US conditionally approves Arctic offshore oil exploration

The U.S. Bureau of Ocean Energy Management has conditionally approved an oil and gas company's plan to drill four exploration wells into the federal submerged lands of the Beaufort Sea in the U.S. Arctic.

On July 12, 2017, BOEM announced that it had conditionally approved a Beaufort Sea exploration plan (EP) it received from Eni US Operating Co. Inc.  The company is a subsidiary of Italian multinational oil and gas company Eni S.p.A.

Under federal law, BOEM regulates exploration and production activities on the Outer Continental Shelf.  It requires a developer to file and receive approval of an Exploration Plan or EP before most activities can begin.  An EP describes all exploration activities planned by the operator for a specific lease or leases, including the timing of these activities, information concerning drilling processes, the surface location of each planned well, and actions to be taken to meet important safety and environmental standards and to protect access to subsistence resources, but it does not allow actual production of oil -- for that, an operator is required to obtain BOEM approval of a Development and Production Plan (DPP).

Eni US had applied to BOEM for approval of a plan to drill four exploration wells from its existing Spy Island Drillsite, located in Alaska state waters.  The Nikaitchuq North Project's wells would run down from Spy Island, then extend below the ocean floor to federal leases on the Outer Continental Shelf.  Eni proposed exploratory drilling activities commencing in December 2017, and continuing into 2019.

BOEM deemed Eni US's exploration plan application to be submitted in June 2017, triggering a 30-day review period including a site-specific Environmental Assessment of the proposed exploration activities pursuant to the National Environmental Policy Act.  That NEPA process concluded with a Finding of No Significant Impact (FONSI), and on July 12 BOEM issued its conditional approval of the Exploration Plan.  Conditions include a requirement that Eni procure all other appropriate permits from state and federal agencies, as well as certain mitigation measures.

In a statement announcing the conditional approval, BOEM's acting director, Walter Cruickshank, described Eni's exploration plan as "a solid, well-considered plan,” and noted the existence of "vast oil and gas resources under the Beaufort Sea.”

Block Island offshore wind celebrated, challenged

U.S. and Rhode Island officials recently celebrated the start of construction on the Block Island Wind Farm, which is on track to be the first commercial offshore wind farm in the U.S.  The five-turbine, 30-megawatt project under development by Deepwater Wind is scheduled to come online in 2016; turbine foundation construction and other "steel in the water" activities are underway.  As a pioneer in U.S. offshore wind development, the Block Island project has survived years of permitting uncertainty and repeated legal challenges by project opponents.  But another such lawsuit was filed this week in federal court.  What does the future hold for the Block Island Wind Farm?

Project developer Deepwater Wind is owned principally by an entity of the D.E. Shaw group.  Its Block Island project is currently under construction in Rhode Island state waters about three nautical miles southeast of Block Island.  The project will feed power directly to consumers on Block Island, but also includes a 25-mile bi-directional submerged transmission cable between Block Island and the mainland. The project's finances rest in part on a power purchase agreement through which Deepwater Wind will sell power to utility National Grid.

That power purchase agreement, or PPA, has been the subject of several legal challenges.  Those challenges often cite the deal's cost: pricing for the Block Island power starts as high as 24.4 cents per kilowatt-hour, and escalates 3.5 percent annually.  These prices are more than double the typical Rhode Island energy price, for an estimated $497 million in above-market costs over the 20-year deal.

In 2009 and early 2010, the Rhode Island Public Utilities Commission rejected proposals by Deepwater Wind and National Grid, largely over cost.  The parties then returned with a revised proposal.  In 2010, TransCanada Power Marketing Ltd. unsuccessfully argued that the Rhode Island commission shouldn't consider that proposal due to constitutional infirmities in the Rhode Island law favoring renewable power contracts with in-state projects.  On August 16, 2010, the Commission issued its order approving the PPA.  After that order was appealed to the state Supreme Court, the Supreme Court issued a written opinion upholding the Commission's Order on July 1, 2011.  In 2012 and in 2015, project opponents petitioned the Federal Energy Regulatory Commission to invalidate the Rhode Island commission's action, which FERC declined to do.  Through all this, the project moved forward and ultimately began local construction earlier this year.

