One Company Stands to Win in 'Big Oil' Tradeoff
The Obama administration so far has stymied big oil’s efforts to move on the controversial Keystone XL pipeline, but the trade-off is a sure victory for Shell in the Alaskan Arctic.
Unless environmental groups come up with a last-minute game-changing maneuver, Shell will begin test-drilling in the Alaskan Arctic in July, much to the dismay of Native Alaskans, who are concerned about the implications to the northern coast’s wildlife and shorelines.
Speaking at the Norway Arctic Roundtable on June 26, Secretary of the Interior Ken Salazar stated: “Many of you know that we are currently in the final stages of a rigorous review of Shell’s proposal to drill exploratory wells in the Beaufort and Chukchi Seas this summer. If Shell meets our standards and passes our inspections, its exploration activities will be conducted under the closest oversight and most rigorous safety standards ever implemented.”
This statement is diplomatic fluff for what is already a done deal. Shell is already preparing to install two exploration wells in the Chukchi Sea and the Beaufort Sea.
Shell has been relentless, as always, spending some $4 billion in lobbying for Alaskan Arctic drilling. The Obama administration has also been relentless, and Shell’s ride to the Arctic has not been a free one in terms of intangible costs. The company has had to pay lip service to the climate change crew.
Obama’s Arctic gamble, however, is a risky one. In 2010, as a direct response to BP's devastating spill in the Gulf of Mexico, a presidential moratorium was issued on new offshore oil and gas leases. Another BP-style oil spill would be devastating environmentally and politically, but it will not happen on his watch.
At the Norway Arctic Roundtable, Salazar also announced the “Five Year Outer Continental Shelf Oil and Gas Leasing Program.” The leases will open for the Chukchi Sea in 2016 and Beaufort Sea in 2017. Between now and the opening of the leases, industrial opportunities and environmental concerns will be evaluated and addressed. The aim is to use that time to determine which areas have the highest potential for oil and gas development, and which areas are the most environmentally and culturally sensitive.
While the lease program offers a five-year period of evaluation and as such is to some extent welcomed by environmental groups, there is still much criticism due to the fact that development of oil in the Arctic is still a relative unknown. Even the National Oil Commission has expressed its uncertainty, noting that the Alaskan Coast Guard, for instance, does not have the capacity to respond to a major oil spill. This inadequacy is not likely to be addressed sufficiently by 2016.
In the words of Betsy Beardsley, director of the Environmental Justice Program at the Alaska Wilderness League, in a commentary in Forbes, Shell “is hoping to drill in waters home to the bowhead whale, walrus, ice seals and numerous other species that are the foundation of the Inupiat livelihood and culture. If Shell moves forward with plans to drill exploratory wells this summer, the oil giant risks an oil spill in the Arctic’s extreme conditions without the resources, knowledge or infrastructure to clean it up.”
Proponents of Shell’s Alaska adventure and the five-year-plan lease program argue that the risk is worth it, and we should trust Shell because, as Beardsley puts it, the company has made “concessions”—i.e., it has broken ranks with other oil giants to jump on board the climate change cause publicly. (Beardsley would also remind us of Shell’s track record in the Niger Delta.)
Alaska is believed to hold the most undiscovered oil in the Arctic, and for the Alaskan economy, Shell’s endeavor will be good news. The petroleum industry is responsible for over 30 percent of all jobs in Alaska, and 90 percent of state revenue. According to the U.S. Geological Survey, the Arctic sea floor has 13 percent of the world's undiscovered "conventional" oil reserves and 30 percent of undiscovered natural-gas reserves.
Writing for Forbes, author Bob Reiss, who is working hard to sell his latest book on the subject, opines that “Alaska’s land-based supply is drying up. The pipeline runs one-third full. For America that means greater foreign dependence.”
Dramatically, Reiss notes that “Alaska was so important to U.S. energy interests then that when one state official ordered the operation theoretically "shut down" during a disaster drill in 1994, he instantly heard from the U.S. energy Secretary in Washington, warning that national supply would suffer. Open it fast, he was told.”
We can get pedantic here, if we must. While the Alaska pipeline is not running at full capacity, this means “greater” dependence on foreign oil. Fine. Certainly, it does mean “greater” dependence, but the point here was to be dramatic.
The truth is that Alaska’s contribution to the U.S. oil and gas industry is not as significant as it is made out to be, and certainly does not compare to the Gulf of Mexico region, which provides just under 30 percent of total U.S. crude production and is home to over 40 percent of total U.S. refining capacity. While Texas represents 20 percent of U.S. employment in the oil and gas industry, Alaska represents less than 1 percent.
Gregory Kallenberg, director of the Rational Middle Energy Series of short films presented recently at the 2012 Aspen Ideas Festival, was quoted by an article in the Atlantic as saying: "Innovation and the way forward really exists in a place that does not exist on the polarized sides. It's the people in the middle that understand that you've got to make a compromise, you've got to put everything on the table, you have to move forward in a rational, sensible, affordable and sustainable way."
Rationality is, of course, ideal, while polarization is generally the reality. In this respect, Kallenberg’s statement is very much appreciated. But this then requires defining exactly where the “rational middle” is—and the process is rather subjective.
Among Alaska’s Inupiat who live closest to the proposed drilling, the project continues to generate tension and debate. Although they depend on oil production for jobs and tax revenue, they rely on the ocean for much of their food and culture.
The Inupiat are rational. Drilling will eventually proceed and it will benefit Alaska’s economy and contribute to America’s energy independence somewhere down the road. But five years is not the “rational middle”; it’s not enough time to determine and prepare for the implications of large-scale Alaskan Arctic development.
In political terms, Obama certainly has found the rational middle, balancing big oil and environmentalists adeptly, standing tough on TransCanada's Keystone while at the same time green-lighting Shell’s Alaskan endeavors. In this political rational middle, Mitt Romney will no longer be able to accuse the incumbent of being “anti-drilling.” So this is one for the polls.
—This story originally appeared on Oilprice.com.