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March 26, 2012
Shell Heads for the Arctic
    by Robert Kropp

While the company contends with activist nongovernmental organizations such as Greenpeace, it remains unclear if sustainable investors are engaging with it on the potential cost of an oil spill cleanup.

This summer, the pristine natural environment of the Arctic is likely to change forever. The entities responsible for managing that change will be oil companies. Climate change is causing Arctic ice to retreat; if the potential consequences were not so severe, it would seem the ultimate irony that oil companies are exploiting the impact by expanding the reach of their exploratory activities.

Last August, the US Department of the Interior's Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) granted Royal Dutch Shell the initial permits to begin drilling for oil in the Alaskan Arctic, which Shell has said will begin in July. Elsewhere, Cairn Energy, a British exploration company, has been drilling deep water exploratory wells off the coast of Greenland since 2010.

Despite the impact of climate change on Arctic ice, deepwater drilling in the Arctic brings with it challenges that do not exist elsewhere. Increasingly, stakeholders are recognizing that the exploration plans of Shell and Cairn Energy fail to account for the harsh conditions, especially in winter, under which an oil spill recovery will have to be attempted.

Cairn Energy actually refused to make public its oil spill response plan, until a campaign organized by Greenpeace gained the support of more than 100,000 signatories. Last August, the government of Greenland stepped in and made the report public.

An analysis of Cairn Energy's response plan, undertaken by conservation biologist Rick Steiner, reveals that preparations for such an event are inadequate. Cleanup in the event of a spill would halt during the winter months. The company underestimates the amount of oil that could leak in the event of a blowout, Steiner found, while its estimates of oil it can recover is significantly overstated.

"I find it surprising that the government of Greenland would approve the Cairn/Capricorn Greenland 2011 drilling program based on this document," Steiner concluded.

The exploration plan submitted by Shell to BOEMRE estimates that in the event of a massive spill it has the capability of recovering 90% of the oil released. Rebecca Noblin, Alaska Director for the Center for Biological Diversity, called such an estimate "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.

In the UK, members of Parliament recently met with representatives from Shell and Cairn Energy. Following the meeting, MP Caroline Lucas told The Guardian, "There is no reason to believe that that any lessons have been learned from the Deepwater Horizon blowout. They seem to be shutting their eyes and crossing their fingers that they will not have a spill and it beggars belief that they are not able to tell shareholders how much it would cost to deal with a worst case scenario. Either it has not been done or we were not being told."

Shareowner activists: you read that correctly. Neither company has provided estimates to its shareowners what the cost of a cleanup in the Arctic might be. In August, a pipeline owned by Shell ruptured and released 1,300 barrels of oil into the North Sea. At the time, Louise Rouse, Director of Engagement at the UK-based Fair Pensions, told, "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, 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," Rouse continued.

Despite the concerns over the effectiveness of Shell's spill response plan, it was approved last month by the Interior Department.

"We have confidence that Shell's plan includes the necessary equipment and personnel pre-staging, training, logistics and communications to act quickly and mount an effective response should a spill occur," a department official stated.

Following the Interior Department's approval of its spill response plan, Shell launched what the company described as a "pre-emptive strike" on opposition by asking an Alaskan federal court to formally approve the Interior Department's process.

Shell's plans to drill three exploratory wells in the Chukchi Sea off the northwest coast of Alaska have been challenged by a coalition of nine environmental and native Alaskan groups. The coalition's challenge of an air quality permit granted to Shell by the Environmental Protection Agency (EPA) was turned down in court, but the groups are appealing the decision.

Earthjustice attorney Colin O’Brien stated, "Shell Oil has proposed a massive drilling operation in one of the most remote places on the planet. Each year, this fleet of ships could emit 30 tons of particulate matter, 240 tons of nitrogen oxides and 80,000 tons of carbon dioxide."

"Not only is oil drilling risky, these ships would double the amount of global warming pollution produced by roughly all of the North Slope Borough households," O'Brien continued.


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