But the project is not yet completely out of stormy seas.  On August 14, 2015, plaintiffs with a history of engagement in some of these earlier challenges filed a lawsuit in U.S. District Court in Rhode Island.  As in previous challenges, this complaint argues that the Rhode Island Public Utilities Commission violated federal laws in approving the Block Island deal because only the Federal Energy Regulatory Commission may regulate wholesale electricity sales.  While it is possible that this case could be swiftly dismissed, if it lingers it could add uncertainty to the project until its resolution.  Last year a federal court invalidated a FERC ruling on the grounds that it impermissibly tread on state rights to set retail electricity rates.  That case, Electric Power Supply Association v. Federal Energy Regulatory Commission, has been appealed to the U.S. Supreme Court.

With construction underway, the Block Island project now has significant inertia behind it.  What impact will the recently filed lawsuit have?  Will it affect Deepwater Wind's position as "first in the water" in the race for U.S. commercial offshore wind development?

Rhode Island offshore transmission line

Federal regulators have granted a right-of-way in federal waters for an electric transmission line connecting to the proposed Block Island offshore wind farm off Rhode Island.  The Bureau of Ocean Energy Management describes the grant as the first right-of-way grant offered in federal waters for renewable energy transmission.

Proposed by Deepwater Wind, the Block Island Wind Farm is a 30-megawatt offshore wind farm to be located approximately three miles southeast of Block Island.  Located entirely in Rhode Island state waters, the 5-turbine project is expected to generate over 125,000 megawatt hours annually.  The project received its final required permit in September 2014, and in 2010 secured a 20-year power purchase agreement with Narragansett Electric Co.

Block Island is about 13 miles off the mainland coast, and is not connected to the mainland by a power cable or road.  While the island's population does consume some electricity, most of the wind farm's power will be exported to the mainland electric grid via a newly built 21-mile submarine cable.  Because the proposed Block Island Transmission System is bi-directional, it would also transmit power from the existing onshore transmission grid on the mainland to Block Island, stabilizing supplies of electricity available to islanders.

The Block Island Transmission System is proposed to make landfall in Narragansett, Rhode Island.  Rhode Island's territorial waters extend 3 miles seaward from shore.  To reach the mainland, the submerged transmission line must cross about 8 nautical miles of federal waters.

The Bureau of Ocean Energy Management regulates the use of federally controlled Outer Continental Shelf sites for energy production.  In 2012, Deepwater Wind applied to the BOEM for a right-of-way about eight nautical miles long and 200 feet wide.  Before reviewing this application, BOEM was required to determine whether there are other developers interested in constructing transmission facilities in the same area.  Therefore, BOEM published a Commercial Renewable Energy Transmission on the Outer Continental Shelf (OCS) Offshore Rhode Island, Notice of Proposed Grant Area and Request for Competitive Interest (RFCI) in the Area of the Deepwater Wind Block Island Transmission System Proposal in the Federal Register on May 23, 2012 under Docket ID BOEM-2012-0009.  BOEM also solicited public comment on site conditions and multiple uses within the right-of-way grant area. 

Following the public comment period, BOEM determined there was no overlapping competitive interest in the proposed right-of-way grant area off Rhode Island and published a "Notice of Determination of No Competitive Interest" in the Federal Register on August 7, 2012 under Docket ID: BOEM-2012-0068.

Because most of the activities and permanent structures related to the entire wind farm project will be sited in state waters and on state lands, the U.S. Army Corps of Engineers is the lead federal agency for analyzing the potential environmental effects of the project under the National Environmental Policy Act.   In September 2014, the Corps completed its Environmental Assessment (EA) for the wind farm and transmission system, and issued a Finding of No Significant Impact (FONSI).   BOEM subsequently adopted the Corps EA after conducting an independent review that found no reasonably foreseeable significant impacts are expected to occur as the result of the preferred alternative, or any of the alternatives contemplated by the EA.  On October 27, 2014, BOEM issued a FONSI for the issuance of a ROW grant, and approval of the General Activities Plan (GAP), with modifications.

On November 17, 2014, BOEM announced the agency offered the ROW grant to Deepwater Wind for the Block Island Transmission System.