August 20, 2011
Can Shell Be Trusted with Drilling in Arctic?
by Robert Kropp
The company's permit from the Interior Department to drill in the Arctic precedes by days an oil
spill in the North Sea, and follows a UN report critical of its acceptance of responsibility for
oil spills in Nigeria.
On August 4th, Shell received from the US Department of the Interior the initial permits to begin
drilling for oil in the Alaskan Arctic, an activity that the company states it will begin in July
2012. In its exploration plan, Shell estimated that in the event of a massive spill it had the
capability of recovering 90% of the oil released.
Rebecca Noblin, Alaska Director for the
Center for Biological Diversity,
was blunt in her appraisal of Shell's estimate, calling it "absolutely ridiculous." Only five
percent of the oil released during last year's Gulf of Mexico disaster was recovered, and eight
percent from the Exxon Valdez spill in 1989.
Notwithstanding the concerns of
environmentalists and other key stakeholders, the Interior Department's Bureau of Ocean Energy
Management, Regulation and Enforcement (BOEMRE) stated in a press release that it "found no
evidence that the proposed action would significantly affect the quality of the human environment."
The approval of Shell's plan to drill in the Arctic preceded by mere days an oil spill on
August 10th, in which a pipeline owned by Shell ruptured and released 1,300 barrels into the North
Sea. The spill was the worst in the UK in a decade.
Louise Rouse, Director of Engagement
at the UK-based Fair Pensions, told
SocialFunds.com, "There is a crisis happening at the moment that Shell needs to get a handle on.
But beyond the company managing this particular spill correctly, investors need to think about
Shell's other projects. The risk assessments Shell carried out in the North Sea clearly have not
worked, and investors need to talk with Shell about the steps it is taking for risk assessment."
"Given that Shell was recently granted initial permits with respect to the Alaskan
Arctic," Rouse continued, "Investors need to be confident that if that's the direction the company
is taking toward these pristine environmental areas that risk assessment is sufficient."
Another questionable corporate governance decision made by Shell in the aftermath of the spill
relates to transparency. Although the company learned of the spill on August 10th, it did not
inform of the public of it until two days later. In an interview, a Shell
executive stated, "The motivation from us was absolutely not one of trying to cover it up."
"Shell is going to have to explain why it is facing accusations of lack of transparency in the
North Sea spill," Rouse said. "That's relevant to the Arctic, because one of the big concerns is
that if the company enters into regions where there isn't a culture of political transparency, and
there isn't a culture of NGO (nongovernmental organization) oversight, then we have to completely
trust these companies."
According to a 1982 UN treaty known as the Law of the Sea, Canada,
Russia, Norway, and Denmark, in addition to the US, have legal claims to the sea floor areas of the
Arctic. The Russian gas export monopoly Gazprom is expected to begin drilling in the Arctic's
Pechora Sea this month.
"The North Sea is a litmus test for Shell," Rouse said. "How
transparent are they about something in a highly regulated and very public area like the North
The timing of Shell's permit to drill in the Arctic may have preceded the North Sea
spill, but it followed by days the publication of a groundbreaking report
by the United Nations Environment Program (UNEP)
that detailed the extensive environmental damage caused by oil extraction activities in the
Ogoniland region of Nigeria's Niger Delta.
"Oil contamination in Ogoniland is widespread
and severely impacting many components of the environment," the report states. "Even though the oil
industry is no longer active in Ogoniland, oil spills continue to occur with alarming regularity."
Miles Litvinoff, Coordinator for the Ecumenical Council for Corporate Responsibility (ECCR), told
Social Funds.com, "From the point of view of the communities and community-based organizations on
the ground, there's a sense that the UNEP report is simply confirming what many people had
previously recognized. There is a sense of impatience that the problems have been there for many
years, and the risk that the report will simply become another marker without necessarily leading
to remedial action."
A 2010 report from ECCR noted "a continuing failure
by Shell…to operate in the Niger Delta fully according to robust international social and
And the UNEP report observed, "In January 2010, a new
Remediation Management System was adopted by all Shell Exploration and Production Companies in
Nigeria. The study found that while the new changes are an improvement, they still do not meet the
local regulatory requirements or international best practices."
"It's notable that
previous to this report, Shell was claiming that only ten or at the most fifteen percent of oil
spills in the Niger delta was its responsibility," Litvinoff said.
"One of the key things
about Nigeria is that people don't feel they have the full picture," Rouse of FairPensions said.
"Shell recently settled two cases where they denied liability for a long time, and then accepted
liability. When you sense you aren't getting the full picture, when you sense that the message is
tightly controlled, that leads to concern."
In fact, Litvinoff said, the original draft
of the UNEP report repeated the oil company's estimates. There was an outcry over it, he said, and
the estimate was subsequently revised to 30%.
"It seems to be a more realistic figure,"
Litvinoff observed. "Shell's willingness to engage with civil society now is positive. They've
indicated a willingness to engage with ECCR's partners in Nigeria. But is talk going to lead to
Citing the Chatham House Rule regarding
confidentiality, Litvinoff declined to share specifics about meetings with Shell that have been
planned so far, but did say that ECCR is in contact with Shell about next steps and is urging Shell
to be proactive so that changes on the ground benefit local communities.