The battle in Seattle is over. The “kayactivists” and other environmentalists are celebrating Royal Dutch Shell’s decision in September to shelve its Arctic operations “for the foreseeable future.”
By Bruce Buls, Correspondent
For months, the Sierra Club, Greenpeace and others had staged large-scale rallies in both Seattle and Portland, Ore., against Shell and its plans to drill for oil in the Arctic Ocean. Some demonstrations involved dozens of kayakers crowding as close as possible to the Polar Pioneer when Transocean’s huge semisubmersible drilling rig was docked at the Port of Seattle’s Terminal 5 in May and June. Greenpeace protestors also dangled from a bridge over the Willamette River in Portland to block the transit of a Shell offshore support vessel, the Fennica, as it headed back to Alaska following emergency drydocking to repair a gashed hull at the Vigor shipyard in July.
The battlefield also included city hall, the commission chambers at the Port of Seattle, and King County Superior Court. In February, the port granted a two-year, $13 million lease to Foss Maritime with the understanding that Foss would use the vacant terminal to temporarily homeport Shell’s leased fleet, including the drilling rig. When the environmental community learned of the lease, they complained that the deal had been done behind closed doors without appropriate public input. So they sued the port for not having the correct environmental impact analysis. They claimed that the terminal is licensed for cargo and that using it as a staging facility for Shell’s drilling rigs and support vessels shouldn’t be allowed under existing permits.
The attempt to derail the lease lost. A Superior Court judge ruled in July that the port did not need a new environmental review for its lease with Foss. Now Foss has a fully vetted lease for Terminal 5, but its anchor tenant won’t be returning anytime soon. Foss hasn’t disclosed what it will use the terminal for, but in a letter submitted to the city in April, the company stated that its services to Shell Offshore would be “a fraction of the activity Foss expects and hopes to conduct at Terminal 5.”
For Vigor Industrial, whose Seattle shipyard is adjacent to Terminal 5, the company was disappointed by Shell’s decision.
“This will have a meaningful, negative effect on our long-term business, from Oregon to Washington to Alaska, should the current decision continue for the long run,” said Frank Foti, CEO of Vigor Industrial. Vigor’s Seattle and Portland yards had both handled a variety of jobs associated with Shell’s Arctic program, including work on Shell’s drilling rigs in 2012.
“It’s extremely disappointing,” said Keith Whittemore, former president of Kvichak Marine and current executive vice president at Vigor. “Shell’s program of exploration and production of oil would bring a huge economic boost to the states of the West Coast and Alaska.”
Some of that economic boost had already been quantified. In September, an economic impact study commissioned by Shell and the Alaska State Chamber of Commerce said that between 2006 and 2014 Shell’s total economic input for the Puget Sound region was $282.4 million (including direct, indirect and induced spending). The report also found that in 2015 Shell’s economic impact in Puget Sound was $158.3 million and projected another $153.8 million in 2016. The McDowell Group, a research and consulting firm with offices in Anchorage and Juneau, produced the report.
“One day we’re reading the McDowell report,” said Whittemore, “and going, ‘Boy we forgot how good this is,’ and talking about other parts of it, to finding out the next day that Shell is pulling out. There will be some places where this will be very hard.”
One of those places is Alaska, where revenue from oil and gas has been a mainstay for the state for many years. And with production from Prudhoe Bay in decline and pipeline volume down to about 25% of capacity, the state is anxious to develop other sources, including offshore Arctic.
For many residents on Alaska’s Arctic coastline, Shell’s decision is especially unfortunate.
Rex A. Rock, president and CEO of the Arctic Slope Regional Corp. in Barrow, said in a statement released the day after Shell’s announcement that the news was “deeply disappointing.”
“This is a major blow for Alaska,” he wrote, “and leaves in question the viability of our state’s economy. Closer to home on the North Slope, we are looking for solutions on how we continue to sustain our local economies to support our communities. Absent any responsible resource development onshore and offshore, we are facing a fiscal crisis beyond measure.”
The private company is owned by and represents the business interests of its 12,000 Iñupiat Eskimo shareholders that reside in several Alaska villages.
In its announcement that it would cease continued exploration in the Arctic, Shell stated that federal regulations were part of the reason the company pulled the plug.
“This decision reflects both the Burger J well result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska,” a Sept. 28 company statement said.
