Proceedings magazine is a communication tool for the Coast Guard's Marine Safety & Security Council. Each quarterly magazine focuses on a specific theme of interest to the marine industry.
Issue link: https://uscgproceedings.epubxp.com/i/578020
70 Proceedings Fall 2015 www.uscg.mil/proceedings Various international oil companies have indicated that these regulations will impact fnal investment decisions; however, the newly propped Arctic standards (under review as of September 2015) will seek to decrease the uncertainty IOCs face in committing to new exploratory programs. 26 Further, the leases in the U.S. Arctic OCS have 10-year terms that are nearing expiration. Shell, Statoil, and ConocoPhil- lips have submitted letters to BSEE requesting a suspension of operations for their leases, which would extend the lease term period. According to Shell, " … prudent exploration is now severely challenged prior to current lease expiration dates," citing "[previous disruptions], limited rig availabil- ity, brief operating windows, and the unusually long lead times required to mobilize activities in Alaska." 27 Economic Challenges The rise of unconventional energy is pressuring the eco- nomic feasibility of offshore Arctic oil production, which means that Arctic oil has a very high break-even price point. Industry estimates suggest break-evens for the U.S. Arc- tic could lie between $80 and $110 per barrel. During the last decade, sustained high prices supported Arctic devel- opment. However, growth in production from a variety of unconventional sources has created alternatives for capital investments and a structural oversupply that has caused the price of oil to drop 50 percent in the last year. 28 North America has led the charge in developing unconven- tional oil and gas resources. In the U.S., low permeability res- ervoirs have been accessed using the combined techniques of hydraulic fracturing and horizontal drilling. Deepwater production in the Gulf of Mexico has increased markedly during the same time frame, rising from seven percent of regional offshore production to more than 80 percent in 2012. 29 In Alberta, Canada, producers tapped the oil sands deposits, substantially increasing heavy oil production. In Brazil, Petrobras has grown production by reaching ultra deepwater offshore deposits in the "pre-salt" layer. Com- bined, these three countries increased hydrocarbon liquid production by 8.6 million barrels since 2005. This volume is equivalent to nearly 10 percent of total world production in the third quarter of 2014. 30 As a result of the late-2014 collapse in oil prices, oil companies worldwide are slashing exploration budgets, particularly on frontier plays like the Arctic. Financial analysts suggest industry-wide capital expenditures could drop 17 percent in 2015, the third largest decline since 1985. 31 For example, in December 2014, Chevron announced it was indefnitely suspending plans to drill in Canada's portion of the Beau- fort Sea. 32 In January 2015, Norway's Statoil announced it would not drill any wells in the Norwegian Arctic despite doing so in the previous two years. 33 Russian National Oil Pipeline System, and transported 800 miles to Valdez, Alaska, then loaded onto a tanker for delivery to refneries on the West Coast. 21 Social Challenges Beyond the latent physical and environmental challenges, there are a number of political and economic challenges fac- ing production in the Arctic. Most signifcantly, the Arctic is widely viewed as particularly sensitive and ecologically important. Groups such as the Sierra Club, World Wildlife Foundation, and the Pew Charitable Trust have called for either stricter drilling regulations for the U.S. Arctic OCS, or a ban on drilling altogether. As a result, each new operation comes under intense public scrutiny in a way that drilling activities in other parts of the country simply do not. The U.S. Arctic is also home to thousands of Alaska natives who depend on the marine and coastal environment for their subsistence and way of life. Federal agencies and industry actively collaborate with tribes, local governments, and sub- sistence groups to ensure good natural resource steward- ship and to avoid interference with subsistence activities. 22 Opponents of Arctic offshore drilling have challenged the legality of various aspects of the regulatory and permitting process in court. In 2014, the U.S. Court of Appeals for the Ninth Circuit held that the federal government's reliance on a one-billion-barrel production scenario was arbitrary and caused the agency to underestimate potential environmen- tal impacts. In response, BOEM released a supplemental environmental impact statement on February 12, 2015, based on a 4.3-billion-barrel production scenario. The new analysis included an increased oil spill risk, compared to previous versions. On March 31, 2015, Secretary of the Interior Jewell submitted a record of decision affrming the lease sale in question. 23 Despite this victory for proponents of Arctic drilling, legal challenges are likely to continue. As recently as June 2, 2015, an alliance of environmental and Alaska-based community groups fled a lawsuit in the Ninth Circuit Court of Appeals challenging BOEM's approval of Shell's 2015 summer oil exploration plan for the Chukchi Sea. 24 Recognizing the unique challenges the U.S. Arctic presents, BOEM and its sister agency, the Bureau of Safety and Envi- ronmental Enforcement (BSEE), released for public comment newly proposed Arctic exploratory drilling regulations on February 24, 2015. Further, both agencies have undertaken extensive environmental and safety reviews of potential oil and gas operations on the U.S. Arctic OCS, which, along with concerns of environmental organizations and Alaska natives, reinforced the bureaus' decision to develop addi- tional measures specifcally tailored to the operational and environmental conditions of the U.S. Arctic OCS. 25