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U.S. Finalizes Arctic Drilling Rule

Arctic drilling

By MarEx 2016-07-07 20:33:59

The U.S. Department of Interior has unveiled its final regulations on drilling in the U.S. Arctic outer continental shelf. The rules set safety standards for exploratory drilling in Alaska's Beaufort and Chukchi Seas.

"The rules help ensure that any exploratory drilling operations in this highly challenging environment will be conducted in a safe and environmentally responsible manner, while protecting the marine, coastal and human environments, and Alaska Natives' cultural traditions and access to subsistence resources," said Janice Schneider, the Interior Department's assistant secretary for land and minerals management.

The rules are a key part of the Obama administration's strategy for energy development in the Arctic region, Schneider said.

The regulations require companies to have access to – and the ability to promptly deploy – source control and containment equipment, such as capping stacks and containment domes, while drilling below or working below the surface casing.

Operators also must have access to a separate relief rig able to drill a timely relief well under the conditions expected at the site in the event of a loss of well control; have the capability to predict, track, report, and respond to ice conditions and adverse weather events; effectively manage and oversee contractors; and develop and implement an Oil Spill Response Plan designed and executed in a manner that accounts for the unique Arctic outer continental shelf operating environment, and is supported with the necessary equipment, training, and personnel for oil spill response on the Arctic outer continental shelf. 

The Interior Department's environmental enforcement director, Brian Salerno, said the rules were developed to address issues identified after Shell's 2012 rig accident where Kulluk broke free whilst being towed in heavy weather of Alaska and ran aground.

"This rulemaking seeks to ensure that operators prepare for and conduct these operations in a manner that drives down risks and protects both offshore personnel and the pristine Arctic environment," Salerno said.

Kristen Miller, conservation director of the Alaska Wilderness League, said the Interior Department released "minimum regulations" - a first step that needs to be further strengthened.

National environmental groups went further and said the Interior Department should not allow any drilling in the Arctic. Rachel Richardson of Environment America said: "The only 'safe' form of drilling for the Arctic and the climate is none at all."

API

But industry groups like the American Petroleum Institute (API) have reacted saying the regulation is the latest attempt by the Obama administration to stifle offshore energy development. API Upstream and Industry Operations Director Erik Milito said: “Certain proposed requirements may not improve safety and in fact may inhibit innovation and technological advancements. Any regulations that are published should achieve the objectives of protecting workers and the environment and promoting energy development.”

The National Petroleum Council, at the request of the Secretary of Energy, released a report in 2015 that concluded that oil and natural gas “exploration and development in the Arctic is extensively regulated … Progressing offshore development in the Arctic would require around 60 permit types through 10 federal agencies. 

“Regulations should be adaptive to reflect advances in technology and ecological research, and achieve an acceptable balance considering safety, environmental stewardship, economic viability, energy security and compatibility with the interests of local communities. Prescriptive regulation may inhibit the development of new, improved technologies by suppressing the potential opportunity that drives advancement.

“America’s energy resurgence is a once-in-a-generation opportunity that has put this country on a path toward economic growth, consumer benefits, environmental progress and a more secure energy future,” said Milito. 

“When combined with the vision put forward by the next five-year leasing program now being written by the Bureau of Ocean Energy Management, this administration has already fallen short of creating opportunities for new jobs, while also erasing millions in revenue to the government. Expanding offshore development is integral to the safe and responsible path for securing the domestic energy supplies future generations of Americans demand.”

NOIA

NOIA President Randall Luthi spoke of a thread of hope: “Given current market conditions and the President’s apparent sway to environmental groups opposed to any exploration in the Arctic, the release of the Arctic rule provides a thread of hope for Alaska residents and U.S. consumers that an Arctic oil and gas program will move forward as the Department of the Interior finalizes the 2017-2022 Five Year Leasing Plan.  However, beyond that hope, the rule may not provide much optimism to the offshore industry other than finally knowing the regulatory requirements.

“Despite taking years to write, the rule does not accurately reflect current industry capabilities and includes unnecessary requirements, such as same season relief wells, which may not be needed due to the availability of new response and containment equipment,” he said. 

“The offshore industry has shown that oil and natural gas development can be done safely in Arctic conditions. Even as we review the provisions of this rule, other countries, including Canada, Greenland, Russia and Norway, are already taking steps to explore and develop Arctic outer continental shelf resources.”

Consumer Energy Alliance

“In recent years, due in large part to bureaucratic red tape and a convoluted and ever-changing federal regulatory landscape associated with offshore energy development in the U.S. Arctic, Alaska has seen its economic and energy future darken in a hurry – and so has America,” says Consumer Energy Alliance President David Holt.

“With an estimated 23.6 billion barrels and 104.4 trillion cubic feet of undiscovered technically recoverable oil and natural gas, the development of which could create 54,700 jobs nationwide, $145 billion in cumulative payroll, and $193 billion in public revenue, the U.S. Arctic offshore is a critical component of the nation’s energy portfolio. 

“Rather than cede opportunities in the Arctic to foreign adversaries, the federal government must create a regulatory environment that enables responsible U.S. Arctic energy development through common-sense regulations and include the U.S. Arctic’s Beaufort and Chukchi in the final 2017-2022 leasing program without any further exclusions or restrictions.”

Oil and gas exploration in the U.S. Arctic has been limited. Last year, Royal Dutch Shell pulled the plug on its Arctic oil exploration plans after failing to find enough crude oil, despite getting permission from the United States to drill. The company had spent $7 billion exploring in the waters off Alaska's coast.

The rule is available here.