Nick Snow
Washington Editor
Federal government decisions and broad policy mandates in the last 2 years to delay, shut down, or discourage Alaskan resource development are a broad-based policy failure, an Alaska state official told a US House Energy and Natural Resources subcommittee on June 2.
Dan Sullivan, commissioner of the state's Department of Natural Resources, cited denial of permits to explore within the National Petroleum Reserve-Alaska; US Sec. of the Interior Ken Salazar's December 2010 "wild lands" order; proposals to designate the Arctic National Wildlife Refuge as a wilderness; the US Fish and Wildlife Service's designation of nearly 200,000 acres of Alaska's North Slope as critical polar bear habitat; and environmental impact statement processing delays for ExxonMobil Corp.'s Point Thomson development plan.
Alaska's greatest potential for significant oil and gas production lies on its portion of the US Outer Continental Shelf, Sullivan told the Energy and Mineral Resources Subcommittee in his prepared statement at a hearing on Alaskan resources, access, and infrastructure.
"In recent years, Shell and other leading energy companies have spent billions of dollars to acquire leases and explore the OCS," he said. "Shell has also received approval for several exploration plans and has acquired over 34 federal permits to drill exploration wells. Yet its exploration plans have been repeatedly derailed, first by the Ninth Circuit Court of Appeals in 2008 and more recently by the [US Department of the Interior] and the Environmental Protection Agency."
Sullivan said Alaska is doing all it can to make oil production on state land as globally competitive as possible. He warned that federal politics and policies will determine the long-term viability of the Trans-Alaska Pipeline System by discouraging exploration and production in the state, and said that Gov. Sean Parnell and other state officials would prefer a cooperative to a confrontational approach.
Shell's 'Catch-22'
Royal Dutch Shell PLC has been blocked from drilling a single exploration well on OCS leases it won in 2008 despite meeting and exceeding regulatory requirements, noted David T. Lawrence, Shell Exploration Co.'s executive vice-president for exploration and commercial activities. He said this has placed the company in a "Catch-22" situation, of sorts.
"We have invested more than $3.5 billion in leases and in supporting infrastructure—equipment, support vessels, baseline studies, and workforce training—in order to take the first step to explore for oil and natural gas," Lawrence said in his written testimony. "We have assembled what is arguably the most environmentally sensitive and thoroughly responsible exploration plan in history. Yet, for reasons largely beyond our control, permits have not been issued. Since our leases are only valid for a limited time, we are keen to move forward."
He emphasized that Shell is not seeking lower OCS environmental standards or a less-exhaustive public permitting process. "But we need a regulatory framework that is clear, and a regulatory process that is properly funded, efficient, and robust," Lawrence maintained. "The process should lead to timely decisions. Regardless of one's views on oil and gas development, we can all agree that endless delays by our government are wasteful to the taxpayer and should not be tolerated."
Richard Glenn, executive vice-president of lands and natural resources at Arctic Slope Regional Corp., an Alaskan Native-owned regional corporation and the single-largest ANS landholder with 5 million acres of surface and subsurface estate, said northern Alaska sent more than 2 million b/d, or one fifth of the nation's oil supply, through TAPS for shipment to the West Coast when production peaked around 1990.
"Today, Alaska's production is at about a third of its peak," he continued. "Continued reduction in volume, or throughput, as the large fields decline, threatens the integrity of the pipeline itself. At lower flow rates, paraffins and water are more prone to settle out and the oil cools more in transit due to its slow velocity. The result is an increased risk of accelerated corrosion and freezing. Despite the development of about a dozen other North Slope oil fields, none have yet been able to compensate for the decline of the much larger Prudhoe and Kuparuk fields. They have only lessened the steepness of the decline."
Overlapping swaths
Glenn said other nearby E&P prospects lie fallow because onshore development has nearly shut down due to a mixture of federal policy and land use decisions that have discouraged development. Further exploration of the 23 million-acre NPR-A, which then-US President Warren G. Harding designated specifically for its hydrocarbon potential in 1923 due to naturally occurring oil and gas seeps throughout the area, is at risk by overlapping swaths of national monument and critical habitat status within a petroleum reserve, he indicated.
"When North Slope leaders and others have advocated over the years for the exploration of the Native-owned lands on the coastal plain of the Arctic National Wildlife Refuge, we have been told that the NPR-A exists for that kind of activity," Glenn said in his written testimony. "Now, at a time when we need additional development, even the Native-owned lands in the NPR-A are being held off-limits." The US Geological Survey has said that the best new production prospects in Alaska lie along its portion of the OCS, where development of new production from prospects there offers the best hope for the future of ANS communities as well as TAPS, he added.
The Alaska Wilderness League issued a statement from an Arctic tribal leader with a different point of view following the hearing. "There is no proven technology to clean up oil spills in the Beaufort, Chukchi, or Bering seas, including in solid or broken ice conditions, and even in open water, especially when the sea is rough as it often is," said Caroline Cannon, president of the Native Village of Point Hope. "I am haunted by the worry that an oil spill will occur in our waters." Proposed oil and gas activities "affect the very foundations of who we are as individuals and as a people. We have a right to life, to physical integrity, to security, and the right to enjoy the benefits of our culture," she declared.
Another witness, US Pipeline and Hazardous Materials Safety Administration Administrator Cynthia L. Quarterman, said in her written statement that the US Department of Transportation agency already coordinates with the Joint Pipeline Office, a consortium of 12 federal and state agencies; the Petroleum Systems Integrity Office within Alaska's DER; the Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects; and the Alaska Gasline Development Corp., which is working to develop a plan for an in-state natural gas pipeline project.
"PHMSA is committed to achieving coordinated and effective oversight of Alaska pipeline systems," she told the subcommittee. "We would like to achieve more coordinated interagency inspections; the development of state–of-the art programs designed to better manage the integrity risks associated with operating pipeline systems in the unique conditions of Alaska; the development of enhanced inspection protocols and training programs; and the execution of cooperative agreements with other federal and state agencies for the purpose of achieving effective oversight."
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