Saturday, February 28, 2015

DOI wants operation plan, relief well rig for exploration drilling

Alaska Contract Staffing
Alan Bailey
Petroleum News

The Bureau of Safety and Environmental Enforcement and the Bureau of Ocean Energy Management, the two agencies within the Department of the Interior responsible for oversight of U.S. outer continental shelf oil activities, have released proposed new regulations for exploration drilling in federal waters of the Beaufort and Chukchi seas.

The agencies have been developing the regulations in the aftermath of the Deepwater Horizon disaster in the Gulf of Mexico - the draft regulations had been under review by the White House Office of Management and Budget since August and were released on Feb. 20. The regulations are subject to a 60-day comment period that will begin following publication in the Federal Register.

“The Arctic has substantial oil and gas potential, and the U.S. has a longstanding interest in the orderly development of these resources, which includes establishing high standards for the protection of this critical ecosystem, the surrounding communities, and the subsistence needs and cultural traditions of Alaska Natives,” said Secretary of the Interior Sally Jewell. “These proposed regulations issued today extend the administration’s thoughtful approach to balanced oil and gas exploration in the Arctic, and are designed to ensure that offshore exploratory activities will continue to be subject to the highest safety standards.”

Performance-based and prescriptive

Interior says the new regulations contain a combination of performance-based and prescriptive standards that cover all phases of offshore exploration in the Arctic.

The proposed rule includes requirements that an offshore operator file an integrated operations plan for proposed drilling operations; that the operator of a drilling project has available a capping stack and containment dome for dealing with an out-of-control well; and that the operator has available a second rig for the drilling of a relief well, should a well loss-of-control incident arise.

“This proposed rule is designed to ensure safe energy exploration in unforgiving Arctic conditions,” said BSEE Director Brian Salerno. “It builds upon our existing Arctic-specific standards and experience with previous operations offshore Alaska, encourages further development of technology, and includes rigorous safeguards to protect the fragile environment.”

“As we make the vast majority of the Arctic oceans offshore Alaska available for oil and gas leasing, we have an obligation to provide the American people with confidence that these shared resources can be developed responsibly,” said BOEM Director Abigail Ross Hopper.

The regulations specifically relate to exploration drilling, rather than the drilling required for oilfield development or maintenance.

During a Feb. 20 news conference Salerno said that a final version of the regulations will not be completed before this summer’s Arctic offshore drilling season and will not, therefore, apply to Shell’s planned exploratory drilling in the Chukchi Sea this year. But, Salerno commented, provisions within the regulations draw heavily on requirements that were set during Shell’s 2012 Arctic drilling operations, on lessons learned from those operations and on discussions held with Shell regarding its 2015 plans. Thus, if Shell does drill in 2015, the company will need to comply with some new requirements that correspond to features of the new regulations, Salerno said.

Integrated operations plan

The purpose of the integrated operations plan, which, according to the proposed regulations, an Arctic offshore operator would have to file with Interior at least 90 days prior to filing an exploration plan, is to provide government agencies with early information about what an operator intends to do and to stimulate early discussions about the operator’s intentions. “The whole purpose behind the operational plan is to provide early indications of how an operator proposes to approach a drilling season,” Salerno said.

The integrated operations plan would include information such as proposed vessel and equipment specifications; the schedule of operations; the drilling program objectives and timeline; contractor management arrangements; and plans for the preparation and deployment of spill response assets. The plan would not require formal agency approval, as is needed for an exploration plan.

Salerno said that the proposed regulations require that a company conducting drilling operations in the Arctic outer continental shelf has available in the Arctic the appropriate systems needed for the capping of a well following a loss-of-control incident, and for the containment of spilled oil, should the capping system fail. A capping stack, for sealing the wellhead, must be available for transfer to the well site within 24 hours of an incident, while cap-and-flow and containment systems, for gathering spilled oil and transferring the oil into surface vessels, must be available within seven days.