While many observers were surprised that the Obama administration had given Shell the green light to pursue oil and gas exploration in the Arctic, the government’s approval reflected the administration’s “all of the above” philosophy for domestic energy production. Even so, the administration and its agencies responsible for regulating Arctic oil exploration insisted on standards and procedures that were much more stringent than those for other areas, such as the Gulf of Mexico.
“A big issue was cost,” said Richard Sanchez, an oil service industry analyst with IHS Petrodata in Houston. “Shell was required to have two drill rigs up there to drill one well, so the rig cost was double. The same job in the Gulf would have been done with one drillship and three or maybe four support vessels. In 2015, Shell had about 27 support vessels in the Arctic, including several boats from Harvey Gulf and Edison Chouest.”
For other Gulf of Mexico operators, he said, the question now is how many and what kind of vessels will be coming back to the Gulf. “We are already suffering from a saturated OSV market here in the Gulf,” he said.
Sanchez also said that Shell had been hoping to make a major discovery in order to add to its reserves. “Simply making a large discovery on lots they own would have had been a huge windfall for them in terms of letting them put whatever huge reserves they found on their books. The majors are losing access to the major oil fields, so booking new reserves in very important to them.”
In addition to Shell’s other problems with market conditions and the regulatory environment, Sanchez didn’t totally discount the effect of the anti-Shell protests. “Shell does care about perception and has been positioning itself as a greener company, which may be part of the reason it teamed up with Harvey Gulf for deployment of its LNG supply vessels.”
Sanchez also pointed out that environmental opposition really ramped up following the grounding of the Kulluk in the Gulf of Alaska in December 2012. “The problems with the Kulluk and the Aiviq [Edison Chouest’s purpose-built anchor handler that was towing the Kulluk before it broke loose and grounded] was a public relations disaster. That really galvanized the opposition.”
So did numerous other Shell stumbles, including serious problems with the Noble Discoverer, the drillship that was involved in both the 2012 and 2015 campaigns. After a series of environmental and safety violations in 2012, the rig’s owner and operator, Noble Drilling, plead guilty to eight felony offenses and paid $12.2 million in fines.
And as the 2015 Arctic drilling season was beginning, another vessel in Shell’s fleet, the Fennica, ran into an uncharted rock and tore a gash in its hull. Drilling into the carbon zone was delayed until the Fennica was repaired in Portland and returned with the capping stack that was part of its support mission.
Shell still retains its leases in the Arctic and most industry observers anticipate extensions that leave the door open to future exploration. According to the U.S. Geological Survey, the Arctic holds an estimated 22% of the world’s undiscovered oil and natural gas, and other Arctic nations, particularly Russia and Norway, have been nibbling at it. At the moment, the only active Arctic development is Russia’s Prirazlomnoye field, which started production in late 2013. Eni Norge in Norway has its Goliat field in the Barents Sea, but the project has been delayed by cost overruns. And Norway’s Statoil announced earlier this year that it will put its Arctic projects on the back burner.
For now, the fight over Shell’s Arctic exploration is over in Washington state — and Washington, D.C. — but the controversy surrounding Arctic development is sure to continue.
Shell’s 2015 Arctic Fleet
Aiviq — 361'x80'
Tor Viking — 274'x59'
Ross Chouest — 256'x54'
American Trader — 382'x105'
Arctic Challenger — 316'x105'
Arctic Endeavor — 205'x90'
Klamath — 333'x76'
Tuuq — 400'x100'
Noble Discoverer — 514'x71'
Polar Pioneer — 279'x233'
Fennica — 380'x85'
Nordica — 380'x85'
King-C — 85'x20'
Unalaq — 150'x50'
Harvey Champion — 300'x64'
Harvey Explorer — 240'x56'
Harvey Sisuaq — 292'x64'
Harvey Spirit — 280'x60'
Harvey Supporter — 300'x64'
Oil Spill Response
Nanuq — 301'x60'
Bear Cub 1 — 40'x16'
Bear Cub 2 — 40'x16'
Marika — 685'x97'
Minerva Antarctica — 747'x131'
Benjamin Foss — 73'x26'
Montana — 112'x35'
Ocean Wave — 146'x46'
Ocean Wind — 146'x46'
Source: Shell, WorkBoat