Shell’s Latest Mishap Ends This Year’s Arctic Oil Drilling

on Sep 19, 2012
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Royal Dutch Shell (LON:RDSA) was forced to give up on this year’s Arctic drilling operations after its containment dome, a giant metal cap meant to contain oil spills from a well blowout, got damaged during tests and no longer meets the stringent acceptance standards of the US Environmental Protection Agency.

With accordance to US regulations, Shell has agreed to stop its drilling operations as of the 24th of September when the Arctic ice is expected to begin expanding and any potential oil spills will become near-impossible to clean up. Initial plans for the season involved the completion of at least two wells but with the numerous setbacks encountered, Shell won’t be able to finish even one.

!m[](/uploads/story/421/thumbs/pic1_inline.png)The company said that this year it will only drill the so-called top holes, which don’t extend all the way down to the oil reserves will at least lay a strong foundation for a more successful season next year. The drilling will take place in shallow waters of about 100 feet, which is only a fraction of the depth of BP’s Gulf of Mexico operation. By October 31, Shell must completely pull out of the sea and wait for the next drilling season to begin at the beginning of August 2013.

The oil giant has invested some $4.5 billion (£2.8 billion) over seven years to prepare for drilling in the Chukchi Sea off the Alaskan coast but has faced a number of setbacks. Only a day after announcing on September 9 it had begun drilling, Shell was forced to disconnect its oil rig from the well to avoid encroaching ice. The company now needs to wait for the traditional Eskimo whaling season to conclude before it can begin an exploratory well in the Beaufort Sea.

The recent setbacks were met with enthusiasm from Greenpeace and other environmental activists, who believe drilling in the Arctic Ocean is reckless and bound to cause insurmountable damage. “Nearly 2 million people from around the world have joined the Greenpeace campaign to Save the Arctic and keep it off limits to oil companies,” announced Ben Ayliffe, senior Arctic campaigner. According to Niel Lawrence, senior attorney at the Natural Resource Defense Council, Shell’s mishaps only prove that drilling in such harsh conditions is not safe “not now, not next month, not next year”. “If you can’t even test your safety systems in calm waters without damaging them, you’ve got no business drilling for oil in the Arctic.” Mr Lawrence added.

Despite the complications, the Arctic Ocean and its 13 percent share of the world’s undiscovered oil reserves are way too tempting for Shell to ignore. Other oil giants, including Statoil (NYSE:STO) and Gazprom (MCX:GAZP), share the Dutch company’s ambition and are rapidly working on alternatives to the abandoned project of the Shtokman gasfield in the Russian Barents Sea. The Norwegian oil producer is said to be developing a prototype of a gas compressor with the size of a football field and 66 feet (20 metres) high, which will sit beneath the ice and extract oil throughout the year.

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