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Here’s Why Shell Drilling Proposition In Arctic Is Facing Opposition

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Published: Mar 23, 2015 at 10:54 am EST

According to the Guardian, Royal Dutch Shell plc (ADR) (NYSE:RDS.A) will most probably get an approval by the US government to drill in the Arctic. An approval last month was given by the Bureau of Ocean Energy Management (BEOM).

A formal statement is expected to come from the US interior Secretary Sally Jewel. The decision might spark opposition from environmentalist groups that are not in favor of Shell operating in the Chukchi and Beaufort seas of Alaska.

Earlier, the US federal court had allowed Shell to operate in Alaska, but the environmentalists believed that drilling in the Arctic would have adverse environmental effects. Hence, after a lot of persistence, the US Interior department was forced to revise its decision-making process, assessing the viability of drilling in the Arctic.

The BOEM after reconsidering the process approved Shell’s drilling plan in the Arctic. What was the most surprising was that the decision came ahead despite the BOEM disclosing that a chance for one or larger oil spills to occur would be 75%. This was revealed by the BOEM in its Environmental Impact Statement.

As reported by the Guardian, Professor Robert Bea, one of the faculty members at the University of California, has expressed his concerns over the approval by BOEM for Shell to operate in the Arctic. Crude oil price since the last six months has fallen over 50%. Hence, energy companies are exploring different ways to save on costs and maintain liquidity.

Mr. Bea believes that these cost cutting strategies could make it difficult for energy companies to comply with safety standards and could increase the probability of a spill occurring.

In a statement reported by Guardians, Mr. Bea said: “We should all be concerned about tradeoffs between production and protection…With the significant reduction in the price for oil; there are equally significant pressures to reduce costs so that acceptable profitability can be maintained.”

Mr. Bea has worked as a consultant for BP and Shell. He initially was brought in by Shell in 2004 to review the risks that came up with drilling in the Arctic. The conclusion drawn by Mr. Bea was operating in the Gulf had many risks involved and disapproved Shell’s plans to drill in the region.

An environmental group Greenpeace has expressed similar concerns as Mr. Bea. One of the campaigners of Greenpeace claimed that the contractors of these energy firms do not have good track records, and with crude oil price around $50 per barrel and high emphasis on cutting costs, the risk seems to be very high.

He further claimed that the move goes against the need to curb global warming. Regarding the issue as reported by the Guardian, he said: “if we want to avoid catastrophic climate change we can’t even burn all the fossil fuels we already have; we definitely don’t need to trash what’s left of the melting Arctic looking for more.”

He asked the Obama administration to show some responsibility by not allowing the energy companies to operate in the Gulf. He exclaimed that if President Obama agreed to this, it would seriously undermine the credibility of his leadership.

CEO Ben van Beurden according to the Guardian in a financial results conference indicated that the company is more than ready to go ahead with the Arctic project drilling this year. Shell spokesman indicated that the company has set high standards when it comes to maintaining adequate safety.

Shell since a very long time has been working on the Arctic project, but has seen many obstacles in terms of legal challenges. Though the company remains optimistic on its drilling proposition, it is likely to face a lot of opposition from the major environmentalist groups. Shell would have to take the risks head on, and would have to adopt a business model that complies with safety standards.


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