Oil companies' new Gulf drilling plans called inadequate

McClatchy NewspapersApril 15, 2011 

WASHINGTON — Oil companies recently turned in their first plans for exploratory drilling in deep waters of the Gulf of Mexico, including new information the government has required since last year's BP blowout about how they'd try to prevent and cope with another oil disaster.

The oil companies that want to explore the seabed below the deep water say they've learned from last year's accident and have better plans in place than they did a year ago, when an explosion at an oil rig set off the nation's worst oil accident.

Environmental groups, however, cite several reasons those plans fall short: The system to capture oil at a broken wellhead still hasn't been proved in the very deep waters; systemic problems with blowout preventers haven't been solved, and companies were too optimistic about how quickly they could drill the kind of relief wells that ultimately plugged the BP spill.

The plans for the new exploratory wells come as Republicans are using high gas prices to push the Obama administration into speeding up permit approvals and expanding drilling.

Government regulators put three exploration plans up for public review earlier this month. The three plans — from Shell Oil, Statoil, the Norwegian state oil company, and BHP Billiton of Australia — follow the government's new regulations by spelling out details of what worst-case scenarios the companies expect, how they calculate it, what they've done to reduce the risk of a blowout and what they'd do to stop the oil if prevention failed.

The Department of Interior's drilling regulatory agency on March 21 approved the first exploration plan — one by Shell Offshore Inc. to drill three wells at 2,950 feet deep. Secretary Ken Salazar said that it met a "strong new standard for safety and environmental protection."

Environmental groups express concerns during the review period, which ended this week.

"We're being told don't worry, we have these new safety standards. But when you look at what it is, what they have to prove, it's not very satisfying," said Jackie Savitz, director of pollution campaigns at Oceana, an ocean conservation group that opposes an expansion of offshore drilling.

Shell Oil, Statoil and BHP Billiton say they have a new system to cap and contain oil in case of an accident and that they'd be able to drill relief wells faster than the five months BP needed last year for the Macondo well.

The exploration plans must be approved before companies can apply for permits to drill. Regulators have approved permits to drill 10 deep-water wells since a post-spill moratorium was lifted.

Oceana and another group, Environment America, argued in written comments that the companies underestimated the time it would take them to drill a relief well. BHP Billiton said it would take 81 days; Statoil said 62 days; and Shell said 128 days.

The environmental groups argued the time probably would be longer, meaning that more oil would flow over a longer period than the companies' plans show.

They said that the government should require the companies to dig a relief well at the same time as they dig the exploratory well as a precaution or have a drilling rig standing by ready to dig. The companies told the government they each had two rigs that would be in the Gulf and could be called into service. The environmental groups said those rigs would be doing other work, which would delay them from getting started on a relief well.

The groups also said that blowout preventers can't be counted on, as shown when the device failed in last year's accident. They also said it's not clear how long it would take to contain oil in an accident.

Shell, Statoil and BHP Billiton all are members of Marine Well Containment Co., a Houston-based consortium that says its containment system is ready for deployment, could operate in 8,000-foot depths and could process 60,000 barrels of oil per day.

The plans don't say how long it would take to cap a broken wellhead. Shell's plan, for example, says only that the equipment could be brought in rapidly.

Marine Well Containment Co. was formed last July. It owns and maintains a containment system that it says is significantly better than previous systems in the Gulf. Houston-based Helix Energy Solutions Group Inc., whose equipment was used in the BP spill, also has equipment to cap a well in deep water.

"The big change compared to how things were before Macondo is that we now have a capping and containment solution for each and every well. That is a big change," said Ola Morten Aanestad, a Statoil vice president and spokesman in North America.

He said that the industry and its regulators didn't approve of drilling a relief well in advance, "because every well has a risk and if you drill more than you need you're actually increasing the risk instead of reducing it."

But David Pettit, an attorney with the Natural Resources Defense Council, another group that filed critical comments about the plans, said Marine Well Containment's system is "not ready for prime time."

Pettit said NRDC, Sierra Club and other groups mainly argued that the government should do a more extensive environmental impact assessment than it planned to do.

The Bureau of Ocean Energy Management, Regulation and Enforcement has 30 days to decide on whether to approve the plans or ask for more information. The agency must look at the amount of oil the companies think could flow and the specific characteristics of the well and decide whether they have the right equipment to be able to stop the flow at the wellhead, drill relief wells and clean up.

Democrats on the House Natural Resources Committee on Wednesday offered amendments that they said would improve safety by requiring measures to prevent blowouts, but the amendments failed.

The Republican-controlled House of Representatives is expected to pass legislation that would set deadlines for permit approvals in the Gulf of Mexico and open waters off Southern California, much of the Atlantic Coast and parts of Alaska to offshore drilling.

MORE DRILLING, LOWER PRICES?

Republicans argue that President Barack Obama's restrictions on drilling are leading to higher gasoline prices.

If the U.S. were to step up domestic oil production, would it make a difference on the price of oil? That's debatable and in some senses not completely knowable.

The price of oil is a global price, set by financial markets and not end-users or oil producers, although both can influence the price depending on circumstances. Oil prices went up to $114 a barrel this month because of unrest in Libya, even though Libya isn't a major producer and Saudi Arabia stepped in to replace the lost production.

In 2009 and 2010, the U.S. boosted domestic oil output — thanks mostly to deepwater drilling — after years of net declines. Oil prices peaked in 2008 and then collapsed along with the economy later that year. With the economy recovering, oil prices are back over $100 a barrel despite the greater U.S. supplies.

So if the U.S. was pumping another 500,000 barrels per day of domestically produced oil, few analysts think it would significantly lower oil prices.

That's not to say that additional U.S. supply would have no effect.

"It's definitely part of the equation," said John Kilduff, a veteran energy trader with AgainCapital in New York.

Kilduff and other traders think additional U.S. supply gets cooked into a complex equation that includes not only the risks of oil supply disruption in production regions globally but also the strength or weakness of the U.S. dollar. A less risky source of supply helps boost expectations of adequate supply, but this is weighed against other global factors such as risk and developments in currency markets.

ON THE WEB

Statoil's Alaminos Canyon exploration plan

Shell's Mississippi Canyon exploration plan

BHP Billiton's Green Canyon exploration plan

Environmental groups comment on Statoil's Alaminos Canyon plan

Environmental groups comment on Shell's Mississippi Canyon plan

Environmental groups comment on BHP Billiton's Green Canyon plan

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