x Abu Dhabi, UAEMonday 24 July 2017

Ocean of problems awaits if Shell fails to sail with caution

The contrasting fates of the tanker Ob River and the drill-ship Kulluk illustrate the promises and challenges of operating at the top of the world.

Last week, Shell's drill-ship Kulluk broke loose from its tug boats and grounded on an island south of Alaska. US Coast Guard / AP Photo
Last week, Shell's drill-ship Kulluk broke loose from its tug boats and grounded on an island south of Alaska. US Coast Guard / AP Photo

Two vessels, two voyages in the icy Arctic waters, one ending successfully, one not. The contrasting fates of the tanker Ob River and the drill-ship Kulluk illustrate the promises and challenges of operating at the top of the world.

The Ob River, carrying a cargo of liquefied natural gas from Norway, sailed through the North-East Passage - the Arctic seas north of Russia - and arrived in Japan early last month. This saved 20 days on the usual route through the Suez Canal and Indian Ocean. The hull was specially strengthened to resist icebergs, and en route the crew saw polar bears.

In a less successful story, last week Shell's Kulluk broke loose from its tug boats during a force 10 gale and grounded on an island south of Alaska. The incident has been seized on by environmental campaigners as evidence that Arctic drilling is inherently unsafe.

"This string of mishaps by Shell makes it crystal clear that we are not ready to drill in the Arctic," said the Natural Resources Council.

Ironically, the Kulluk is not even in Arctic waters at the moment - the spot where it grounded is at the same latitude as Scotland. It had finished a short drilling campaign in the Chukchi Sea, north of Alaska, and was returning to Seattle for winter maintenance.

Some investors are complaining for a different reason - they think Shell is wasting money. Shell bought its Alaskan licence for US$2.1 billion (Dh7.71bn) in 2008 and has now spent more than $5bn in total, without completing a single well. It was delayed by a federal moratorium following BP's Macondo disaster in 2010, then by problems with tighter environmental requirements, testing a system to capture oil in the event of a blowout, and with its other drill-ship breaking free of its moorings.

Improved technology, high oil prices and fast-melting sea ice caused by global warming have made the far north more appealing - with the opening of sea routes such as the North-East Passage, and new Arctic petroleum exploration campaigns in Alaska, Norway and Russia.

Still, drilling in the Arctic is not new. Shell itself discovered the Burger field, to which it is now returning, in 1990, while the Japanese drilled the icebound waters off Sakhalin, in Russia's Far East, as far back as the 1970s. The Snøhvit field in Norway's Barents Sea, from where the Ob River picked up its cargo, was found in 1984.

Drilling in the Arctic is not some kind of brand-new frontier, as some hyperventilating commentators on "extreme oil" have suggested. But it does pose unique challenges - a short summer drilling season, total darkness in the winter, sensitive ecology, and the problem of cleaning up any oil spill beneath ice packs.

Geologically, Burger is much less problematic than BP's Macondo - lower pressures, and containing gas, which would disperse harmlessly in the case of a leak, rather than oil. But clean-up efforts in the Gulf of Mexico are far easier, the ecosystems much more robust than in the Chukchi.

The early days of exploration in the stormy North Sea, during the 1960s and 1970s, were beset by several disasters and oil spills, but environmental standards and public attention were much lower in those days.

Shell will have to proceed cautiously, with the opponents of Arctic drilling ready to pounce on even minor incidents. The Gulf of Mexico spill showed that a major accident, particularly in the litigious US, can almost bankrupt even a super-major oil company such as BP.

Shell has set itself the tough challenge of simultaneously battling the hostility of environmentalists, economics and Arctic seas. Next year's drilling campaign needs to sail ahead smoothly, not run aground again.

 

Robin Mills is the head of consulting at Manaar Energy, and the author of The Myth of the Oil Crisis and Capturing Carbon