Feds Unleash New Arctic Offshore Drilling Regulations

(REUTERS/Sergei Karpukhin/Files )

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Michael Bastasch DCNF Managing Editor
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As Americans hurried home to avoid last weekend’s snowstorm, the Obama administration unveiled new regulations that, for the first time, propose strict mandates on drilling for oil in the Arctic Ocean.

The administration’s proposed Arctic offshore drilling rule will cost $1.2 billion — the most expensive provision being a requirement that oil companies keep backup rigs ready to dig relief wells if there’s a spill. The rule comes as the Obama administration has been making parts of the Arctic Ocean off-limits to oil drilling.

The oil industry has criticized the rule, saying that while it brings some certainty, it is costly and could stymie U.S. drilling in the Arctic at a time when countries like Russia, Canada and Norway continue to drill or plan on drilling more.

“Is America ready to be a leader in the Arctic for generations to come and what do we want our legacy to be?” Randall Luthi, president of the National Ocean Industries Association, said. “Will we continue to lag behind other countries such as Russia, Canada and Norway, all countries that have drilled or plan to explore Arctic waters?”

“Rules that take years to make tend not to reflect the best and newest technology being developed and used by industry on a daily basis,” Luthi said.

The Obama administration recently released its 5-year lease plan for offshore drilling. The plan included three lease sales in the Arctic and one in the Mid-Atlantic where oil companies have been looking to drill for some time. But Obama’s 5-year plan keeps 90 percent of the U.S. outer continental shelf off-limits to drilling.

Regulators have also kept portions of the Chukchi and Beaufort seas off-limits to drilling. There is also the worry that down the line, the government could cancel its Arctic lease sales, especially in the face of low oil prices and potentially higher regulatory costs.

But Obama administration officials say that more regulations are needed for the Arctic drilling because of how remote drillers are compared to places like the Gulf of Mexico. Regulators also use severe Arctic weather to justify more rules.

“The Arctic outer continental shelf isn’t like the Gulf of Mexico, where generally mild weather conditions and an established industry presence have created an extensive infrastructure and logistical support and allow for nearly year-round operations,” said Abigail Hopper, director of the Bureau of Ocean Energy Management. “Instead, the Chukchi Sea and Beaufort Sea … are incredibly remote, vastly underdeveloped and subject to extreme geophysical conditions.”

Environmental groups have increased their calls for more regulations or even bans on Arctic drilling after an offshore rig owned by Royal Dutch Shell was run aground during a severe storm off the Alaskan coast.

“Even with new standards, the chances of an oil spill are high, as is the threat to our climate if we fail to heed scientists’ warnings to keep these dirty fuels in the ground,” said Dan Ritzman, a director with the Sierra Club. “The only way to fully protect the Arctic’s amazing wildlife, the people who depend on them and our climate from dirty fuels drilling is not to allow any oil and gas drilling in the Arctic Ocean.”

Royal Dutch Shell, however, plans on restarting its Arctic drilling program this year. The company says it will spend $1 billion exploring for oil drilling sites off the Alaskan coast. Shell has already spent $6 billion looking for oil in the Arctic, but the grounding of a drilling rig and environmentalist legal challenges have sidelined its polar ambitions.

“We are minded to drill this year in the Chukchi,” Ben van Beurden, CEO of Royal Dutch Shell, told reporters. “We have kept all our capability in place, tuned it, upgraded it just to be ready to drill this coming summer season,” he said.

But new Obama administration rules could dramatically increase Shell’s future drilling costs. A report by Shell from last year found that Interior Department rules mandating backup rigs in case of oil spills would cost the company $3.2 billion over the 20 year well exploration and appraisal process, but only yield $791 million in benefits.

“The relatively minor benefits associated with a [rig] requirement are due in part to the low probability of a well blowout in the shallow exploration and appraisal wells being pursued in the U.S. Arctic,” Shell said in its report.

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