As Shell’s Arctic Drilling Hopes Hit Snags, Its Rivals Watch

The New York Times by  Clifford Krauss and John M. Broder

HOUSTON — Royal Dutch Shell’s Arctic drilling program is now officially in jeopardy and its prospects will depend on the findings of two continuing federal inquiries. One review is on the grounding of the Kulluk drill ship on New Year’s Eve after it was set adrift for five days in stormy weather, and the other is on the safety management of the entire Shell program.

Rival oil companies, as they form their strategic choices, are keenly watching to see how Shell’s $4.5 billion exploratory operation off the North Slope of Alaska is faring and how the effort is working with wary United States regulators.

The answer, so far at least, is not well.

The grounding of the Kulluk was only the latest in an extensive series of Shell missteps that environmentalists say highlight the dangers inherent in prospecting for oil in the unpredictable and severe Arctic environment.

Ken Salazar, the interior secretary, has already expressed what he called a “troubling sense” about Shell’s repeated operational mistakes — the latest being violations of air quality permits by both of Shell’s drilling rigs in Arctic waters last summer.

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Shell and the federal government have much at stake. Shell’s six years of effort and investment could put it at the forefront of the next big global oil prospect.

For the Obama administration, the rough start to drilling in the Arctic has called into question the credibility of federal regulation of the oil industry as well as the potential for billions of dollars of royalty payments from Arctic oil and a reduced dependence on imported fuels.

This early phase of Arctic exploration was supposed to be the easy part — drilling low-pressure wells in shallow water during generally benign summer weather. But problems with equipment, transportation, persistent sea ice and poor management have caused many to question whether the infinitely more complex long-term goal of year-round production in the Arctic is even feasible.

Drilling platforms that will operate permanently throughout the year will require engineering robust enough to withstand the brute force of crashing icebergs. Pipelines will need to be designed and laid to connect offshore fields with the Trans-Alaska Pipeline; they will need to be buried deep below the seafloor to protect them from sea ice known to gouge into the seabed.

“These are very complex operations that require many elements to fall exactly in place,” said Tad Patzek, chairman of the Department of Petroleum and Geosystems Engineering at the University of Texas at Austin.

Halting Arctic drilling, even if temporarily, would please environmentalists, perhaps affording the Obama administration political space to approve the contentious Keystone XL pipeline connecting oil sand fields in Canada to refineries in the United States. The administration could decide on both projects in late March, presenting it with complex political calculations early in Mr. Obama’s second term.

Lois Epstein, an Alaska-based environmental engineer and a member of an Interior Department advisory panel on offshore drilling safety, said that the current reviews could result in a drilling timeout.

“They want the investigation to have credibility and not be a whitewash,” said Ms. Epstein, the Alaska program director for the Wilderness Society. “If the report includes substantial information suggesting that moving forward in the Arctic is a mistake, then the administration will have to take that information seriously.”