Platts: Federal Regulations “Sink” U.S. Arctic Drilling

October 26, 2015 in Blog

A recent Platts blog underscores yet again how federal regulations “help[ed] sink US Arctic drilling” – how bureaucratic red tape is not only crippling existing development plans, but is effectively sweeping the prospect of future exploration and drilling off the table.

The story recounted how the Deepwater Horizon oil spill made federal regulations governing Arctic drilling more stringent and more cost-prohibitive:

“But make no mistake — the ripples of Deepwater Horizon have been felt by the industry and can be clearly seen in the decision of Shell to abandon its offshore Alaska exploration as well as the canceling of Arctic lease sales for the remainder of the current US five-year leasing plan.

[…]

[Shell] made it clear that regulatory uncertainty as well as the safety requirements that forced it to spend millions of dollars and launch a flotilla of ships to drill only one well were also to blame.”

The safety equipment, processes, and mechanisms required of Shell included containment domes and a backup rig that could drill a relief well in the event of a blowout. In addition, Shell was prohibited from drilling two wells simultaneously. Because of these restrictions – or what House Natural Resources Committee head Rep. Rob Bishop (R-UT) called “regulatory hell” – it “became economically impossible to carry out a robust exploration program offshore Alaska.”

Other reporters, local Alaskans, industry representatives, and even anti-drilling activist groups have also acknowledged the role of a tough regulatory regime in hampering Arctic development.

Bloomberg:

“… In the end, an array of partial restrictions the administration imposed on Shell helped push the company to pull up its drill bit and head south.”

Rex Rock Sr., head of the Arctic Slope Regional Corporation, which represents 11,000 Native Alaskans:

“With this type of uncertainty, we will continue to see good opportunities slip away because no one wants to do business in Alaska.”

The National Ocean Industries Association, a trade association representing industries involved in offshore energy development:

“Due to Federal regulatory constraints, Shell was forced to put all their exploratory eggs in one basket, i.e., one well, rather than a suite of exploratory wells that would have given a more complete picture of potential resources.”

A representative for activist group Wilderness Society said she “would agree that there was a challenging environment,” and that these regulations “do make things a lot more expensive.”

The labyrinthine regulations imposed by the federal government makes clear that what Senator Lisa Murkowski (R-AK) called a “destructive pattern of hostility toward energy production” is no exaggeration. Not only did the Department of the Interior (DOI) cancel offshore Arctic lease sales planned for 2016 and 2017, but it is also proposing a new set of Arctic drilling regulations – as if to use the sheer power of costly regulations to ward off any potential interest in future federal offshore lease sales. No wonder Rep. Doug Lamborn (R-CO), chairman of the House Natural Resources subcommittee, said these rules “could significantly slow exploration and development and possibly curtail industry interest in future offshore lease sales that are currently scheduled.” Even a representative from DOI’s Bureau of Safety and Environmental Enforcement recognized the “heavier financial challenge” these proposed rules will inflict on oil and gas operators.

While the U.S. federal government has tasked itself with making the Byzantine system of Arctic drilling regulations ever more complex and intricate, other countries, from Russia, to Norway, to Italy, are actively pursuing oil and gas development in the Arctic, as Senator Murkowski said:

“Development in the Arctic is going to happen – if not here, then in Russia and Canada, and by non-Arctic nations. I personally believe that America should lead the way.”

Foregoing development in the Arctic will not only cost U.S. jobs, revenues, and energy security, but it will also be worse for the environment, as Senator Dan Sullivan (R-AK) explained:

“Now, countless jobs will be lost, American’s energy security will be diminished, and the Arctic environment will be degraded with the least environmentally responsible countries leading development. Make no mistake: Countries like Russia and China will continue to develop the Arctic’s natural resources, but will do so with little regard for the environment.”

As Arctic Energy Center has written before, the cost of prohibitive red tape and one-size-fits-all policies in the Arctic will be borne not only by oil and gas companies, but by all Americans – by Alaskans, who could have received jobs and revenues critical for the continued survival of their communities; by Americans nationwide, who could have enjoyed lower energy costs and a more secure energy future; and by future generations, who will have to contend with the environmental challenges of Arctic energy development pursued by countries that do not value environmental protection to the same degree as the United States.