The Intertubes have been buzzing with news of the ban on Arctic drilling announced last week by President Obama. Though the news may have taken some political and industry observers by surprise, you can check out a recent development in California for hints at the direction in which federal agencies are steering the US oil and gas industry in the past couple of years. It sure looks like evolve is the word of the day for the energy policy formerly known as “all of the above.”
The Arctic Drilling Ban
Just last summer, our friends over at Fuel Fix noted that Royal Dutch Shell had nailed down a couple of important federal permits for Arctic drilling. However, the company abandoned its Arctic drilling plans in September, just a few weeks before the announcement of the Arctic drilling ban.
We’re giving props to Shell for its “you can’t fire me, I quit” strategy. Slumping oil prices were cited as the reason for the pullout, but we’re guessing that Shell also saw the writing on the White House wall.
Also not helping: just a couple of years ago the company was cited by the US Environmental Protection agency for “numerous” violations of the Clean Air Act related to its Arctic drilling operations, and high profile protests in Seattle over the docking of a Shell drilling rig monkeywrenched the company’s efforts to highlight its commitment to climate action.
The slump in oil prices was also cited by the Interior Department last week when it announced the new Arctic drilling ban:
In light of current market conditions and low industry interest, the U.S. Department of the Interior today announced that it will cancel the two potential Arctic offshore lease sales scheduled under the current five-year offshore oil and gas leasing program for 2012-2017. The decision follows Shell’s announcement of its exploration results at the Burger prospect in the Chukchi Sea and that the company will cease further exploration activity in offshore Alaska for the foreseeable future.
Interior also denied extensions to two companies with existing leases:
Today, the Bureau of Safety and Environmental Enforcement (BSEE) also denied requests from Shell and Statoil for lease suspensions, which would have allowed the companies to retain the leases beyond their primary terms of ten years. The leases will expire in 2017 (Beaufort) and 2020 (Chukchi). Among other things, the companies did not demonstrate a reasonable schedule of work for exploration and development under the leases, a regulatory requirement necessary for BSEE to grant a suspension.
In defending the Arctic drilling ban (basically, a withdrawal of the lease program for this cycle), Interior cited the low interest in Arctic oil leases. The agency was wary of a non-competitive process leading to the award of a lease at rock-bottom prices.
California Drops A Clue On Arctic Drilling Ban
Environmental organizations have long pointed out that federal fossil fuel leases have been giveaways, and it looks like the Arctic drilling ban is a step toward the end of free lunch days.
We’re also thinking that the cost of effective federal oversight for fossil fuel operations was another motivator, particularly where sensitive environments are involved, and that’s where California comes in.
In the midst of an ongoing drought last year, California regulators were called to task for permitting oil and gas drillers to dump wastewater into aquifers that could have been used for domestic and agricultural use, following an EPA investigation dating back to 2012.
That resulted in an EPA drilling wastewater enforcement plan last spring:
As the state implements the plan, EPA will continue our heightened oversight to ensure that the state’s oil and gas UIC program meets federal requirements. This effort includes ensuring that wells which inject into non-exempt aquifers, including several hundred disposal wells (with approximately 70 disposal wells in the 11 aquifers historically treated as exempt), nearly two thousand enhanced oil recovery wells, and any cyclic steam wells requiring aquifer exemptions, are addressed as expeditiously as possible, with an immediate emphasis on the wells in aquifers with the highest water quality.
Boy howdy, right? Our friends over at Fuel Fix have been keeping tabs on the state’s response and at the last count California had shut down 33 oilfield injection wells, mainly in Kern County, that were injecting wastewater into federally protected water supplies under improperly issued state permits. That’s on top of another 23 wells shut down earlier this year.
It’s also worth noting that when local communities have attempted to adopt stricter regulation of the fossil fuel industry due to environmental concerns, they are often overridden by state legislation.
In terms of federal energy policy, it’s pretty obvious that the Obama Administration decided that California’s key role in the national economy — in agriculture as well as other sectors — was not being stewarded properly by local officials.
That’s where we see a parallel with the Arctic drilling situation. In the absence of local regulations, the feds are the only game in town and it seems that the Arctic’s role in the US economy is too important to trust to compliance by oil companies.
Interior’s actions last week on Arctic drilling are only temporary, but the trend is toward a permanent clampdown.
Photo credit: via US Department of the Interior.
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