Shell wins go-ahead for Arctic drilling

Aug 17, 2015 12:00 AM

Royal Dutch Shell has been granted the last permit it needs to drill into possible oil reserves in the Arctic, raising its hopes of being able to make a significant discovery in one of the industry’s most challenging frontier regions.

The US Bureau of Safety and Environmental Enforcement, the offshore regulator, on Monday afternoon awarded Shell a permit to drill into oil-bearing rocks at the Burger J well in the Chukchi Sea off the north-west coast of Alaska.

The Polar Pioneer rig, operated by Transocean under contract to Shell, began drilling at the site on July 30, but until now has not been allowed to reach depths that could hold oil.

The permit was granted after Shell moved to the region a vessel called the Fennica, carrying a “capping stack” that could be used to seal the well in the event of a blowout and leak.

Being able to drill down to its target depth of about 8,000ft below the seabed would be a significant step forward for Shell, which has taken 10 years and spent $7bn on its plans to explore the Arctic, without yet being able to complete a single well.

Shell says the time and expense are justified by the size of the prize if its exploration is successful. The Burger prospect is in an area that has been estimated by the US as potentially holding 4.3bn barrels of recoverable oil.

The regulator’s decision was met with outrage from environmental groups, which have opposed Shell’s drilling programme both because of the risk of a spill in the vulnerable waters of the Arctic, and because of the potential implications for climate change of opening up new sources of oil for long-term production.

If Shell does make a discovery in the Arctic, the field is unlikely to come into production until the 2030s, executives have said.

Marissa Knodel of Friends of the Earth said the award of the permit “completely contradicts” President Barack Obama’s commitment to tackle the threat of climate change, made this month when he set out plans to curb greenhouse gas emissions from power plants.

She said Mr Obama was “willing to allow the pristine Chukchi Sea to become an energy sacrifice zone and worsen climate disruption”.

Michael Brune of the Sierra Club, another environmental group, said the permit award “goes against science, the will of the people, and common sense”. He added: “This fight is far from over.”

An adverse regulatory decision in June prevents Shell from working at the same time on sites that are less than 15 miles apart, because of the disturbance that would create for walruses, scuppering its plan to drill two wells simultaneously during the summer drilling season.

Another drilling vessel, Noble Corporation’s Noble Discoverer, is in position nine miles away from the Polar Pioneer at the Burger V prospect, waiting for the other rig to finish, although it will also need a separate permit from BSEE to drill into oil-bearing rocks.

However, Shell still says it is “possible” that it will complete a well this summer, and may be able to start work on a second.

The Arctic drilling season in the Chukchi Sea is usually expected to run from July 15 to October 31, but Shell has been forced by US regulators to stop work in late September, to give about a month to sink a “relief well” to block a leak, should that be needed.

The fall in oil prices over the past 12 months has called into question the viability of high-cost production in areas such as the Arctic.

However, Shell said on Monday that the seas north of Alaska could become a “national energy resource base” for the US. By the time any oil discovered at Burger comes into production, the global balance of demand and supply could look very different from today.

Offshore Alaska could in the long term produce 1mm barrels of oil per day, the US has suggested, putting the region on a par with the Gulf of Mexico.

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