Shell braves a return to its Arctic ordeals: But, with oil at such a low price, why now?

By LAURA CHESTERS FOR THE DAILY MAIL: 13 May 2015

New Year’s Eve 2012 is a date Lieutenant Commander Jim Cooley will never forget. As part of the rescue team from the US Coast Guard he flew out in treacherous, stormy conditions to rescue 18 men aboard Royal Dutch Shell’s stranded Kulluk oil rig.

Earlier that winter another drilling rig in Shell’s fleet, the Noble Discoverer, nearly ran aground and was towed to port after experiencing vibrations in a propeller shaft.

The giant, perfectly round, steel Kulluk rig which crew were forced to abandon, was eventually towed to safety in a nearby bay. No oil was spilled but the two incidents were a PR disaster for Shell in such a region. They led to the oil major abandoning its Arctic plans entirely for the next two years and environment protestors issued a collective sigh of relief.

But now Shell has made a dramatic U-turn.

It plans to revisit the harsh, freezing seas and on Monday got the go-ahead from the US Department of Interior to explore for oil in the Chukchi Sea off Alaska.

Not only is it going back, it is using one of the very vessels, the Noble Discoverer, which had problems three years ago. The Discoverer – owned by Noble Drilling, which was slapped with £8m of fines and community payments over the incident in 2012 – will be part of the convoy that will see Shell drill up to six wells in water about 140-feet deep. This time Shell will improve its fleet, including two towing vessels.

Shell may have recovered its courage to attempt the Arctic again but why now?

The price of oil tumbled late last summer – more than a 50 per cent drop since the peak in June last year – and exploration in such hard-to-reach areas as Alberta’s tar sands, deepwater Brazil sites and offshore wells in the Arctic – only make sense to oil majors when oil costs more.

Brent crude has recovered somewhat this month – at around $65 a barrel – but few expected Shell to plough ahead with plans in the Arctic now.

Leading the advance is Shell’s executive vice-president of Arctic and Alaska, Ann Pickard. She is described by Fortune Magazine as the bravest woman in oil.

Pickard set out her stall earlier this month at a conference in her home town of Houston, Texas.

Pickard said Shell, which has operated on and off in the area for nearly one hundred years, scaled back in the region in the 1990s to concentrate on the Gulf of Mexico which was more commercially viable at the time.

So why go back now?

Pickard argues: ‘Although the price of oil has plunged since last August, Shell doesn’t believe prices will remain this low in the long term. As has been the case time and time again, rising global demand and the need for new supplies will remain the central drivers of the oil market.’

Shell has already invested £4.3bn in the region. Pickard points out production from existing fields is falling at an average rate of 5 per cent a year so the need for new supply could be as high as five million barrels a day until at least 2030.

She acknowledges that both renewables and oil will play a part in future energy demands, but to plan for the growing demand, companies such as Shell must target new areas.

She adds: ‘We need to plan for decades down the road. Arctic resources are critical to this planning.’

But central to Shell’s decision to return to the harsh climate of the Arctic seas is the improvement of technology to help get the oil out of the ground. Pickard says seismic imaging capabilities are now far more precise than 30 years ago so fewer wells need to be drilled.

She also thinks Shell has a better understanding of the Arctic ecosystem and the impact from operating in its ‘sensitive environment’.

Shell may appreciate the sensitivities but it will still face huge opposition to its plans to return.

The area is known for its pristine environment and relatively untouched wildlife including whales, seals and porpoises and Tim Donaghy, Greenpeace’s senior research specialist in the US, warned the go-ahead could lead to a ‘disaster in the Arctic’.

He says: ‘Instead of holding Shell accountable and moving the country towards a sustainable future, our federal regulators are catering to an ill-prepared company in a region that doesn’t tolerate cutting corners.

‘Shell has a history of dangerous malfunctioning in the Arctic and global scientists agree that Arctic oil must stay in the ground if we’re to avoid catastrophic climate change.’

The go-ahead on Monday is a conditional approval and further hurdles will need to be cleared. Shell’s shares fell 17p to 2068p.

Critics are concerned about what might happen should there be a repeat of 2010’s fatal blowout disaster in the Gulf of Mexico – which BP and the US are still dealing with. Contrary to popular belief the region is not technically more difficult to drill than anywhere else offshore – the water is shallower than the North Sea or the Gulf of Mexico at around 50-100 metres – but its remoteness is a huge issue.

The nearest coast-guard station with equipment for responding to a spill is more than 1000 miles away.

For now Shell and Pickard are ploughing ahead and Pickard has form with dealing with tricky situations. She says: ‘I’ve made a career taking on some of the most challenging opportunities in the oil and gas sector, from Russia to Nigeria to Australia.’

SOURCE

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