Mounting Oil & Gas Regulations Exacerbate Arctic Infrastructural Challenges

October 28, 2015 in Blog

Mounting Oil & Gas Regulations Exacerbate Arctic Infrastructural Challenges

The ever-expanding maze of federal regulations hampering Arctic oil and gas exploration and production can now count Arctic infrastructural development in its growing pool of victims: The U.S. Army Corps of Engineers (Corps) announced that it was postponing its efforts to study the creation of America’s first deep-water port in the Arctic following Shell’s decision to withdraw from the Arctic. Because Shell’s departure signified a lesser degree of oil and gas activity in the Arctic, lessened, too, is the “federal interest in continuing the study,” the Corps explained.

As Arctic Energy Center has spotlighted before, the significance of Arctic drilling extends beyond just oil and gas development. By operating in the Arctic, oil and gas companies bring infrastructure, resources, and capabilities with them to the Arctic that also benefit local communities, regional security, and search-and-rescue efforts. Case in point: Last week, a Shell vessel, en route to Seattle following the conclusion of this year’s Arctic drilling season, rescued a man and his cat, whose disabled sailboat left them stranded in choppy Arctic waters.

But as other countries continually increase their presence in the Arctic, oil and gas development also offers a tangible justification for the federal government to build critically-needed infrastructure in the region. In the end, crippling oil and gas development in the Arctic carries adverse implications for other sectors of the Alaskan economy, for U.S. foreign policy, and for local Alaskans.

Army Corps of Engineers Postpones Port Study

In Monday’s announcement, the Corps, a federal agency under the Department of Defense responsible for building and maintaining national infrastructure, cited Shell’s decision to stop exploratory drilling in the Arctic as the primary contributing reason for putting a hold on studying the feasibility of a deep-water port.

Pausing the feasibility study represents a setback in the quest to bulk up much-needed American infrastructure in the Arctic. A Corps draft report, published in February this year, outlined the pressing need to build a deep-water port in the Arctic as marine traffic through Arctic waters continues to grow:

“The Arctic is changing: open water season is expanding, and more marine traffic is transiting favorable shipping routes between Asia and Europe in Arctic waters. Increased Arctic petroleum development activities require supply and support operations from vessels based 1,000 miles (1,852 kilometers) south of drilling grounds. … Increased deep-draft vessel traffic in the Arctic, coupled with limited marine infrastructure along Alaska’s western and northern shores, poses risks for accidents and incidents and increases response times for search and rescue operations. It hinders development of future commercial navigation through the Northern passages and leads to operational inefficiencies.”

Beyond meeting the needs delineated above, the report also described the potential benefits of such a port, including boosting local and regional economic development, improving international relationships, and increasing U.S. exports:

“Enhancing port infrastructure – including deep-draft port facilities currently unavailable north of Unalaska/Dutch Harbor – would meet the State’s goal of encouraging economic development in remote areas. It would provide local and regional economic development opportunities (resource extraction, tourism, research); decrease Arctic region operating costs; provide protected dockage to support offshore oil and gas endeavors, fishing fleet, and resource extraction vessels; and provide vessel repair and maintenance support. It would improve international relationships and increase U.S. exports, optimize the aforementioned benefits while preserving natural resources; raise awareness of U.S. as an Arctic nation; and provide upland support to vessels operating in the region (fuel, water, electricity, food, medical, storage, laydown/staging for resource extraction).”

As the Corps explained, the oil and gas industry is just one of many economic sectors that would benefit from a U.S. deep-water port. Indeed, these benefits explain why Russia already had 16 deep-water ports in the Arctic in 2013. Yet, as the Corps’ announcement readily demonstrates, the increasingly burdensome regulations that are discouraging Arctic oil and gas development affect not only the energy sector, but also a host of businesses and industries – and people – that depend on a more robust infrastructural system in the Arctic.

Limited Emergency, Search-And-Rescue Capabilities

The inadequacy of U.S. emergency response resources is made abundantly obvious through Shell’s rescue of a mariner the previous week. After losing its steering mechanism about 400 miles south of Cold Bay, Alaska, a Frenchman’s 30-foot sailboat was “pretty much dead in the water” and “getting pretty well thrown around” in heavy seas and 46-mph winds, according to the Coast Guard. The Coast Guard contacted the Polar Pioneer, an oil drilling vessel Shell had been using off Alaska’s northwest coast this summer, which sent a support ship, the Tor Viking, to rescue the sailor. The sailor, with his cat tucked inside his jacket, leapt safely to the Tor Viking.

