companies operating in the Gulf of Mexico, which are issued by the Department of Interior, routinely take six weeks.

Alaska’s Senator Lisa Murkowski was highly critical of EPA Administrator Lisa Jackson during the March 16 Senate Appropriations Subcommittee hearing when she raised the concern over air permits that Shell Oil had applied for in the Beaufort Sea, saying: “Shell has spent five years and $50 million pursuing air permits from the EPA for no more than two drill ships to operate in the Arctic Outer Continental Shelf. Just last month, the EPA’s Environmental Appeals Board rejected the permits and remanded them back to the Agency’s Region 10 for more analysis. Shell has now dropped its plans to drill in the Beaufort this summer costing the company even more money and the state more jobs. This delay is 100 percent the EPA’s making. I simply can’t understand how it can take so long for the agency to approve an air permit for a drilling rig that will operate 25 to 75 miles offshore, less than one-quarter of the year.” Shell, of course, is badly hit by the decision, since they conduct a very expensive operation in the area. Delays in the process are bound to add millions of dollars more to the already high costs of the venture. Cost increases will come about in two ways: by postponing the day in which the fist barrel of oil flows from the area and the company starts recovering its initial investments, as well as by making the operation itself more expensive due to these interruptions and to the general increase of costs with time.

An issue of national policy

The main issue, of course, is one of national policy: Arctic drilling for oil has formidable proponents and opponents and has been discussed for many years and with a high degree of intensity. A Gallup poll taken in 2010 showed that 75 percent of Alaskans support oil exploration in the region. Paradoxically, while EPA claims to act in defense of the local communities when denying the permit to Shell, most of the local communities are in favor of oil exploration, as the activity will bring jobs and new economic activity to a region that sees little or no tourism and generally lacks important sources of income. It has been estimated that an additional $500 million a year could enter Alaska’s state coffers as a result of the activity. 78 percent of the 243 residents of Kaktovik, the community closest to the proposed area of operation, are in favor of the oil exploration project.

A nationwide, June 29, 2008, Pew Research Poll reported that 50 percent of Americans favor drilling for oil and gas in the Arctic, while 43 percent oppose it. A CNN opinion poll conducted on August 31, 2008 reported 59 percent favored drilling for oil in the region, while 39 percent opposed it. A large majority of Alaskans have supported drilling in the Alaska National Wildlife Refuge, ANWR, including every governor, senator, representative, and legislature for the past 25 years.

Environmental protection – vs. – Energy security: the basic dilemma

In broader, national terms, this is an issue pitting environmentalists against advocates of domestic energy self-sufficiency.

The Conservationist’s View

ANWR comprises 19,000,000 acres or 30,000 square miles of the north Alaskan coast roughly the size of South Carolina. The land is situated between the Beaufort Sea to the north, Brooks Range to the south and Prudhoe Bay to the west. It is the largest protected wilderness in the United States and was created by Congress in1980. The Refuge is home to some of the most diverse and spectacular wildlife in the Arctic, a rich fauna that includes 42 fish species, 37 land mammals, eight marine mammals, and more than 200 migratory and resident bird species. One of the key actors in the Arctic drilling dispute is the Porcupine Caribou. In spring the Porcupine Caribou herd migrates hundreds of miles from winter ranges located south of the Brooks Range in Alaska, and from areas in Yukon Territory, to its traditional calving grounds on the Arctic Refuge. Conservationists have long argued that oil development would unnecessarily threaten the existence of the Caribou by cutting off the herd from calving areas. They have also expressed concerns that oil operations would erode the fragile ecological systems that support wildlife on the tundra of the Arctic plain.

Luci Beach, the executive director of the steering committee for the Native Alaskan and Canadian Gwich’in tribe asserts that drilling in ANWR is “a human rights issue and it’s a basic Aboriginal human rights issue.” She adds, “Sixty to seventy percent of our diet comes from the land and caribou is one of the primary animals that we depend on for sustenance.”

The Pro-Oil Development View

The organization called ANWR (anwr.org) supporting the development of the “1002 Area” Coastal Plain for oil exploration, argues that imported oil is costly and a threat to U.S. national security. They add that beneath this 1.5 million acre tract “is estimated to be between 3 and 9 billion barrels of recoverable oil.”

The amount of oil that can be present in the area is essentially unknown. Estimates range from 3 to as much as 15 billion barrels of technically recoverable oil but those estimates are based on very meager hard data. This is precisely the reason why the exploration by drilling has to be done.

This area was designated by Congress in 1980 as requiring special study to determine its oil and gas potential and the effects of development on the environment. In 1987, the Department of Interior recommended development. Meanwhile, the organization adds, “Prudhoe Bay, located 60 miles to the west of ANWR, has been operating for nearly 20 years and has produced in excess of 10 billion barrels of oil during that time.” Present output at Prudhoe Bay has declined to 1.4 million barrels per day, and is continuing to decline. The group argues that the “1002 Area” Coastal Plain of ANWR is America’s best bet for the discovery of another giant “Prudhoe Bay-sized” oil and gas field in North America. They cite the following economic benefits: “The Coastal Plain could produce up to 1.5 million barrels per day for at least 25 years – nearly 25% of current daily U.S. production; the U.S. would save $14 billion per year in oil imports and between 250,000 and 735,000 jobs are estimated to be created by development of the Coastal Plain.”

