Federal regulators on Friday released a draft environmental study of oil development in the Chukchi Sea, completing one of the many legal steps required before drilling resumes in the remote Arctic area where Shell conducted a mishap-laden drilling program two years ago.
The Bureau of Ocean Energy Management issued its draft supplemental environmental impact statement on Chukchi oil leasing, a document ordered in April by a federal judge. The draft examines possible impacts of oil and gas development in the ice-choked sea off Northwest Alaska, impacts that were supposed to have been fully analyzed before the BOEM's predecessor agency, the Minerals Management Service, held its $2.66 billion lease sale in 2008.
"In the analysis released today, BOEM used a new exploration and development scenario to evaluate the potential environmental effects of oil and gas activities associated with Lease Sale 193. We look forward to receiving additional public input as we continue to take a balanced approach to the safe and responsible energy development in the region," BOEM acting director Walter Cruickshank said in a statement.
The new draft envisions up to 4.3 billion barrels of oil produced for a period ranging up to seven decades, much more development that the 1 billion-barrel estimate used in previous studies.
This is the second court-ordered environmental-study rewrite concerning the 2008 lease sale. In 2010, U.S. District Court Judge Ralph Beistline ruled that BOEM had to do remedial environmental studies to correct flaws in the MMS's pre-sale environmental analysis; after a year-long rewrite process, Beistline in early 2012 accepted BOEM's new analysis.
The 9th U.S. Circuit Court of Appeals ruled on Jan. 22 that BOEM's rewrite did not correct all the problems in the pre-sale environmental studies. In accordance with an agreement between environmental and Native plaintiffs who challenged the lease sale and the federal agency seeking to uphold it, Beistline on April 24 ordered a new supplemental environmental impact statement now released in draft form.
The draft, with its new 4.3 billion-barrel estimate, is intended to address points raised in the appeals-court ruling.
It considers potential impacts of very large oil spills on the Chukchi's animals and marine resources, with damages expected to range from negligible to major, and impacts from expected greenhouse-gas emissions, industrial noise, potential interference with subsistence harvests and other negative consequences. It also considers potential economic benefits, which it says would be "major."
A Shell spokeswoman said the company welcomes the new document. "We appreciate the release of the draft and are reviewing it," company spokeswoman Megan Baldino said.
Sen. Mark Begich, a development supporter, said release of the supplemental environmental impact statement bodes well for future drilling.
"I know this is very welcome news to Shell Oil and other leaseholders who are ready to get down to the business of safely and responsibly developing their leases in the Chukchi," Begich said in a statement.
But environmentalists said the new analysis shows the dangers of oil development in the Chukchi. They pointed to the draft study's estimate of a 75 percent chance of one or more very large oil spills from operations.
"The courts have twice sent back this ill-advised decision to open the Chukchi Sea to dirty oil drilling. Today's draft impact statement confirms again that drilling in the Chukchi Sea puts Arctic people and wildlife at risk from major oil spills that could not be cleaned or contained," Earthjustice staff attorney Erik Grafe said in a statement.
Also alarming, said Jim Adams, policy director for Audubon Alaska, is the speed with which BOEM produced the new analysis. The original pre-sale study "was thrown out because they rushed it," Adams said. "It feels like they're rushing this one so Shell has a chance to drill in 2015," he said.
The draft supplemental environmental impact statement is subject to 45 days of public comment, said BOEM, which also plans to hold seven public hearings.
Shell hopes to drill in the Chukchi next year, but has not yet made a final decision about that, the company's chief financial officer, Simon Henry, said in a teleconference Thursday discussing third-quarter earnings.
Three years ago, Shell expected to have two full drilling seasons and as many as 10 Arctic offshore exploration wells completed by this date -- up to six wells in the Chukchi and up to four wells in the Beaufort.
The court-ordered environmental-study rewrites are among several factors that have contributed to Shell's drilling delays.
The company has asked federal regulators to extend its leases in the Chukchi, the region that Shell says holds the best potential for a huge oil find, and in the Beaufort, where Shell started a well in 2012 but where the company no longer has any pending development plans.
Shell has spent more than $6 billion trying to explore the Chukchi and the Beaufort, the company's vice president for Alaska, Pete Slaiby, said in a July 10 letter to the Bureau of Safety and Environmental Enforcement, BOEM's sister agency. "Yet, despite Shell's best effort and demonstrated diligence, circumstances beyond Shell's control have prevented, and are continuing to prevent, Shell from completing even the first exploration well in either area," Slaiby's letter said.
An attorney with Oceana, the environmental group that used a Freedom of Information Act request to obtain the July letter, said Shell seems to be asking the government to rescue it from its own mistakes."It appears from the letter that the company had unrealistic expectations of what it could accomplish," said Michael LeVine, Oceana's senior Pacific counsel.
Notably absent from the letter is discussion of the Dec. 31, 2012 grounding and wreck of the Kulluk drill rig, he said.
"There's no recognition that the company might have had anything to do with the problems they've encountered," he said.
The Kulluk was used to drill in the Beaufort. While being pulled across the Gulf of Alaska on a trip to a Seattle-area shipyard for winter upgrades, it escaped its tow and ran aground near Kodiak Island. The damaged drill rig will not return to service, Shell said in 2013.
The Chukchi leases, which had been scheduled to expire in 2019, are already effectively extended. They are officially classified as "suspended," and will remain so until the supplemental environmental-impact process is completed, said BOEM spokesman John Callahan. The expiration clock is stopped while the process is underway, as it stopped in 2010 during the first supplemental environmental-impact process, he said.
But the clock is ticking on the Beaufort leases, which are unaffected by litigation over the Chukchi lease sale and the new environmental review being conducted by BOEM. The Beaufort leases were acquired in MMS lease sales held in 2005 and 2007. While most hold expiration dates of 2017, some are scheduled to expire in on June 30, 2015, according to BOEM records.
Shell does not have any immediate plans for Beaufort development. "We're focused on the Chukchi Sea for now," Baldino said.
Henry, in Thursday's teleconference with industry analysts, blamed delays on litigation and "significant changes in regulation," mostly as a result of the 2010 Deepwater Horizon disaster, and said lease extensions were justified.
"It's just part of normal practice really looking to extend the leases, to enable us to drill when, in fact, it's really decisions taken down in Washington that have prevented us actually drilling to date," Henry said in the teleconference.
"It's also worth noting that 30 years ago, we went to drill several wells pretty quickly. No real issues in the theater. It's not that difficult to drill up there. That was the basis of the original application," he told the analysts.