In August, the Obama administration gave Royal Dutch Shell permission to start drilling preparations off the coast of Alaska. The Bureau of Safety and Environmental Enforcement (BSEE) gave the company the go-ahead for "certain limited preparatory activities" in the Chukchi Sea that include placement of a blowout prevention safety feature below the sea floor. Shell's drilling applications are still being reviewed and the BSEE's Director, James Watson, has stated that "Shell will not be authorized to drill into areas that may contain oil unless and until the required spill containment system is fully certified, inspected, and located in the Arctic".
As one would expect, environmental activists are not at all pleased. A Greenpeace executive commented "It is clear that drilling of any kind in the Arctic is just too dangerous. It is time for Shell and the Obama administration to start looking toward a renewable energy future rather than spending billions of dollars on dirty fossil fuels."
While Shell and other American energy companies will be working to meet the requirements of regulators and overcome the objections of environmentalists, there are other players who are making bold, swift moves towards actual drilling, unfettered by controversy and delays.
Russia is the world's largest crude oil and natural gas producing nation, with its oil volume exceeded only by OPEC and the Arab League, and has been making moves to solidify that position.
Their ambitions have prompted them to pursue deposits of natural gas and oil very aggressively. Not all their efforts have met with success, most notably the Shtokman field in the Barents Sea. Since 1988, a partnership between Russia's state-owned Gazprom and Norway's Statoil has been laboring to make the Shtokman field a viable producer. After huge losses, $345 million of which fell on Statoil, Gazprom announced yesterday (Aug. 30, 2012) that the operation was being suspended because of the high costs.
That failure hasn't discouraged Rosneft, the Russian energy giant that President Vladimir Putin merged with Gazprom in 2005, from taking bold steps forward in search of oil and gas. After signing deals with ExxonMobil and Italy's Eni, to develop reserves in the Okhotsk, Kara and Barents Seas, Rosneft has announced a new, additional partnership with Statoil to form four new joint ventures within the Arctic Circle. As usual, Rosneft will have a two-thirds interest in the projects and Statoil's share will be 33%, with Statoil covering all costs in the exploration phase, including a required program of six wells to be drilled in 2016-2021.
In 2007, Russian researchers made a bold move that went largely unreported and from a submarine, deep under the cold waters of the North Pole, they planted a Russian flag on the ocean floor. It was the beginning of their scheme to claim the vast riches of the Arctic as their own. While barely 800 miles of Alaska's coastline are within the Arctic Circle, Russia's shores within the Circle stretch for 10,000 miles (longer than the entire U.S. coastline, excluding Hawaii), so their ambitions are understandable.
Gazprom and Rosneft don't face much resistance from the residents of the Arctic peninsula within their borders. The 500,000+ inhabitants lead a fairly bleak existence, but are well aware of the wealth that oil drilling has brought to Alaskans across the water. To them, the arrival of companies looking for oil and gas means jobs and the prospect of a better life. Any objections based on environmental concerns will be softly voiced and few in number, so Gazprom and Rosneft can move ahead at full speed.
In stark contrast, America is taking a much more cautious and measured approach. The exploration and eventual drilling process will involve extraordinary measures in advance that are going to be complicated and costly for both the energy companies and the government.
Shell Oil will have a daily Boeing 737 shuttle service between Barrow and Anchorage to ferry personnel and its own helicopter service from Barrow to the drilling sites. The infrastructure costs will be massive. Those costs come on top the expense of the actual preparation for drilling, the lease payments and regulatory fees, and the expense of fighting rabid environmentalists in the courts.
The United States Coast Guard has already begun a pilot project named "Arctic Shield" that covers both search and rescue responsibilities as well as disaster response and maritime safety enforcement. The first phase includes two Coast Guard cutters and two smaller vessels. Also in place is a pair of Coast Guard H-60 helicopters. The government rents the only hanger available to house the helicopters for an astonishing $60,000 per month! More than two dozen pilots and their support crews, mechanics and communications personnel, rotate through Barrow every 21 days. In total, Arctic Shield could easily cost the American taxpayer a million dollars a month!
America and Shell will eventually get a share of the Arctic's oil and gas riches, but it won't come cheap, and by that time the Russians, Norwegians and others will already have staked their claims and be producing profits.