Salerno said that, given the remote nature of the Arctic, it would not be acceptable for an operator to contract the use of capping and containment systems that are stationed in the Gulf of Mexico.

Relief well capability

One particular feature of the proposed regulations is the mandating of a second drilling rig for the drilling of a relief well following a loss-of-control incident - a relief well is a secondary well drilled after a well blowout, to enable cement to be injected into the problem well bore, to permanently seal the well. The need for the rig and the need for a time window before the onset of the winter to drill a relief well add significant cost to an Arctic drilling operation. In a presentation to the Office of Management and Budget Shell argued there has been no recorded instance of a relief well bringing a well blowout under control, and that new well capping technology, coupled with improved well integrity management, can effectively reduce the probability of a loss of well control.

“We understand that the same-season relief rig is somewhat controversial,” Salerno said. “From our perspective that sets a level of protection for the Arctic that is necessary.”

Interior is also insisting that an operator has available sufficient mechanical oil recovery equipment to recover all oil spilled in a worst case spill scenario, even although there are alternative techniques, such as in-situ burning and dispersant use, that could be employed if appropriate.

And during drilling operations, it will be necessary to test the well blowout preventer every seven days rather than every 14 days, as is mandated elsewhere.

The discharge of drilling waste into the ocean has in the past proved controversial, especially in the context of Arctic offshore drilling. The proposed regulations would prohibit the discharge of any petroleum-based drilling mud and associated cuttings and would also give Interior’s regional supervisor the discretion to ban the discharge of water based mud.

And during drilling operations an operator must transmit drilling data to an onshore location, and make the data available to BSEE on request.

Varied responses

Shell, in its response to the proposed regulations, said that it supports regulations that further its concern about safety and environmental protection.

“We support regulations that further these imperatives in the Arctic, provided they are clear, consistent and well-reasoned,” said Shell spokeswoman Megan Baldino in a Feb. 23 email. “While we review the draft Arctic regulations put forward by the Department of Interior, we will continue to work with federal agencies, the State of Alaska, local communities, and contractors to develop a 2015 drilling program that achieves the highest technical, operational, safety and environmental standards.”

U.S. Sen. Lisa Murkowski, R-Alaska, chair of the Senate Committee on Energy and Natural Resources, said on Feb. 20 that she was still reviewing the proposed regulations and that she wants to evaluate what impact the regulations may have on the economic development of Alaska’s vast resources.

“Given the opposition this administration has shown so far to responsible resource development, I’m reserving judgment until it’s demonstrated that these regulations will not unnecessarily block investment,” Murkowski said. “If this administration is truly committed to developing our Arctic resources then it is imperative that the Interior Department provide clear direction to Shell and the other leaseholders in the region on how they can proceed.”

Environmental organizations praised the tightening of drilling regulations for the Arctic offshore while also expressing concern about the risks associated with drilling for oil in Arctic conditions.

“We applaud the government for recognizing that existing oil and gas regulations are not adequate,” said Susan Murray, Oceana’s deputy vice president, Pacific. “The new rules clearly are needed and are an improvement, but they do not ensure safe and responsible operations in the Arctic Ocean. There is no proven way to respond to a spill in icy Arctic waters and, as Shell unfortunately demonstrated, companies simply are not ready for the Arctic Ocean.”

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Thursday, February 26, 2015

Good trends for Alaska; Annual BP Energy Outlook 2035 sees a global shift in trade patterns for energy

Alaska Contract Staffing
Eric Lidji
For Petroleum News

With oil prices at six-year lows, it can be difficult to see much optimism for Alaska.

But three trends bode well for the oil and gas sector in Alaska over the next 20 years, according to the most recent edition of the BP Energy Outlook 2035, released Feb. 17.

First, the global energy system is changing directions. Second, global oil market should return to their normal balance. Third, liquefied natural gas should become dominant.

With Alaska sitting at the edge of the Asia-Pacific market and working toward expanding LNG exports while finding a market for existing oil supplies, those trends could help.

