Oil & Gas Industry Tussles with U.S. Administration

March 5, 2012
The oil & gas industry lost one and won one with regard to tussles with the Obama administration over approval for some large projects.

TransCanada’s Keystone XL pipeline project was to bring Canadian oil from Alberta’s tar sands to the U.S. in a 1,700 mile pipeline. It was hailed by advocates as a way to create jobs, move the United States toward energy independence and ease the U.S.’s balance of trade. Rayola Dougher, senior economist with the Washington, D.C.-based American Petroleum Institute (API, www.api.org), said, “When completed, the Keystone pipeline would halve what the U.S. imports from the Persian Gulf—and help reduce Mexican and Venezuelan imports.”

Dougher added that, for every dollar the U.S. spends buying the oil from Alberta’s tar sands, the Canadians spend $0.90, while the Persian Gulf region “spends only about 33 cents per dollar” in the U.S.

Pipeline foes cited environmental reasons for permanently blocking the project. Seventy-five days into a 90-day review late last year, President Barack Obama put his decision on hold, then recently gave a “no” to the project.

At about the same time, however, the New York Times reported that Shell Oil cleared one of the last remaining hurdles to Arctic offshore drilling: the Obama administration approved Shell’s spill response plan for the Chukchi Sea.

Environmentalists and Alaska Natives living along the Arctic Coast have opposed drilling, and Interior Secretary Ken Salazar said in a prepared statement that the federal government was taking a cautious approach.

“In the Arctic frontier, cautious exploration—under the strongest oversight, safety requirements, and emergency response plans ever established—can help us expand our understanding of the area and its resources, and support our goal of continuing to increase safe and responsible domestic oil and gas production,” Salazar said.

Shell Oil Co. hopes to drill up to three wells in the Chukchi during the short open water season this summer and two wells in the Beaufort Sea off the state’s north coast. The federal government estimates there are 26.6 billion barrels of recoverable oil and 130 trillion cubic feet of natural gas in the Arctic Ocean’s outer continental shelf reserves.

Salazar said Shell must still obtain approval from the Bureau of Safety and Environmental Enforcement, which must inspect and approve equipment that has been designed for spill response. That equipment includes Shell’s capping stack, a device that could be lowered onto a well after a blowout. Shell also had to show the capability to capture and collect oil from the stack and to have a second drilling ship stationed nearby that was capable of drilling a relief well that could kill a well blowout.

Rebecca Noblin, an attorney for the Center for Biological Diversity in Anchorage, said Shell’s cleanup plan relies on technology such as the capping stack that has not even been built, much less tested. The government’s decision presumes Shell’s next test will succeed.

Shell Alaska Vice President Pete Slaiby said approval of the oil spill response plan is a major milestone. The decision, he said, validates the huge amount of time, technology and resources the company has dedicated to assembling an Arctic oil spill response fleet, including $2.1 billion on leases in the Chukchi Sea.

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