Huston, 4 June 2010

Just as offshore natural gas drilling got its legs, the rug has been pulled out from underneath it. The mammoth oil spill in the Gulf of Mexico is to blame. The question of whether to allow more production in light of the BP oil disaster is one that is likely to haunt the oil and gas sectors for a long time. It's tantamount to how the accident at Three Mile Island has derailed nuclear development for three decades. For now, the Obama administration has pulled back on its earlier commitment to allow more offshore drilling and instead has decided to "study" the issue.

"While deepwater drilling has come under fire because of the Gulf spill, much of the close-to-shore natural gas production done in shallow waters may be harmed," says Frank Maisano, spokesperson for several utility concerns. "Most of this drilling is for natural gas, which is an essential fuel for cleaner energy demanded by many legislators, environmental advocates and communities."

However, natural gas oftentimes is discovered alongside oil. But proponents of natural gas emphasize that unlike oil, it is not a solid and therefore less problematic. Also, advances in technology and safety mean that natural gas exploration is safer and less noticeable than ever before. Altogether, the U.S. Department of Interior says that 27 percent of oil and 15 percent of natural gas is now discovered offshore.

The timing of the Gulf spill couldn't be worse for Shell, which is now trying to win final approval to begin drilling in the Arctic Ocean off Alaska. The company says that it can explore safely, emphasizing that its "shallow water" sites are much easier to manage than BP's deep water positions in the Gulf. If a blowout did happen, Shell adds that its technology would permit it to immediately shut off the well.

Just before the Gulf oil spill, President Obama had said the U.S. government would end its two-decade ban on offshore drilling in many areas as a way to make this country more energy independent -- and to win support from fence-sitting lawmakers with respect to climate change legislation. Business groups lauded the policy shift, saying that there's enough natural gas offshore to energize American homes for the next 60 years.

The White House is now putting those plans on hold. Supporters say that the current accident is not isolated, pointing to Exxon's disaster in Alaska in 1989 and the spill in the Pacific near Santa Barbara in 1969. They add that this is the time to emphasize the transition to cleaner burning fuels and for the country to wean itself of fossil fuels.

"The establishment of a presidential commission to investigate this disaster, as was done following the Three Mile Island and Challenger disasters, is a critical step to providing an independent, unbiased assessment of what happened and how such disasters can be averted in the future," says Frances Beinecke, president of the Natural Resources Defense Counsel.

Rigorous Technologies

Commissions, invariably, create delays. While the common concerns of how to properly permit and inspect drilling sites are paramount, environmentalists know that the process is a long-winded one that will keep offshore exploration at bay. Beyond the ecological damage, their rationale is that this country cannot drill its way to energy freedom.

Indeed, the U.S. Energy Information Administration has said that, realistically, access to the Outer Continental Shelf -- Atlantic, Pacific and Eastern Gulf regions -- would not have a "significant" impact on domestic crude oil or natural gas production before 2030. Leasing would begin no sooner than 2012, it adds, noting that production would not begin until 2017. While it says that plenty of oil and gas is offshore, it emphasizes that it will take and money to discover it.

In the case of Shell, it has already spent about $3 billion for leases in the Arctic region -- all to recover what federal agencies say is 15 billions barrels of oil and 77 trillion cubic feet of natural gas. Shell said in a recent letter to the Minerals Management Service that a large oil spill from a blowout is "extremely rare."

Vigilance is the key. Part of Shell's strategy to avoid a fate similar to that of BP is to keep rescue staffs on call as well as to inspect its sites once a week. Shell also said that the icy waters in the Arctic make any oil clean-ups easier than they would be in the warmer waters of the Gulf.

That's has not satisfied skeptics. Many U.S. lawmakers have sent a letter to the president asking him to intervene to stop Shell. Representatives from states along the Pacific coastline say that rigorous prevention technologies must first be established. They also say that responding to any disaster in the Arctic would be exceedingly difficult given the distance between the drilling sites and onshore positions.

"Basic questions remain about Shell's ability to respond to any significant sized oil spill in Arctic waters," adds Marilyn Heiman, U.S. Arctic program director for Pew Environment Group. "It would be irresponsible to move forward."

Extensive, new offshore drilling rights had been in sight. But those visions are now more distant as the country wrestles with the Gulf clean up and determines how to prevent such accidents from occurring again. Shell and other producers are caught in the middle of it all. To their dismay, it appears that they will endure a paradox similar to the one faced by the nuclear industry.

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