The annual outlook is a projection of current energy trends and policies rather than a prediction of what will happen, according to BP Group Chief Economist Spencer Dale.

Rising in the west

As always, trade patterns come down to supply and demand.

The growth of unconventional oil supplies in North America, the growth in oil demand in developing economies like China and India and the flattening of demand in developing economies such as North America, are currently shifting how energy moves around the world. Simply put, oil is moving from west to east after decades of moving east to west.

Specifically, imports to Asia are expected to account for 80 percent of trade among regions by 2035, up from 60 percent today, while exports from the Middle East are expected to fall from 55 percent in 2013 to slightly less than 50 percent by 2035.

At the same time, North America should soon become a net exporter of oil. While the United States imported some 12 million barrels of oil per day in 2005 - or 60 percent of its total demand - the country is on pace to become self-sufficient by the 2030s. By 2035, China should surpass the United States as the leading consumer of liquid fuels.

While unconventional oil production in North America is expected to flatten in the coming decades, the United States and Canada are expected to remain at the forefront of the boom currently under way, even though similar resources exist in other countries.

The current “weakness” in oil markets, as BP phrased it, is largely seen as the result of unconventional oil from North America backing out imports and glutting the market.

Seeing as how these resources drove the two largest single-year increase in domestic oil production in 2013 and 2014, the glut should take several years to “work through,” according to the outlook. Eventually, the high decline rate of unconventional wells and the limited available oil resource should lead domestic tight oil production to flatten.

As it does, global demand is expected to increase. The outlook expects the demand for oil to grow by 19 million barrels per day by 2035, which is the equivalent of adding another United States to global demand. The increase will come largely from China and India.

While tight oil supplies from North America will accommodate much of the demand in the short term, the Organization of Petroleum Exporting Companies is expected to meet the rising demand toward the end of the forecast period, which could rebalance the global market to the position it held long before North American tight oil.

Of the three fossil fuels, natural gas is expected to grow the most by 2035.

While coal has been the fastest growing fossil fuel in recent years, it is expected to become the slowest over the next 20 years as Chinese demand moderates, more policies aim to reduce carbon dioxide emissions and plentiful gas supplies ease conversion.

The outlook expects demand for gas to increase 1.9 percent each year through 2035 with about half being met by increased production from Russia, the Middle East and shale gas.

What is more relevant for Alaska is an expected change in the way natural gas moves.

As part of the changing movement of global energy supplies, the Asia-Pacific is expected to overtake Europe as the leading region for natural gas imports by the early 2020s and growing shale gas production will turn North American from an importer to an exporter.

The “overwhelming majority” of this increasing trade will come in the form of LNG, according to the outlook, which expects 8 percent growth per year through 2020. More tellingly, the outlook expects LNG to overtake pipelines by 2035 - a first in history.

Such a shift would impact gas pricing, as well as the geography of supply and demand.

Of that growth, about half should come over the next five years, as projects currently in the works come into operation. The rest should come between 2025 and 2035.

Given that LNG tankers are more mobile than pipelines, and therefore able to respond to price signals more quickly, an increase in LNG supplies would have the effect of integrating the global natural gas market, which is currently constrained by region.

While LNG is unlikely to create a “global gas price,” according to the outlook, it could cause gas prices around the world to move up and down in unison, with the differences between regions reflecting transportation costs rather than regional issues of supply and demand.

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US releases ‘One Arctic’ theme as it readies to take chair

DJ Summer

The Arctic Council wants to make sure citizens and politicians start looking northward as trade routes, natural resource development and national security issues emerge.

The United States will enter into the chair position of the Arctic Council in April 2015, taking over for Canada, which held the position since 2013. The chair position is held for two years before being taken by another of the eight member countries.

