The U.S. should immediately begin a push to exploit its enormous trove of oil in the Arctic waters off of Alaska, or risk a renewed reliance on imported oil in the future, an Energy Department advisory council says in a study submitted Friday.
The U.S. has drastically cut imports and transformed itself into the world’s biggest producer of oil and natural gas by tapping huge reserves in shale rock formations. But the government predicts that the shale boom won’t last much beyond the next decade.
In order for the U.S. to keep domestic production high and imports low, oil companies should start probing the Artic now because it will take decades of preparation and drilling to bring oil to market, according to a draft of the study’s executive summary.
The push to make the Arctic waters off of Alaska more accessible to drillers comes just as Royal Dutch Shell is poised to restart its troubled drilling program there. The company has little to show after spending years and more than $5 billion. After assuring regulators it was prepared for the harsh conditions, one of its drill ships ran aground in heavy seas near Kodiak Island in 2012.
Environmental advocates say the Arctic ecosystem is too fragile to risk a spill, and cleanup would be difficult or perhaps even impossible because of weather and ice. “If there’s a worse place to look for oil, I don’t know what it is,” says Niel Lawrence, Alaska director for the Natural Resources Defense Council. “There aren’t any proven effective ways of cleaning up an oil spill in the Arctic.”
The analysis, conducted by the National Petroleum Council at the request of Energy Secretary Ernest Moniz, makes the case for the United States to aggressively develop Arctic oil and gas resources that can help supply the country with energy long after some onshore fields’ production starts tailing off.
A recent surge in domestic oil production is tied to the extraction of oil from dense rock formations in North Dakota, Texas and other parts of the contiguous United States, but “production profiles for these oil opportunities will eventually decline,” the NPC says. “Given the resource potential and long timelines required to bring Arctic resources to market, Arctic exploration today may provide a material impact to U.S. oil production in the future, potentially averting decline, improving U.S. energy security and benefiting the local and overall U.S. economy.”
But changes are needed to facilitate Arctic oil production, the advisory panel said, including an overhaul of the terms for U.S. oil and gas leases, which typically span just 10 years, and a collaboration between regulators and industry aimed at extending the drilling season that is now limited to about 80 days when Arctic waters are free of ice.
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“Drilling an exploration well to target takes about 80 to 90 days, so this current practice requires multiple mobilizations to drill a single exploration well,” said Carol Lloyd, with ExxonMobil Corp., chair of the Arctic Research Coordinating Subcommittee.
The NPC urged regulators to allow companies to continue drilling even when ice has begun forming in fall — a change that would add an additional 30 to 45 days to the current drilling window, potentially to mid-December.
Right now, the Interior Department insists that companies leave enough time — while waters are still clear — to drill a relief well in case of an emergency.
Conservationists argued that companies need those conditions to effectively respond to blown-out wells and other emergencies.
“Responding to a blowout after the fall storms and ice moves in is virtually impossible,” said Marilyn Heiman, director of the U.S. Arctic Program for Pew Charitable Trusts. “We strongly advocate for limiting drilling to the open-water season to minimize the chance of a blowout extending through the winter and delaying response until the following summer.”
Heiman said that if a major spill lasted through the winter, it would be “devastating to the Arctic.”
The short drilling window was one of many factors that constrained the most recent exploration in the Chukchi and Beaufort seas north of Alaska, in 2012, when Shell Oil Co., finished drilling only the top part of two wells. Damage to critical emergency equipment necessary for the company to penetrate potential oil-bearing zones and the late retreat of sea ice that year, also narrowed Shell’s opportunity.
The company aims to return to the Chukchi Sea this summer, this time armed with two rigs and hopes of finding oil in its Burger Prospect about 70 miles from the Alaska coastline.
The NPC report was developed by more than 250 people, nearly half of whom work for oil and natural gas companies; others represented environmental organizations, state and federal agencies, research groups and academia. The Natural Petroleum Council itself is a 59-year-old, privately funded advisory group established to provide guidance to the federal government, with members appointed by the Secretary of Energy.
But the report has an undeniable industry tilt, environmentalists said Friday, noting that many of its recommendations have been on oil companies’ wish lists for years.
The U.S. Arctic is estimated to contain approximately 35 billion barrels of oil — but getting to it requires navigating cold, forbidding terrain, far from deep-water ports and the traditional infrastructure for supporting industrial energy development.
Arctic conditions are diverse, with some areas at the top of the globe marked by long periods of open water, and others — like the U.S. Chukchi and Beaufort seas — often covered by thick ice or broken ice all but two to four months a year.
“We see significant potential in the U.S. Arctic resource areas that are as attractive if not more attractive than Arctic resource potential in other nations,” Exxon Mobil CEO Rex Tillerson told reporters after an NPC meeting in Washington, D.C. But there are regulatory and technological “opportunities to enhance and support prudent development in the Arctic.”
Oil development in the region “requires securing public confidence,” the NPC says, noting industry must operate responsibly, government must maintain and upgrade “effective policies and regulation” to protect people and the environment and both sides must engage local communities.
Lois Epstein, the Arctic program director for The Wilderness Society, noted that a recent Interior Department analysis says there is a 75 percent chance of at least one large spill occurring in the Chukchi Sea and releasing more than 1,000 barrels of oil over the next six decades.
Those spill estimates make it hard to gain the public’s confidence, Epstein said. “The report’s authors seem to be (comfortable) with Arctic Ocean and coastal contamination since there haven’t been significant cleanup advances and there’s a projected 75 percent likelihood of a major spill, just in the Chukchi.”
Read more: Feds up Arctic oil estimates to satisfy court
The report itself says little about mishaps by Shell and its contractors in 2012 that undermined public confidence in the industry’s ability to safely operate in the forbidding Arctic frontier.
The NPC urges a shakeup in the the duration of offshore oil and gas leases — which generally require companies to be able to move into a commercial development phase by the end of 10 years, whether the target is in the temperate Gulf of Mexico or the ice-covered Beaufort Sea.
While that construct may work well in other parts of the United States, “in the case of the Arctic, where you can only work three months a year, it is particularly challenging given the number of wells that will be required,” Lloyd said.
Related: Feds weighing Shell bid for more time in Arctic
Other countries take a different approach, sometimes formally dividing the exploration phase from the development one that typically follows a commercial discovery. For instance, in Canada, oil companies can obtain 9-year exploration licenses with the option of extending them as long as they are diligently pursuing drilling. If a discovery is made, the oil company receives a new license, allowing it to hold the lease indefinitely until the field can be economically developed.
The recommendation dovetails with a separate move by at least three companies with drilling rights in U.S. Arctic waters — Shell, ConocoPhillips and Statoil — that have asked the Interior Department to extend their leases.
References
AP. March 27, 2015. U.S. urged to develop Arctic oil and gas. Associated Press.
Dlouhy, J.A. March 27, 2015. Arctic oil drilling needed now to sustain U.S. energy security. Arctic
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