Market News

 September 09, 2013
Shell responds to $1.1 million Arctic pollution deal

 Shell's troubled quest for Arctic oil in 2012 --- now capped with a $1.1 million fine for environmental violations --- will make the company better prepared to return to the region, a spokesman said Friday.

"For 2012 operations offshore Alaska, Shell accepted stringent emission limits that were based on assumptions and modeling," said company spokesman Curtis Smith. "Following a season of operations, we now better understand how emissions control equipment actually functions in Arctic conditions."

At issue were emissions of nitrogen oxide and other materials from Shell's Kulluk conical drilling unit and its contracted drillship Discoverer, while they were working in the Beaufort and Chukchi seas north of Alaska.

Air permits issued by the Environmental Protection Agency set limits for the kinds and amounts of pollution that could be released from the vessels, supporting ships and the main generator engines on the Discoverer. But Shell later asked for leeway to release an unlimited amount of ammonia and more nitrogen oxide than originally permitted from the Discoverer's main generator engines.

Andrew Hartsig, director of the Ocean Conservancy's Arctic Program, said the EPA fines "underscore the fact that Shell could not meet the terms of its air quality permits, even when given special treatment through waivers that allowed the oil company's vessels to emit more pollution than originally specified."

The EPA said it documented "numerous air permit violations" for Shell's fleets based on inspections and the company's own excess emission reports during the approximately two months the vessels operated in the waters north of Alaska.

According to legal documents filed Thursday, nitrogen oxide emissions from all six main generator engines on the Discoverer occasionally exceeded a permitted limit of 4.64 pounds per hour. Limits on individual engine units also were crossed during startup and at other times.

Because the generator engines were not the biggest source of nitrogen oxide, Shell did not exceed its overall annual cap on emissions.

The EPA said Shell also violated the terms of its air permits by briefly turning on the Discoverer's propulsion engine to prevent the drillship from drifting amid high seas on Oct. 27, 2012. At the time, the turbulent conditions prevented an anchor handling vessel from connecting to the Discoverer, and the ship was in the process of being unmoored from the drill site.

All told, the EPA cited 23 violations of the air permit governing the Discoverer and 11 for the Kulluk.

Shell's Smith stressed that despite the excess emissions, the EPA did not allege the pollution caused any harm to local populations.

Environmentalists said the size of the fine was a slap on the wrist, especially given that Shell has invested nearly $6 billion in its Arctic drilling pursuit already. Hartsig cast the pollution violations as "just one in a long string of mistakes and failures" that underscores the need for Arctic-specific standards governing oil and gas development in the remote region.

Other problems during Shell's Arctic drilling program last year included the failed test of a unique oil spill containment system, the drifting of the Discoverer in Dutch Harbor and the grounding of the Kulluk on an Alaskan island on New Year's Eve.

Facing a long time to repair the Kulluk in an Asian shipyard, Shell called off its plans to resume hunting for oil in U.S. Arctic waters this year. ConocoPhillips followed suit, saying it would delay its own plans to begin a fresh round of Arctic drilling --- decades after the last wells were completed in U.S. waters north of Alaska.