Shell again delays offshore drilling in Arctic, citing EPA

ANCHORAGE, Alaska — Shell announced Thursday that it will again postpone its Arctic drilling program, this time to at least 2012, blaming "process" delays in obtaining an air pollution permit from the U.S. Environmental Protection Agency.

Peter Slaiby, Shell Alaska's vice president, said at a news conference in Anchorage that the decision to forgo exploratory drilling off Alaska's Arctic coast this summer means a loss of about 800 jobs.

Shell's decision also sets back the day when the company's offshore production could begin to help refill the trans-Alaska pipeline as output declines from aging North Slope oil fields, Slaiby said — assuming Shell's exploratory program leads to development.

Shell has federal leases in the two Arctic Ocean seas on Alaska's continental shelf, the Beaufort to the north and the Chukchi to the northwest. Slaiby said the company believed about a year ago that the regulatory stars would align for drilling five exploratory wells in the summer of 2010. Then came BP's disastrous oil spill in the Gulf of Mexico and an unfavorable court ruling, and Shell was back to resetting its plans to this coming summer.

Now even the 2012 season is hanging in the balance, Slaiby said.

"In Shell's global energy view, only urgent and timely action on the permitting and regulatory issues will preserve an offshore Alaska for 2012," Slaiby said.

In the immediate aftermath of the BP spill, environmental campaigners and some North Slope residents expressed concern about Shell's ability to contain and clean up a spill in harsh arctic conditions. Shell argued it was up to the task, but also said its near-term drilling plans called for much shallower wells than BP's Macondo, with lower pressures and less risk.

The latest regulatory hang-up had nothing to do with potential oil spills, but rather with air pollution permits the EPA office in Seattle issued 10 months ago.

Environmental organizations and the Alaska Eskimo Whaling Commission appealed against the permits to the Environmental Appeals Board in Washington, D.C. The board is an independent review body within the EPA with appeals judges appointed by the EPA administrator.

Three of the judges, all former Justice Department or EPA staff attorneys, heard the appeal. On Dec. 30, they sent the permits back to Seattle and told the EPA there that they needed more work.

One of the issues: the Seattle office said the permit would take effect once the drilling ship, the Noble Discoverer, set anchor at the drilling site and would cease when the Discoverer pulled anchor and left. The Native and environmental groups argued the EPA should also have regulated the ship and its helper vessels during the transit to and from the site, and the appeals board agreed that issue should have been addressed.

Brendan Gilfillan, a spokesman for EPA, said the agency has appealed back to the board for reconsideration and is working with Shell to regain its permits — though Shell says it's now too late for 2011 drilling.

Shell's announcement was followed with sharp rebukes to the EPA by elected Alaska officials, though none addressed the fact that the EPA initially approved the permits.

"This is just another delay resulting from the federal government dragging its feet, killing jobs and making us even more reliant on oil from the Middle East and elsewhere," said Gov. Sean Parnell.

"Shell has spent more than $3 billion and been ready to put Alaskans to work for the last few years but because of an inefficient bureaucracy and an overabundance of unnecessary regulations, they still have not been able to drill a single hole," said U.S. Rep. Don Young, R-Alaska.

"Considering how any attempt at project development is shut down by the EPA, they sure aren't interested in jobs for Alaskans."

The air quality issues relate to the diesel engines on the drilling ship and other vessels that generate power for propulsion and drilling operations. Slaiby said Shell had already invested $15 million to install catalytic devices and filters to reduced the smog-causing nitrogen dioxide and particulates that the engines produce, and promised to burn low-sulfur fuels. No detectable levels of air pollution from the ships would be present at the two settlements nearest the drilling, Nuiqsut and Kaktovik, he said.

Slaiby reserved his criticism for the EPA and said other agencies, like the Interior Department, have been helpful.

"The administration has responded cautiously but favorably to Shell's offshore Alaska plans," Slaiby said. "Last month the presidential oil spill commission made comments that reflect positively on our plans."

Shell has released the Discoverer, a contractor-owned ship, for the 2011 season and it's now working in New Zealand, Slaiby said. A backup drilling vessel, the Kulluk, remains in Dutch Harbor but will be retrofitted for pollution control equipment.

A spokeswoman for Shell, Kelly op de Weegh, said the company's plan for 2011 was to just use the Discoverer for drilling and to keep the Kulluk on standby, in case it was needed to drill a relief well in the event of a blowout. The company may propose using both vessels for drilling in 2012, op de Weegh said, one in the Chukchi, the other in the Beaufort, with each backing up the other.

Shell believes it will find "world class" reserves offshore. It might take a decade to develop them commercially, Slaiby said, but if that happens, the company would pipe the crude to the trans-Alaska pipeline, potentially extending the line's life for years.

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