Course:ECON371/UBCO2011WT1/GROUP5/Article2

• Econ 371 Winter 2011 Main Page

Summary

This article is about Shell’s quest to gain offshore drilling rights in the Arctic. The Obama administration has granted the company a preliminary approval to drill four exploratory wells in the Beaufort Sea off of Alaska next summer. All Shell needs now is permits from various federal agencies such as the Environmental Protection Agency, the Fish and Wildlife Service, then National Marine Fisheries Service and the Bureau of Ocean Energy Management, Regulation and Enforcement, to name a few.

The Author, Frances G. Beinecke, argues that we should slow down the rate at which we are approving these permits until we have the necessary capabilities to deal with a potential oil spill. Beinecke states that “we can’t prevent an Arctic blowout any more than we can avert disaster in the Gulf of Mexico or the North Sea”. A pipeline in the North Sea off the coast of Scotland, operated by the Royal Dutch Shell, experienced a faulty pipeline leak just months ago.

The fact that the proposed drilling is in Arctic waters is what really makes this an issue for the author. He explains that we need special containment and response plans tailored to the harsh weather conditions and the remote climate up North before we can rationalize drilling for oil. He uses the example of the BP oil spill to demonstrate this idea, as the Gulf of Mexico is the “epicenter of the global offshore oil industry” and there were plenty of ships around to help and yet 170 million gallons of crude oil spilled into the ocean. His point is that if this happens in the Arctic, where no ships are around and the water conditions are much harsher, it would be that much worse of a disaster.

Analysis

204,000 liters of oil spilled from a rig in the North Sea operated by the Royal Dutch Shell in August. Shell has received preliminary approval by the US government to drill four exploratory well in the Beaufort Sea next summer.

This article is an OP-ED, and therefore carries a lot of opinion within it. The author is quite obviously not a supporter of offshore drilling. He argues that drilling in waters like those of the arctic is very irresponsible until we acquire the infrastructure, knowledge, and experience to cope with an oil spill. He is not, however, completely ruling out the possibility of offshore drilling; he’s simply arguing that we need more regulation and containment and response plans. Like most opponents of offshore drilling, he strongly argues that the Arctic waters in particular would provide the greatest hindrance to oil recovery, and that its unique habitat should be preserved, even through oil drilling.

To demonstrate his point, Beinecke uses the BP oil spill as a comparison for a potential Arctic spill disaster. He explains how the harsh waters, cold temperatures, and remote areas of the North would make an oil spill up there much more catastrophic. He also uses the example of the North Sea spill under the Royal Dutch Shell just off the coast of Scotland to illustrate the recent spills under the Shell company. Although in the North Sea the problem was just a leaky pipe and not a full blown spill, even the fact that a leak could occur under current regulations and strategies is worrisome.

At the end of the day, the demand for oil today will always be high because Oil is a definite necessity to this world. The spill that the shell company created wasn’t a huge disaster since it wasn’t caused from drilling but rather a faulty pipeline leaking 55,000 gallons of oil into the sea. The Shell company should be given the permission to extract oil from the new Alaska area because if shell isn’t given the consent to drill, oil prices may go up with a shortage of oil supply in the market causing people think twice about driving.

To prevent these episodic emissions or any huge disasters from happening like BP did earlier, Shell did ensure their technology to have prevention of blowouts. They also ensured that if any accident did happen, a necessary team would always be ready to block and help workers evacuate from the area. By trusting Shell’s technology, we can ensure no further social and external costs will be needed through extracting oil. Shell’s technology and safety measures are checked by qualified engineers on a regular basis so it can be trusted.

There is a large element of risk included in offshore drilling in any location. The possibility of an oil spill is not necessarily bigger in the Arctic, but the clean up would provide a large amount of extra problems. This makes the trade-off in Arctic offshore drilling that much more risky and so largely debated.

Conclusion

Like any economic problem, offshore oil drilling involves a trade-off: the benefits of oil recovery vs. the potential risk of an oil spill or leak and its affects on the environment. When referring to Arctic offshore drilling, this trade-off becomes much larger and riskier because of the location and special ecosystem this remote location contains. Extra precautions need to be taken to ensure that plans for containment and protection are not only sufficient for regular offshore drilling, but specially formulated for the Arctic. If not, we could see the worst oil disaster in the world.

Prof's Comments

From an economic efficiency perspective, the issue is whether the benefits from drilling and pumping oil exceed the costs. What would it take to make drilling and pumping more oil efficient? A spill is an episodic event. Liability can play an important part in getting firm to invest in the right amount of precaution. Was there any mention of the liability laws in the article? You didn't mention such laws in your discussion.

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