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Arctic drill rules advance; Shell spill dome OK’d

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BY TIM BRADNER, ALASKA JOURNAL OF COMMERCE

Published: 2013.08.15 10:56 AM

A top federal official offered fresh assurances that new rules governing drilling in the Outer Continental Shelf off Alaska’s Arctic coasts will be out by the end of the year, and that Shell’s special Arctic “capping stack” and containment system for spilled oil have been given final approvals.

“Those systems are now certified. The engineering problems have been overcome,” said James Watson, director of the U.S. Bureau of Safety and Environmental Enforcement, or BSEE.

Shell was unable to get certification for key parts of its containment system — a special barge designed to process and store oil recovered in a spill and the undersea containment capping stack — in time for the 2012 exploration season in the Arctic.

The first tests of the containment dome in Puget Sound failed when it surfaced and the top half was “crushed like a beer can,” according to an email account of the test written by BSEE Alaska Director Mark Fesmire reported by the Seattle National Public Radio affiliate KUOW in December 2012.

Because the spill response barge could not reach the Arctic in 2012, regulators gave Shell approval only to drill “top holes,” or the upper parts of the wells, on two exploration wells. Top-holes do not penetrate potential oil and gas reservoirs, so that there was no risk of a blowout from the 2012 drilling. The wells can be completed when Shell returns to the Arctic, possibly in 2014.

The regulations will also incorporate special requirements placed on Shell’s Chukchi and Beaufort seas exploration in 2012 for standby rigs for relief wells and for an undersea blowout containment system.

“We expect to formally incorporate these procedures in the very near future and to go to a proposed rulemaking (notice of new regulations) by the end of the year,” Watson said at a meeting held by the North American Marine Environmental Protection Association, or NAMEPA, a trade association.

Fesmire has said those things earlier, but Watson’s remarks as the agency’s top manager underscored what Fesmire said.

Shell and other companies are awaiting the new rules so that they can make plans for new drilling. Shell suspended its program for 2013 and has not said when it might resume exploration started in 2012, citing the lack of the federal rules as one uncertainty.

ConocoPhillips has not indicated what year it will drill on Chukchi Sea leases it holds, also citing the lack of the new rule. Statoil, another company holding leases, said it hopes to drill in 2015.

Watson added new details to what is known about the pending rules, however, mainly that BSEE will require independent third party audits of operators’ environmental and safety management programs.

Watson also described the pending new rules as a hybrid of a conventional compliance regulatory system, where the federal agency will do inspections, with a kind of performance system where industry must show it can meet certain standards and goals.

To do that, companies will be required to develop a Safety and Environmental Management system and to obtain audits by independent firms that their operating practices adhere to the management systems, Watson said.

“We don’t want to actually approve the management system because that puts us in a position of responsibility and liability. We will want to see the third-party verification that they are following it,” he said.

BSEE adopted similar requirements for third-party verification of compliance on well completion and cementing for deepwater offshore drilling following the 2010 Deepwater Horizon blowout in the Gulf of Mexico.

The pending new rules were first proposed to apply to the Alaskan Arctic OCS but they will now be broadened to apply to drilling on all OCS submerged lands off Alaska, Watson said. That would include any exploration in the Bering Sea, Gulf of Alaska and Lower Cook Inlet.

OCS lease sales and exploration drilling has previously been conducted in all of those areas but without success by industry.

U.S. Coast Guard Rear Admiral Thomas Ostebo also spoke at the NAMEPA conference, raising fresh concerns about increasing commercial marine traffic in the Arctic and the lack of international rules, both of which are creating risks.

“This is not something in the future. This is happening now,” Ostebo said. “Eight days ago we had a 1,000-foot tanker carrying a million gallons of fuel transit the Bering Straits. This is not a U.S.-registered vessel, it is operated by a third party (not the vessel owner) and it is not polar class,” which meant it lacked special ice protection, Ostebo said.

This year also saw the earliest entry of a cruise ship into the Arctic, a Russian vessel with 600 passengers.

“What would happen if there were a problem? We could have 600 people and half a million gallons of fuel in the sea off Point Hope,” he said.

The risks aren’t just fuel. Chemicals are also being carried on vessels crossing the Arctic. Russia has issued permits to more than 200 vessels to make the crossing this year, a four-fold increase in two years, Ostebo said.

The Coast Guard is particularly concerned about the lack of agreed-on “rules of the road” in the Bering Strait.

“We do not have a vessel separation and traffic system in place,” Ostebo said, unlike other geographically congested points where there is marine traffic, such as the Straits of Mallaca or Gilbralter. “What we have is a free-for-all, with whoever going where they want.”

The rules are complex for establishing international vessel traffic systems under the International Maritime Organization, or IMO, so the best approach is a bilateral agreement with Russia.

“Lt. Gov. Mead Treadwell has proposed a voluntary system that has a lot of merit, but Russia has asked us to go a little slower in developing it,” Ostebo said.

Russia has a lot of influence because the bulk of the Arctic traffic is over Russia’s Northern Sea Route, across the Arctic from Europe to Asia, and through the Bering Strait.

“The U.S. and Russia are the two nations sharing the strait, and every ship transiting the Arctic must go through it,” Ostebo said.

Unimak Pass is an Aleutians is one other area where there is high vessel traffic and no international traffic rules, but at least there are ocean-going tugs available to assist ships. There is nothing near the Bering Strait.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

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