Report: Safe Arctic Drilling is Now Possible

The United States has the technological capability to safely ramp up Arctic energy production, a federal advisory committee told Energy Secretary Ernest Moniz last week. If drilling operations were to begin in this decade, the Arctic’s immense new resources could be fully developed by the mid-2030s and sustain U.S. oil and gas production through the mid-century and beyond, the panel found. Its comprehensive recommendations, prepared by the National Petroleum Council (NPC), argue the U.S. can harness these tremendous resources while being mindful of the region’s unique ecology and geography. The Arctic is home to some of the world’s largest untapped sources of energy. The Arctic Circle, which extends 7.7 million square miles around the North Pole, includes 372 billion barrels of oil equivalent (BBOE) natural gas and 153 BBOE liquids. Much of the region’s immense gas resources are contained within Russia’s 10,000 mile northernmost border. But the American portion of the Arctic region—Alaska’s Outer Continental Shelf (OCS)—could contain as much oil as the entire Russian expanse, at 34 billion barrels. Three-fourths of those reserves are located offshore. Arctic conditions present a narrow window of opportunity for drillers. For much of the year, the region is coated with a thick layer of sea ice that thaws late in the spring and refreezes around November 1. Current rules allow drillers to extend operations only in the event of an emergency. In such a case, they may bore a relief well up to 38 days past September 24, the official end of Arctic drilling season. The NPC report argues advanced technologies are now available to safely operate rigs into the fall. These include advanced well control and oil spill response systems, as well as drill platforms that can operate on ice. Coupled with extended lease terms, the NPC says an extra 30 to 45 days could promote development of the region. Restructuring the terms of U.S. oil and gas leases could facilitate Arctic oil production in the future. In the U.S., leases are time-limited and bound by a strict ten year timeline for development. In harsh Arctic conditions, lessees are further restricted by tight, seasonal timelines for development. All lessees have to provide information about the commercial viability of energy resources at the conclusion of the lease terms to move forward with projects. But modifying those terms for Arctic projects could entice oil majors to make the long-term, capital-intensive commitments to exploration and development.  In an exploratory-based system, like that of Canada or Norway, flexibility is provided to drillers who find a commercially-viable resource at the expiration of lease terms, and want to develop it. Norway issues leases on 4 to 6 year basis, and offers the option to hold on to land rights for another 10 years with a work program commitment. In the U.S., those same leases have to be renewed. International oil giant Royal Dutch Shell has already poured $6 billion in these exploration activities. In 2012, the company’s Kulluk exploratory rig ran aground near Kodiak Island, Alaska, causing the multinational to scrap its $200 million dollar investment. Some have pointed to the incident as a precaution against extensive drilling in the region. “Shell and its contractors are no match for Alaska’s weather and sea conditions, either during drilling operations or during transit,” said Lois Epstein, director of The Wilderness Society’s Arctic Program. The company nevertheless wants to explore much more extensive reserves that could, ultimately, produce 400,000 barrels per day in the Chukchi Sea, just north of the Bering Strait. Shell has been waiting for regulatory approval and recently successfully deployed its Arctic containment system in the waters off Washington State. "We are watching the permitting side of the activity, and if that falls into place there is a good chance we will be moving forward," Shell’s upstream America’s director Marvin Odum told Argus Media. Long term, early investments in Arctic drilling present important implications for domestic energy supply. Namely, the fact that tight oil—often extracted from onshore shale resources—may account for a diminishing proportion of overall U.S. crude oil production to 2040, the Energy Information Administration (EIA) says. The Agency’s 2014 Reference Case for crude oil production shows a rise in U.S. tight oil production from 1.3 million barrels per day in 2011 to 8.1 mbd by 2040. In the intervening time, U.S. tight oil supplies will account for a smaller share of overall crude oil production, falling from 50 percent to 42 percent of U.S. supplies at the end of EIA’s forecast period (Figure 1, below). This means that the U.S. may have to look elsewhere for new energy resources. Under its high resource case, 1 mbd of additional crude could be extracted from Arctic oil deposits by 2040. All else being equal, this additional product would represent 13 percent of the country’s 7.4 mbd supply that year. The NPC report underscores the many steps leading to safe development of the Arctic’s tremendous energy potential. In addition to the structural recommendations intended to enhance the economic viability of projects, it also calls for expanded government coordination and policy leadership, as well as important environmental measures to prevent spills. They recommend the following for industry and regulators:
  • Work together to prevent oil spills by validating technologies for improved well control, and evaluating alternatives for oil spill responses, like subsea shut-in devices independent of the standard blowout preventer.
  • Strengthen responses to oil spills in ice by compelling government agencies to develop cross-agency coordination.
  • Identify information that is still needed to advance knowledge of Arctic ecology and the human environment, like an updated Social Impacts Assessment, assessments on marine life, and the North Slope Science Initiative.
  • Align policy across 39 federal agencies with the Arctic Council.
Shell has already developed advanced containment technologies that could respond to oil spills, even in the harsh conditions of the Arctic, but coordinated government reforms will be required to fully develop the region’s resources safely and efficiently. As the U.S. begins its two-year rotation as chair of the influential five-member Arctic Council, the NPC says now is the time for American leadership on this key issue.