Company News

BP spill spurs fears over Shell Oil's Arctic plans

* Shell Oil plans to drill off Alaskan coast in July

* Environmental groups question ability to clean up spills

* Shell chief cites lessons from BP’s Gulf of Mexico case

WASHINGTON/ANCHORAGE, May 19 (Reuters) - Shell Oil RDSa.L says it plans to drill exploratory wells off Alaska this summer in a "safe and environmentally responsible" way, but the troubled BP BP.L operation in the Gulf of Mexico raises concerns about how such a cleanup would work in hostile Arctic conditions.

The fatal April 20 blowout at BP’s Deepwater Horizon rig off the Gulf Coast prompted the U.S. Minerals Management Service to ask for assurances from Shell that it would be able to handle an oil spill in the Chukchi and Beaufort Seas, where the company has paid $3.5 billion for oil leases and plans to begin exploring in July.

Environmental groups in Alaska have urged the U.S. government to postpone Shell’s exploratory drilling until questions are answered about how they would deal with a blowout or oil spill. They say an Arctic spill could foul the habitat of polar bears, a threatened species whose sea-ice hunting grounds are melting due to climate change.

U.S. Interior Secretary Ken Salazar has said no new offshore drilling permits will be issued until a government panel issues a safety report on the BP spill, due May 28.

On Wednesday, a coalition of environmental groups ran a full page ad in The Washington Post and The New York Times urging readers to call the White House to object to the prospect of Shell’s offshore drilling in the Arctic.

Shell’s president, Marvin Odom, acknowledged “the tragedy of the Gulf of Mexico blowout and oil spill” and said his company had learned from it. “We have already begun to enhance our operational excellence in light of this incident and we will continuously make adjustments as new learnings are revealed,” he said.

In a May 14 letter responding to MMS chief Elizabeth Birnbaum’s concerns, Odom said Shell planned to drill in shallower water -- some 150 feet (46 meters) deep as compared to the 5,000-foot (1.5 km) depth of BP’s wellhead in the Gulf of Mexico -- and under much less well pressure.

“Our biggest safety advantage is the water depth that will allow us to detect and respond to an event quickly and appropriately,” he wrote.

Odom said Shell would be ready with “oil spill response assets in one hour,” and said the colder, more viscous water of the Arctic would “provide greater opportunities to recover oil.”


The Pew Environment Group’s Arctic Program disputed these statements, saying that the nearest cleanup vessels, equipment and personnel were based in Barrow, Alaska, 100 miles (161 km) from the Chukchi Sea lease sites, too far to deploy quickly.

Pew’s Marilyn Heiman noted that Shell had said a blowout like the Deepwater Horizon’s would be highly unlikely in the Chukchi Sea because such accidents are “extremely rare” in such shallow water.

Heiman cited a 2007 MMS study that found 19 of the 39 offshore blowouts that occurred between 1992 and 2006 happened in water less than 200 feet (61 metres) deep.

“Basic questions remain about Shell’s ability to respond to any significant sized oil spill in Arctic waters,” Heiman said. “MMS should suspend offshore lease operations in the Arctic until these issues are addressed. It would be irresponsible to move forward.”

Postponing Shell’s exploratory offshore drilling, possibly for another year, would be a “huge setback for the Alaskan economy,” according to Jason Brune, executive director of the Resource Development Council for Alaska. Brune said risks were evaluated before the leases were sold.

Alaska’s congressional delegates also favored Shell’s plans. Democratic Senator Mark Begich told a Chamber of Commerce forum on Monday that Shell is responding adequately to the MMS request for more information.

“It’s an effort to show that we can do this development the right way up here,” Begich said. “We’ve done it. We’ve worked in extreme conditions and have had OCS (outer continental shelf) development.”

“Just because it’s difficult doesn’t mean we pull back in any way,” said Senator Lisa Murkowski at the same forum.

There has never been any major commercial oil production from federal offshore territory in Alaska, and the state would get no royalties or tax revenue from Shell’s offshore development. The only all-offshore oil operation in federal waters off Alaska is being developed by BP.

Alaskan leaders maintain new oil production in federal waters is needed to keep the trans-Alaska oil pipeline in business. Oil flow through this pipeline from Alaska’s North Slope is down to about one-third of its peak level of 2 million barrels reached in 1988.

Editing by Doina Chiacu