Shell's US Arctic oil drilling starts, stops

Arctic waters are believed to be home to significant oil reserves, prompting Royal Dutch Shell PLC this week to start drilling the first new oil well in U.S. Arctic waters in more than 20 years -- but encroaching sea ice forced the drill ship off the site just a day later.

Despite its remote location and harsh climate, the Arctic is relatively rich in energy and mineral resources.  U.S. Arctic drilling occurred in the twentieth century, but no new wells have been drilled in the last two decades.  Shifting trends, including relatively high oil prices and a warmer Arctic climate (as evidenced by this summer's record low sea ice coverage in the Arctic), have increased the pressure on oil companies to expand Arctic production.

For the past six years, Shell committed about $4.5 billion to exploration for oil and gas reserves under the Outer Continental Shelf off Alaska.  Shell believes the region may host the largest untapped oil-bearing formation in the U.S., perhaps holding about 26 billion barrels of oil.  Environmental lawsuits and concerns over how any oil spill could be responded to have delayed Shell's drilling plans, but last month Shell obtained a permit from the federal Bureau of Safety and Environmental Enforcement to start preliminary drilling activities.  While the BSEE has not yet certified Shell's oil spill response barge, the preliminary permits allow the company to begin drilling pilot holes.

Last Sunday, crews aboard the Noble Discoverer began drilling at a site known as the "Burger" prospect in the Chukchi Sea about 70 miles off the Alaskan coast.  (Shell posted a Youtube video of the drill bit entering the water.) 

But even in a low-ice year, the Arctic climate is forbidding.  Yesterday, drilling stopped as sea ice approached the Noble Discoverer.  Reports indicated that a pack of ice about 12 miles wide, 30 miles long and up to 82 feet thick was about 105 miles away from the drill ship and drifting closer.  It may take several days for this ice pack to pass.

According to Shell, the Noble Discoverer will resume drilling once the ice moves on.  As the Arctic winter approaches, more and more ice should form in the Chukchi Sea.  Will Shell find the oil it expects?  Can it produce the oil safely in the icy Arctic?

Tropical Storm Isaac threatens energy production in Gulf

Tropical Storm Isaac is bearing down on the U.S. Gulf Coast -- and whether or not it becomes Hurricane Isaac, the storm is already impacting energy production across the Gulf of Mexico.

Satellite image of Tropical Storm Isaac, courtesy of the U.S. National Oceanic and Atmospheric Administration (NOAA).

Isaac is currently about 300 miles south of the mouth of the Mississippi River and is expected to become a hurricane before reaching the northern Gulf Coast late Tuesday.  Concern over human and environmental safety has led oil and gas production and drilling companies to pull their personnel off remote structures in the Gulf.  According to the federal Bureau of Safety and Environmental Enforcement or BSEE, personnel have been evacuated from 346 production platforms across the Gulf of Mexico -- more than half of the 596 manned platforms in the Gulf.  Personnel have also been evacuated from 41 out of the 76 exploration and drilling rigs currently operating in the Gulf.

When production platforms and drilling rigs are evacuated, companies are required to close safety valves located below the surface of the ocean floor to prevent the release of oil or gas. This "shut-in" process is designed to protect the environment, but it has obvious consequences for the production of energy resources like oil and gas.  The BSEE estimates that 1,076,642 barrels of oil production per day has been shut-in as a result of Isaac (about 78.02 percent of the current daily oil production in the Gulf of Mexico), as has 2,165.94 million cubic feet per day of natural gas production (about 48.13 percent of the current daily natural gas production in the Gulf).

Provided the storm leaves Gulf production and drilling assets unharmed, these platforms and rigs may resume operations after the storm has passed (and after they have passed inspection).  But the disruption to offshore petroleum and natural gas production will already have affected the markets, driving short-term prices upward.

Particularly if it intensifies into Hurricane Isaac, Tropical Storm Isaac may also damage onshore energy assets, ranging from local electric distribution lines to major transmission lines, and from distributed generation projects like rooftop solar panels to utility-scale nuclear or other power plants.  Wind, rain, flooding, and a significant storm surge of 6 to 12 feet are all expected for southeast Louisiana, Mississippi, and Alabama.

NOAA forecasts call for the storm to have passed New Orleans by Thursday, by which time the extent of any damage may begin to be apparent -- and the process of restoration and recovery will begin.

Bye-bye BOEMRE, hello BOEM and BSEE

The federal agency with prime responsibility for ocean energy development has been shuffled yet again.  After just over a year of operations BOEMRE - the former Bureau of Ocean Energy Management, Regulation and Enforcement - has been replaced by two offices: the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE).

This reshuffling is the latest organizational change to the federal oversight of ocean energy development, but it is not the first.  Until 2010, the Minerals Management Service (MMS) regulated both conventional oil and gas production and renewable energy activity.  In the wake of the Deepwater Horizon oil spill incident, and criticism of how MMS operated, U.S. Secretary of the Interior Ken Salazar restructured MMS into BOEMRE.

Now, BOEMRE has been split in two, with the division occurring along functional lines.  BOEM describesitself as “responsible for managing environmentally and economicallyresponsible development of the nation’s offshore resources”.  BOEM’s functions include offshore leasing, resource evaluation, review and administration of oil and gas exploration and development plans, renewable energy development, National Environmental Policy Act (NEPA) analysis and environmental studies.

Under the new paradigm, BSEE is responsible for safety andenvironmental oversight of offshore oil and gas operations, includingpermitting and inspections, of offshore oil and gas operations.  BSEE exercises functions including the development and enforcement of safety and environmental regulations, permitting offshore exploration, development and production, inspections, offshore regulatory programs, oil spill response and newly formed training and environmental compliance programs.