The company's Kulluk oil rig, which ran aground in the Gulf of Alaska on New Year's Eve, still needs to be transported to Dutch Harbor in the Aleutian Islands before it can begin its journey to an Asian shipyard for repairs. The Noble Discoverer drillship, Shell's second rig, is even more troubled. A few days ago, the Coast Guard referred its investigation into violations onboard the ship to the Department of Justice for potential prosecution.
It's been a rough week for the oil industry, overall. The energy news is all about the BP oil spill trial, opposition to the Keystone XL pipeline, and investigations into Shell's drilling program. The stories share some DNA. In recent years, we've seen increasing focus on hard-to-get oil, crude that you can't extract from shallow water or from easy-to-access wells in the desert. That's why we have deep-water drilling, rising output from the oil sands of Alberta, and exploration in the Arctic Ocean: The age of easy oil is waning. These alternative sources of oil are resulting in growing production and even faster-rising estimates of domestic fossil fuel reserves. They are a big part of the future. But the technical difficulties and environmental impacts are becoming increasingly clear.
Of all those case studies of hard-to-get oil, Shell's may be the most surprising. It's simply astonishing that one of the biggest companies in the world could spend nearly $5 billion and the better part of a decade working in the region without completing a single exploratory well. Industry advocates have voiced legitimate complaints about the sometimes byzantine regulatory process, but none of that explains Shell's missteps in 2012, after its permits were essentially all in place. To cite just the most memorable problems: A barge meant to carry oil-spill response equipment had trouble passing CoastGuard inspections, and the equipment itself buckled during testing in the calm waters of Puget Sound. The Kulluk ran aground south of Anchorage once the season had ended. And then there's the Discoverer.
Last fall, when I was on the North Slope to visit the Kulluk for several days, I met a Discoverer worker who said that exploring the drillship's engine room, with its 1960s Mitsubishi engine that they dubbed Big Green, was like going into a museum. A number of the problems cited by the Coast Guard relate to the engine room and the exhaust system. The list includes such seemingly elementary mistakes as exposed wiring and this:
6. Exhaust system back-fires on regular basis. Chief engineer suspects this is due to change to exhaust system in order to accommodate helicopter deck installation. As a result of back-fires (one of which resulted in a stack fire recently),main propulsion machinery and all auxiliary machinery essential to the propulsion and safety of the unit may be compromised. (IMO MODU Code 1979 7.1.3)Massachusetts Rep. Ed Markey, who sits on the House Natural Resources Committee,and a number of environmental groups have been calling for a review of Arctic Ocean oil exploration rules. Meanwhile, several other companies, including ConocoPhillips and Statoil, hold offshore leases in the region and have been planning to drill in the next three years. And the Department of the Interior has made public its intention to hold more lease sales in the Arctic Ocean. In light of the multiple investigations going on right now, at least some of those plans seem likely to change.
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