Michael Macrander of Shell says that the company is not exactly sure how it would build an offshore platform or a pipeline from offshore fields.
Michael Macrander, Lead Scientist of Shell’s Alaskan operations discusses what Shell will need to look at in the future for Alaska.
Michael Macrander, Lead Scientist of Shell’s Alaskan Operations discusses how economics could affect Shell’s decision to stay in Alaska.
Michael Macrander, Lead Scientist of Shell’s Alaskan operations discusses the company’s commitment to scientific research in Alaska.
Written by: Rachael Petersen
The whole world is watching Shell prepare to drill exploratory wells in the Beaufort and Chukchi Seas: some with excitement, others with alarm, but many with waning confidence. So far, things have not gone according to planned.
Thick summer sea ice has delayed Shell’s goal to drill exploratory wells before their deadlines, September 24 for the Chukchi Sea and October 31 for the Beaufort Sea. Even with the delay, some question Shell’s preparedness to begin oil operations in the Arctic – concerns that were revived on July 14th when the Noble Discoverer Drill Ship lost is moorings and drifted about 300 feet toward the shore of Dutch Harbor. And the company continues to battle the Environmental Protection Agency (EPA) for an air permit – or a waver – after tests on the same drill ship showed higher-than-accepted levels for ammonia and nitrous oxide. These factors caused Shell to downsize their original plan to drill exploratory five wells this summer to only two.
No one is more anxious about Shell’s operations than the state of Alaska, which hopes to revive the declining rate of oil flow through the Trans Alaska Pipeline System – currently at one-third capacity. If drilling is successful, the “size of the prize” could prove immense. The U.S. Geological Survey estimates that the Arctic holds a bit over one-fifth of the world’s undiscovered, recoverable oil and natural-gas resources. The Beaufort and Chukchi seas together have an estimated 19.6 billion barrels of recoverable oil, or enough to sustain more than 2.5 years of U.S. oil consumption. Other oil companies owning leases in offshore Alaska are also anxious to begin exploration.
For years, if not decades, Alaskans have been talking about shipping their natural gas out of the state. Today, such discussion is framed as part of Alaska’s post-oil “exit strategy.” The state, so the logic goes, has 35 trillion cubic feet (tcf) of proven natural gas reserves and upwards of 100 tcf of potential resource to fall back on for exports, when oil shipments to the lower US 48 are no longer available in sufficient volumes to pay the bills.
Written by: Rachael Petersen
One of the most complex challenges facing Alaskan communities is rapid coastal and riverbank erosion and flooding that threaten both infrastructural stability and human well-being. Rising sea level, melting sea ice, thawing permafrost and other environmental changes put 85% of Alaskan communities that dwell along waterways at risk for costly repairs or even relocation. Not only do many of these isolated Native communities lack the money and tools to relocate, but current government policy also renders them ineligible for some existing disaster funds due to high cost of operations in rural Alaska, small population – some less than 100 - and low value of village infrastructure. Traditional cost-benefit analyses render village relocation a financially untouchable undertaking, leaving many Alaskans wondering who will foot the bill as climate change hastens.
Publicity surrounding the situation of Kivalina, Newtok, Shishmaref and other similar communities is highlighting the need for a broader, coordinated erosion response policy to provide technical expertise and funding to threatened Native villages. While two Government Accountability Office (GAO) reports focused national attention on these policy shortcomings first in 2003 and then in 2009, little progress has been made to address the GAOs recommendations. In the absence of coordinated state and federal relocation efforts, some communities have resorted to highly improbable litigation measures or publicity campaigns to attract support for erosion needs. Newtok, the community hailed as the most advanced in its relocation efforts, relied largely on its own village leadership and initiative to locate and secure an acceptable relocation site. Not all villages can rely on such dynamic internal decision-makers to lead this process.
Background and Context
Flooding and erosion affect 184 out of 213, or 84.4% of Alaska Native villages. A report by the Government Accountability Office identified 31 of these villages as “imminent threatened.” For example, The US Army Corps of Engineers Alaska Village Erosion Technical Assistance Program assessment in April 2006 estimated that the villages of Kivalina, Newtok, and Shishmaref have ten to fifteen years before their current locations are lost to erosion.
(Map above GAO, 2009 “Limited Progress Has Been Made on Relocating Villages Threatened by Flooding and Erosion,” page 14)
For a developing state or nation, oil production can be a blessing. The discovery of significant oil reserves can jumpstart an economy. Oil brings a new source of revenue to finance expenditures such as infrastructure improvements and social services. New industry operations create the path for new jobs both in energy and in related service and supply sectors that pick up as a result of the boom. Also, since oil is so highly demanded, petroleum producers gain power, as they have the option of using oil as a tool of statecraft or as a political weapon.