As local Alaskan newspaper the Ketchikan Daily News recognized in an editorial, it “isn’t just about Arctic drilling in Alaska”:

“As in many situations when the potential hero shows up, it is a matter of being at the right place at the appropriate time. Shell’s vessels certainly were in this case; the Alaska seas aren’t a super highway where if one vessel won’t go out of its way maybe the next one will.

But still a hero becomes one, despite the timing, by acting accordingly. Shell crews aboard the Polar Pioneer and Tor Viking did that. They chose to go to the rescue.

Shell isn’t just about Arctic drilling in Alaska. It’s about people doing what it takes to survive and helping others — even a cat — to do the same.”

Tor Viking’s rescue mission last week was not its first. Former Unalaska/Dutch Harbor Mayor Paul Fuhs recounted:

“For instance, Shell’s substantial support vessels are some of the only emergency response assets we have in the Arctic now, not just for Shell’s operation but also for vessels on the Northern Sea Route. Just a couple of years ago, an international vessel called the Golden Sea lost power and was in imminent danger of running aground and causing an oil spill. Shell was contacted and they voluntarily released their icebreaking support vessel Tor Viking to go rescue that ship and tow it to safe harbor in Unalaska where it could be repaired.”

That Shell’s vessels were close enough to provide assistance was fortuitous, for U.S. emergency response capabilities in the Arctic are precariously limited. The Corps report cited above pointed out that the U.S. Coast Guard station located closest to the Chukchi Sea is 800 air miles away, that Coast Guard activity is “limited to small vessels and helicopters,” and that such limitations “lead to unacceptably long response times on calls for assistance” – about seven days.  Reggie Joule, mayor of the Northwest Arctic Borough, said:

“We are all pretty aware that the Coast Guard in Alaska is pretty challenged in terms of how they are resourced.”

An Alaska Dispatch News article described Joule’s concerns about the new challenges the region now faces following Shell’s exit from the Arctic:

“Some 30 Shell ships this summer provided an added measure of safety that will be gone next year, but international traffic is expected to continue rising even in the oil giant’s absence, said Reggie Joule, mayor of the Northwest Arctic Borough.

Without Shell, the region is more at risk of a dangerous oil spill or a life-threatening tragedy at sea, he argued.”

Inadequate Infrastructure and Equipment

The need for more infrastructure in the Arctic has been highlighted in numerous occasions, especially as the receding of the Arctic ice affords greater access to the region than ever before.

A Foreign Affairs article observed that the thawing of the Arctic is “turning what has traditionally been an impassible body of water ringed by remote wilderness into something dramatically different: an emerging epicenter of industry and trade akin to the Mediterranean Sea,” such that the region “stands to become a central passageway for global maritime transportation, just as it already is for aviation.” Council on Foreign Relations, a think tank specializing in international affairs, wrote in a report that the melting sea ice is “generating an emerging Arctic economy” by encouraging shipping, fishing, energy and mineral production, scientific research, and tourism. Next summer, a 1,200-passenger cruise ship is expected to cross the Northwest Passage, a sea route that connects the northern Atlantic and Pacific Oceans through the Arctic Ocean.

Yet, despite increased human activity in the Arctic, U.S. infrastructure in the region falls alarmingly short. In the words of Nome Mayor Denise Michels:

“The U.S. is still behind on Arctic infrastructure. … In fact, there’s more of a pressing need to move forward because the global community is moving forward.”

The Arctic Council, an intergovernmental forum composed of Arctic countries, tasked its Canadian, Finnish, and American members with assessing the state of Arctic marine shipping and its potential impacts on humans and the Arctic marine environment. The resulting report concluded that the “insufficient infrastructure” in the region included “critical infrastructure components”:

“Currently, vast areas of the Arctic have insufficient infrastructure to support safe marine shipping and respond to marine incidents in the Arctic. This includes such critical infrastructure components as the accuracy and availability of timely information needed for safe navigation; availability of search and rescue assets, pollution response assets and supporting shoreside infrastructure to respond appropriately to marine incidents; port reception facilities for ship-generated waste; and availability of deepwater ports, places of refuge and salvage resources for vessels in distress. While there are notable exceptions, where infrastructure is more developed, they are the exception rather than the rule.”

The state of U.S. Arctic infrastructure is, unfortunately, the rule rather than the exception – take icebreakers for example. As the Congressional Research Service explained, icebreakers are needed to support scientific research missions, defend U.S. sovereignty and economic resources, monitor sea traffic, and conduct search-and-rescue and law enforcement missions in the Arctic – and, in the case of Shell’s Fennica, to support offshore drilling vessels and equipment.