The U.S. is a member thanks to Alaska, along with the Russian Federation, Canada, the Kingdom of Denmark (including the Faroe Islands and Greenland), Iceland, Norway, and Sweden. The politicians working on the council, many of whom are Alaskans, say they plan to use the country’s position to bring more public, private, and political attention to an Arctic that’s rapidly becoming a focal point for everything from environmental concerns to international trade.

The council is an international study group of the eight countries that touch the Arctic Circle, founded by the Ottawa Declaration of 1996 to provide a means for its members to work on mutual Arctic-centric issues.

It makes no grants and builds no projects, focusing its efforts mostly on information gathering, sharing, and disseminating, both through collaborations among government bodies and working relationships with private advocacy groups, academic organizations, or any other organization who wants to contribute to Arctic study.

Alaska organizations like the Aleutians International Association partner with the council to work on projects involving climate change, ocean acidification, geophysical mapping, search and rescue, renewable energy studies, and social concerns like suicide prevention for rural Alaska communities.

The U.S. will serve as council chair under the administration of Secretary of State John Kerry, who will host a yearly summit of Arctic nations and maintain diplomacy but cede operations to the senior Arctic official, Julia Gourley.

Senior Arctic officials representing each member nation meet on regular basis to manage the council’s operations under an Arctic senior official chair held by the Arctic Council chair nation, in this case the U.S.

The U.S. Arctic senior official chair position has not been officially announced, but the name most frequently brought up as hopeful is David Balton. Balton has served since 2009 as Deputy Assistant Secretary for Oceans and Fisheries, Bureau of Oceans and International Environmental and Scientific Affairs within the U.S. Department of State.

Under the senior official body are several task forces, each concerned with marine oil pollution prevention, circumpolar business development, scientific cooperation, and black carbon and methane study.

Former Alaska Lt. Gov. Fran Ulmer will inform Kerry as a special adviser on Arctic science and policy. The last time the U.S. chaired the council was from 1998-2000, at which time then-Lt. Gov. Ulmer served as the state representative to interact with the council. Ulmer, who currently serves as chair of the U.S. Arctic Research Commission, said the U.S. has chosen a message of cooperation and stewardship as its mission statement.

“The U.S. has chosen for its broad theme for the chairmanship, ‘One Arctic, shared opportunities, challenges, and responsibilities,’” said Ulmer at an Arctic Council presentation at the Dena’ina Center on Feb. 11. “And under all three of those there’s a lot that we can talk about.”

Under the “One Arctic” mission statement, Ulmer says the U.S. has three focus points for the next two years: security and stewardship of the Arctic Ocean, climate change and improving the economic conditions of Arctic peoples.

Specific projects within that scope are being planned, Ulmer says, but the council process operates under a consensus rule, and any plans or proposals must have the majority support of Arctic nations before implementation.

The council will focus on getting the attention of citizens and lawmakers who otherwise might not have a reason to pay attention to the region.

“We’re trying to make brochures that tease out some info to get people interested,” Ulmer said. “We’re trying to explain to the Lower 48 and the rest of the world how important this place is and that we should treat it with respect. We need infrastructure that’s capable of responding. How do we get that? By getting those people and people in the U.S. congress to say ‘yes.’”

Craig Fleener has been appointed by Gov. Bill Walker as special Arctic advisor. Fleener echoes Fulmer’s call for greater attention to Arctic issues, especially for Alaskans.

“If it wasn’t for Alaska, the U.S. wouldn’t be an Arctic nation,” Fleener said. “We cannot treat this as a two-year slice of time. This will continue to be our home when Finland or Russia takes the chair.”

Fleener says that the state’s focus in its involvement with the Arctic Council will be on bolstering “community sustainability.” Emphasizing proper fish and game management and finding solutions for energy cost reduction, he says, are key to state survival, and developing regional and academic partnerships will be instrumental in furthering those goals.

Admiral Bob Papp was appointed in 2014 to serve as special representative to the Arctic. In this role, Papp serves as a kind of ambassador between Arctic nations beyond just the scope of the council.

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