But, unfortunately, volatile commodities such as oil can also be a curse. A sudden increase of petroleum revenues can cause the exchange rate to appreciate, harming the competitiveness of other export products. The sudden influx of oil revenues can encourage wasteful spending, inflation, corruption, and dependence on a non-renewable resource. Governments finance their budgets on revenues levels that can prove unsustainable. When oil prices fall, money can disappear just as quickly as it arrived. Oil reserves can also be depleted, leaving the producer with bloated budget that can no longer be maintained.
To balance these fiscal risks, oil-producing countries often create a Sovereign Wealth Fund (SWF) to preserve a portion of revenues for future generations. An SWF is a government-owned investment fund that maintains a diversified investment portfolio, including equities and other financial holdings, businesses and other types of assets. Sovereign Wealth Funds are often formed to preserve the wealth from a trade surplus or commodity such as oil for future generations. Oil rich nations such as Norway, the United Arab Emirates, and Kuwait have established SWF’s that are now worth several hundred billion dollars. The hope is that future generations will be able to enjoy the benefits of the states’ resource wealth long after the commodity has been depleted. In reality, however, some countries have had trouble preserving the principal of SWF assets through the ups and downs of financial crises.
As we’re working on this project, the Olympics are in full force over in London, featuring some of the best athletes in the world. They are physically gifted, obviously, but the best ones also had brilliantly designed workouts and then pushed themselves to complete them.
The workouts involve both planning and execution, which is necessary for almost any strategic endeavor. An incredible plan that sits on a shelf is of no value. Here in Alaska, we’ve noticed that when it comes to adapting to climate change, the state has a very impressive plan from the Climate Change Sub-Cabinet that offer excellent policy suggestions. Yet in terms of actually implementing the plan, the state has been slow. The state deserves some credit for certain steps it has taken, but it could do much more if it followed its own advice.
The Climate Change Sub-Cabinet
In 2007, then-governor Sarah Palin issued Administrative Order 238, forming the Climate Change Sub-Cabinet. The order acknowledged that Alaska was warming faster than most other areas of the world and needed “a strategy to identify and mitigate potential impacts of climate change and to guide its efforts in evaluating and addressing known or suspected causes of climate change.” Charged with developing policy recommendations on 15 distinct topics, the sub-cabinet brings together some of the most powerful people in government. It consists of the state commissioners of five relevant state departments: Commerce, Community, and Economic Development; Environmental Conservation; Natural Resources; Fish and Game; and Transportation and Public Facilities.
The following year, the Immediate Action Workgroup of the Sub-Committee issued a report outlining actions and policies that it recommended be taken in the following 12-18 months. This explained the next planning steps, which in an extended – and arguably strained – metaphor were described as “recipes for success.”
What we found is - the recipes are complex, the ingredients numerous, and sometimes the chefs need to be the cooks and cooks, chefs. Our conceptual recipe for success follows here, with our list of ingredients following in the form of immediate action recommendations for specific community projects and then additional ingredients describing necessary and beneficial immediate policy and implementation actions to effectively address climate impacts, which we anticipate impacting many more Alaska communities.
Climate change could put some additional stress on the state budget. Someone will have to pay for infrastructure affected by melting permafrost, relocation of communities, and additional forest fires. However, many of these costs are already happening or are likely to be heavily borne by the federal government. Costs to the state budget from climate change should account for much less than 10% of the budget. The largest risk that climate change has for the state budget actually comes from the revenue side if oil and gas companies choose explore less on the North Slope due to the increasing difficulty of building ice roads.
The state will definitely need to spend more on infrastructure. Climate change leads to more complex engineering designs, especially to avoid the effects of melting permafrost, and it increases the rate at which infrastructure degrades and needs to be replaced. A study of the effect of certain climate change impacts (permafrost melting, susceptibility to flooding and proximity to the coast) on public infrastructure in Alaska found that climate change could add a net present value of $3.6-$6.1 billion (+10% to +20% above normal wear and tear) to future costs for public infrastructure from 2006 to 2030, and $5.6-$7.6 billion (+10% to +12%) from 2006 to 2080. The study analyzed many types of public infrastructure, but fixing roads is by far the largest single additional cost. In Fiscal Year 2012, the state was scheduled to have 7.6% of its expenditures using state money go to the Alaska Department of Transportation and Public Facilities ($800 million of $10.47 billion). Thus, an additional 10-20% of spending would increase total state spending by 0.8-1.5%/year.
The actual additional spending from the impacts of climate change on infrastructure could be higher or lower. The federal government pays for a large portion of infrastructure spending in the state, so its decisions on whether to increase spending in response to climate change impacts matters for Alaska. Meanwhile, Alaska is already spending more on infrastructure in response to climate change. As of early 2010, the Alaska Department of Transportation and Public Facilities was spending $10 million each year to make repairs related to permafrost’s impacts to Alaska’s highway system.
Problems with roads affected by permafrost could also impact the transportation of supplies to certain villages, but this is likely to be very limited; flying is currently the most efficient way in or out of 82% of communities in Alaska.