Time ticking on Shell's offshore Arctic drilling

ANCHORAGE, Alaska Wed Jul 25, 2012 10:23pm EDT

A Shell logo is seen at a petrol station in Ankara March 6, 2012. REUTERS/Umit Bektas

A Shell logo is seen at a petrol station in Ankara March 6, 2012.

Credit: Reuters/Umit Bektas

ANCHORAGE, Alaska (Reuters) - Royal Dutch Shell's (RDSa.L) plans to drill exploratory wells in remote Arctic waters off Alaska are being hampered by its failure to secure key regulatory approvals and lingering sea ice, which have already led to a three-week delay.

Shell had hoped to use this year's brief, ice-free season to drill up to three exploratory wells in the remote Chukchi Sea off northwestern Alaska and up to two in the Beaufort Sea off the state's northern coast. The company has similar plans for 2013.

But bad luck with sea ice and a series of other problems make it doubtful that Shell will accomplish all of its goals this year, a company spokesman said on Tuesday.

"We've recalibrated what's possible, based on weather and logistics this year. No matter how that turns out, we're trying to make the most of the time that we do have in the theater," said Curtis Smith, Shell's spokesman in Alaska.

Shell's original ambitions to start a four-month drill season on July 1 have been upended by heavier-than-expected ice coverage in the Bering Sea off western Alaska.

Despite sparse cover in most of the Arctic Ocean, ice in the Chukchi Sea is still too thick to allow ship traffic, U.S. Coast Guard Commander Christopher O'Neil said on Tuesday.

Most of Shell's ships are currently gathered at the Aleutian port of Dutch Harbor, about 1,000 miles away from their Arctic destinations. But one important ship, an oil-spill barge that is required to be part of the drilling fleet, has been detained farther south.

The barge, the Arctic Challenger, has yet to be cleared by the Coast Guard for seaworthiness. It is undergoing modifications in Bellingham, Washington, in an effort to pass the Coast Guard's tests, O'Neil said.

"It's not certified," he said. "There's construction that's ongoing that we still have to look at."

Without Coast Guard clearance for the barge, Shell cannot get approval for permits to drill specific wells, according to a recent statement from the Department of Interior's Bureau of Safety and Environmental Enforcement.

EMISSIONS PROBLEMS

Another problem for Shell is its inability to meet emission standards in an air-quality permit issued by the Environmental Protection Agency (EPA) last September.

Shell on June 28 asked EPA to increase limits on emissions of nitrogen oxides and particulates and to eliminate limits on ammonia emissions for the Noble Discoverer drill ship and its associated support vessels, to be operated in the Chukchi.

The company, in its request to the agency, said it cannot meet the permit limits with currently available technology.

Suzanne Skadowski, a Seattle-based EPA spokeswoman, declined to comment on Shell's requests for changes to that permit and to another, less-sweeping, air-quality permit.

But EPA on July 13 issued a statement assuring that, by "using the tools we have under the Clean Air Act, we can protect air quality while providing the EPA approvals required for Shell to operate this summer."

Shell suffered another setback earlier this month in Dutch Harbor when the Discoverer drifted toward shore and nearly grounded, or possibly experienced what a Coast Guard spokesman described as a "soft grounding."

Shell has characterized the lingering sea ice as its most serious challenge this summer.

Shell's Smith said the company hopes ice will melt enough to allow ships to move into place by early August. "Right now we're looking at the first week of August for ice retreat. At this point, the ice is still going to determine our entry into the Beaufort and the Chukchi," he said.

All operations must cease by October 31 or before, and drilling must be temporarily suspended during the fall Inupiat whale hunting season, according to Shell's permits. Drilling into hydrocarbon-bearing zones in the Chukchi must cease 38 days prior to October 31, according to Shell's permits.

Robert Dillon, an energy committee aide to Alaska Senator Lisa Murkowski, said drilling supporters are hoping that Shell will be able to get at least some work done on site this year, even if that falls short of drilling into an oil discovery.

"We think it's unfortunate that they may not be able to drill to depth, but that's yet to be seen," Dillion said on Wednesday. "The most important thing is that Shell is able to demonstrate, once again, that it can conduct safe operations in the Arctic and that its activities allow it to resume and continue next year."

Drilling opponents say the recent problems show why Shell's plans are too risky for what they characterize as a vulnerable marine environment.

"As Shell Oil continues to push to drill exploratory wells in our Arctic Ocean this summer, the oil giant is giving us a preview of how disastrous a situation this could be," Kristen Miller of the Alaska Wilderness League said in a statement on Wednesday.

(Editing by Muralikumar Anantharaman)

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