The United States’ current operational polar icebreaking fleet, however, consists of only one heavy icebreaker and one medium icebreaker. Other countries, by comparison, are much better equipped: Russia, for example, currently has 30, and even China, which isn’t an Arctic country, has two. But even after the Department of Homeland Security’s 2013 Mission Need Statement advised a tripling of America’s operational fleet in order to “adequately meet mission demands in the high latitudes,” Congress cut funding for the design and fabrication of an icebreaker in the 2014 budget, and then again in its proposed 2016 budget, by 73% and 81%, respectively.

At a time when the process of commissioning, funding, and successfully expanding national Arctic capabilities is mired in red tape and political logjam, the infrastructure and resources used to support oil and gas operations could help with the U.S. Arctic resource inadequacies that are becoming increasingly glaring.

Oil and Gas Equipment Filling Infrastructural Gaps

Ships and drilling vessels – and Shell’s flotilla this season consisted of about 30 vessels – represent only one of the many infrastructural components needed for offshore development. Just the exploration phase alone calls for ports, airfields, power supply, and communication networks. Shell even overhauled a helicopter hangar in Barrow for search-and-rescue purposes.

A report by the National Petroleum Council (NPC) noted that oil and gas infrastructure could help meet the needs of local communities, the State of Alaska, and U.S. Armed Forces:

“There are many synergies between the types of infrastructure that would facilitate Arctic oil and gas exploration and development and the infrastructure needs of local communities, the state of Alaska, and elements of the U.S. Forces such as the Coast Guard and Navy…The Coast Guard and Navy, which play key roles in areas of safety, search and rescue, and national defense, are subject to many of the same resupply and support requirements in the Arctic as the oil and gas industry.”

As an example, Fuhs explained that Arctic oil development would facilitate the construction of ports that would also serve local communities:

“If Shell’s exploration program is successful and they proceed to full field development, the onshore port services that will be needed will be the financial impetus for finally building the Arctic ports we have been talking about. This would also improve the efficiency of shipping for Arctic communities and reduce their cost of living along with providing facilities for emergency response for vessel traffic in the Bering Strait.”

Oil and Gas Supporting Local Infrastructure

In addition to directly expanding resources in the Arctic, oil and gas companies indirectly support the infrastructure needs of local communities through tax revenues, which amounted to 92% of the State of Alaska’s tax revenues in 2013. Revenues would increase along with production: Developing Alaska’s offshore continental shelf areas is estimated to generate $15 billion in potential revenues to the State of Alaska and $4 billion in property taxes to local governments over a 50-year period.

Jacob Adams Sr., chief administrative officer for the North Slope Borough, explained that the money received by the borough for every barrel of oil that passes through the region is used to meet the basic needs of Alaskan communities:

“We build schools, water and sewer systems, roads, and heath clinics in every village on the North Slope. … Our village economies are fairly dependent on oil production and exploration.”

Tara Sweeney, executive vice president of external affairs for the Arctic Slope Regional Corporation, elaborated on the implications of ending Arctic oil development – namely, that such a move would cut off the money needed by North Slope communities to operate their infrastructure and schools. Her colleague Richard Glenn testified to that effect in Congress:

“With reduced onshore production, local governments may find it more difficult to build and repair critical infrastructure improvements and maintain important social, health and educational programs that many Lower 48 communities take for granted. We are talking about running water, flush toilets, reliable power, local landfills and K-12 education.”

After Alaskan oil production halved over a 14-year period, local Alaskans are eager for oil and gas companies to return, as evident in their strong support Arctic offshore development – and their sense of loss and devastation after Shell decided to suspend its Arctic program.

The federal government dealt Alaskans another crushing blow when it cancelled Arctic offshore lease sales in 2016 and 2017, making the outlook of Arctic infrastructure improvements decidedly bleaker. Kara Moriarty of the Alaska Oil and Gas Association said that without the oil and gas industry, “the opportunity for Arctic residents to develop ports, search and rescue operations, and infrastructure is now much more difficult.” By taking Arctic offshore development off the table, the federal government is robbing Alaskans – and cats passing through Alaska – of the opportunity to benefit from a safer Arctic.

In Short

The Corps’ decision to postpone work on America’s first deep-water port in the Arctic once again demonstrates that the federal government, by discouraging Arctic oil and gas development through a series of onerous regulations, is also impeding the construction of urgently-needed infrastructure in the Arctic. Senator Lisa Murkowski (R-AK), responding to the Corps’ announcement, said it was “disheartening” to see the impacts of reduced oil and gas activity “continue to ripple throughout Alaska.” Even more disheartening is witnessing the federal government exercise its regulatory powers with little regard for the wide-ranging businesses, industries, and people that would suffer as a result.