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Hub-bub over Shell’s drilling plans for the off-shore US Arctic

OPINION OF A REGULAR CONTRIBUTOR

John,

Permit me an observation about the very public hub-bub over Shell’s drilling plans for the off-shore US Arctic this summer.

Shell plans to drill in the US off-shore Arctic have been bitterly contested in the media, the courts, and the halls of Congress. Shell has apparently managed to overcome the technical and political obstacles and will be permitted to drill this summer, weather permitting. Given all the attention that will be focused on these exploratory drilling operations it is unlikely that there will be any sort of major ‘problem’ during drilling operations. It is also highly likely that these exploratory test wells will be successful and that the battle over oil production from off-shore US Arctic will move into its next phase.

What will that next phase be? Aside from the design of production platforms, the next very serious BIG hurdle that Shell will have to overcome will be how to transport produced oil to market, and to a lesser extent, what to do with the associated produced gas and gas liquids. The natural gas can be handled by simply re-injecting it into the production reservoir, so that is not a difficult problem to deal with. However, Shell will probably want to build a pipeline from production platforms to onshore facilities and then connect with the already existing Trans-Alaska pipeline for shipment south to Valdez.

The technical problem Shell will face will be designing such a pipeline so that the possibility of spills is virtually eliminated. That will be a first. ALL major pipelines in operation today have suffered leaks from one cause or another. Designing a ‘leak proof’ pipeline will be an impossibility. And there are major natural hurdles to overcome as well. Along with the serious engineering issues involved come a number of serious environmental issues that will need to be dealt with, and Shell mostly probably will not be able to eliminate or mitigate them all.

I do not see Shell overcoming this particular hurdle anytime soon, and by soon I mean in the next decade. In fact, it is not at all certain that Shell will be able to obtain permits to build any such pipeline. Given all the associated long term operational risks and hazards associated with such a pipeline it is a sure bet that applications for such a pipeline/s will be bitterly contested in the courts by a myriad of concerned groups, and that those legal contests will take years to settle.

In may very well be that Shell will need to develop a viable alternative plan for getting oil to market, as they have done in Russia. But again, getting the permits for such an alternative  scheme will be extremely difficult to obtain and will be fought tooth and nail. The simple matter is that any such alternative schemes will have their own associated problems that Shell may not be able to eliminate or overcome.

There are other problems for Shell as well. The Arctic is loosing its presumed long term strategic importance in the grand great scheme of supplying the world’s energy needs. The continued discovery of vast accumulations of natural gas all over the world, in conventional and unconventional reservoirs, and our ability to convert that gas into liquid hydrocarbons, will undoubtedly cause people to once again question the wisdom of risking irreparable harm to the fragile Arctic environment.

This Arctic is beginning to assume the status of just another geographic province to explore for oil and gas. One where the big winners will be the shareholders of the oil companies, not consumers.

So, while Shell may indeed get to drill in the US off-shore Arctic this summer, and they may indeed confirm the discovery of billions of bbls of crude, there is no guarantee that crude will ever be produced.

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