In answer to the concern of the conservationists about the Caribou, the proponents of oil development in ANWR’s “1002 Area” Coastal Plain indicate that oil and gas development and wildlife already are successfully coexisting in Alaska’s Arctic. For example, the Central Arctic Caribou herd at Prudhoe Bay has grown from 3,000 to as high as 23,400 during the last 20 years.

ANWR’s “1002 Area” Coastal Plain is the most desolate northeast part of Alaska and the only area designated for exploration under the Alaska National Interest Lands Conservation Act of 1980. Specifically, the Coastal Plain consists of 1.5 million acres, while the 1980 Act permits a footprint of only 2,000 acres from the 19.3 million acres (8 percent and 0.01 percent, respectively, of total acreage) comprising all of ANWR.

The comparison has been made between the allowable footprint and the development of an area the size of Washington Dulles International Airport consisting of 2,000 acres or 3.13 square miles. Moreover, the northern front of the spectacularly scenic Brooks Range is miles south of the “1002 Area” boundary and at least 45 miles from Kaktovik, while Shell’s proposed offshore drilling site is another 25 to 75 miles away.

With the Prudhoe Bay field in steady decline, the need to use the existing Trans-Alaska oil pipeline’s capacity grows more urgent by the day. Any oil discovered either offshore or from the “1002 Area” Coastal Plain would connect to the existing Trans-Alaska Pipeline System (TAPS), thereby avoiding the need to run a new pipeline through the Arctic National Wildlife Refuge.

Other Countries Are Going Ahead With Arctic Drilling

A report by Bloomberg, April 5, 2011 (Norway Expects More Arctic Oil Drilling After Barents Sea Strike) states that Norway is planning to go ahead with Arctic drilling as its older fields decline. The state-owned oil company Statoil discovered a new oilfield some 200 kilometers offshore that may have 250 million to 500 million barrels of recoverable oil, potentially the country’s biggest find in a decade. Norway estimates the Barents Sea may hold 5.9 billion barrels of undiscovered oil and gas. There are two other finds in the Barents Sea: Eni’s Goliath field, set to start pumping in 2013, 13 years after discovery, and the Snohvit gas field started in 2007, 23 years after discovery. “This opens up a new oil province with enormous potential,” said Gro Gunleiksrud Haatvedt, Statoil’s head of Norway exploration, during a presentation in Hammerfest.

According to a report in the New York Times, February 15, 2011 (Russia Embraces Risky Offshore Arctic Drilling), Russia has signed an Arctic exploration deal with BP, “whose offshore drilling prospects in the United States were dimmed by the Gulf of Mexico disaster last year.” The report adds, “Other Western oil companies, recognizing Moscow’s openness to new ocean drilling, are now having similar discussions with Russia.”

The report contrasts this Russian decision with the caution shown by the U.S. and by Canada and says, “The Russians, who control far more prospective drilling area in the Arctic Ocean than the United States and Canada combined, take a far different view. As its Siberian oil fields mature, daily output in Russia, without new development, could be reduced by nearly a million barrels per day by the year 2035, according to the International Energy Agency. With its economy dependent on oil and gas, which make up about 60 percent of all exports, Russia sees little choice but to go offshore — using foreign partners to provide expertise and share the billions of dollars in development costs.” Ironically, Russia will be using the most advanced offshore oil drilling safety equipment manufactured in the U.S.

Politics vs. Policy

The policy of the Obama administration is to curtail greenhouse gas emissions, hinder development of hydrocarbons and to encourage production of alternative low density energy. This is being implemented by political means. The President chooses the EPA administrator and in turn the EPA administrator chooses the four members of the Environmental Appeals Board, all of whom are registered Democrats.

Politico reported how critical former President Bill Clinton was of the delays in issuing permits following last year’s oil spill in the Gulf of Mexico, while speaking at the IHS CERA Week energy conference held on March 11 in Houston, Texas.

Senator Murkowski explained on March 15 in support of an amendment to rein in EPA’s climate regulations, “I remain as convinced as ever that the EPA’s effort to impose backdoor climate regulations is the wrong way, and perhaps the worst way, to address our nation’s energy and climate challenges.”

Overall, Democrats are generally unfavorable to oil production, while Republicans are generally favorable. Still, both parties react to escalating gasoline prices in different ways. Democrats prefer to tap the Strategic Petroleum Reserve, while Republicans prefer to develop domestic energy resources.

Although in Alaska’s case its Constitution “provides for the maximization of the state’s natural resources” (Oil & Gas Journal, May 4, 2011, OTC: Alaska would restore oil pipeline volumes), it seems evident that political decisions concerning Arctic drilling are greatly influenced by short-term considerations regarding availability and prices of oil in the world markets. As oil prices fall, the strength of the conservationist’s arguments increases and there is a tendency for the U.S. to relax its sense of urgency regarding the Arctic hydrocarbon resources. As oil price increases, the pressure to develop the oil resources in the Arctic region also increases. This is the reason why this EPA decision postponing Shell’s operations in the Arctic has found so much rejection from many sectors and will, most likely, be resolved within a short time. The policy of developing domestic oil and gas resources, while minimizing its environmental impact, should be largely insensitive to the availability of imported oil. What is dangerous for the U.S. is to have a policy that depends excessively on imported oil. The danger of this dependence increases as reliability of imports diminishes, due to geopolitical factors difficult for the U.S. to predict and control.

Gustavo Coronel, who served on the board of directors of Petróleos de Venezuela (PdVSA), has had a long and distinguished career in the international petroleum industry, including in the USA, Europe, Venezuela and Indonesia. He is an author, public policy expert and contributor to

SFPPR News & Analysis.