Oversight Hearing: “Arctic Resources and American Competitiveness” House Natural Resources Subcommittee on Energy & Mineral Resources

The Subcommittee on Energy and Mineral Resources held an oversight hearing on the U.S. Department of the Interior’s proposed Arctic Rule and the potential impact of its regulations on developing the oil and gas resources on Alaska’s outer continental shelf (OCS).

Rep. Doug Lamborn (R-CO) chaired the hearing. The witnesses included the following:

Brian Salerno, Director of the Bureau of Safety and Environmental Enforcement (BSEE), U.S. Department of the Interior (DOI)
Richard Glenn, Executive Vice President of Lands and Natural Resources for the Arctic Slope Regional Corporation in Barrow, AK
Drue Pearce, Senior Policy Advisor for Crowell & Moring in Washington, D.C.
Christine A. Resler, GeoMarket Manager for Schlumberger Ltd. in Anchorage, AK
Michael LeVine, Pacific Senior Counsel for Oceana in Juneau, AK

In his opening statement, Rep. Lamborn drew attention to the disconnect between Alaska and the Lower 48. While Alaska’s offshore waters have produced crude oil for decades, the amount is declining, though not due to a lack of resources.

Instead, Rep. Lamborn said, the declining crude oil is due to the federal government’s “scant effort at developing the Alaskan land it owns,” which accounts for 70 percent of the land in Alaska. He said this ultimately hurts the nation’s economy and the Alaska Native communities who are in support of development.

Rep. Lamborn noted that over half of the nation’s conventional energy resources reside offshore in the Arctic, and in Alaska the area is “even more attractive” to develop because the waters are shallower and warmer, making the resources easier to extract.

Rep. Lamborn introduced two contradicting documents issued by two government agencies:

National Petroleum Council’s (NPC) recent report for the Department of Energy (DOE) that considers the research and technology requirements for the prudent development of U.S. Arctic offshore oil and gas resources.
DOI’s Proposed Arctic Rule (Arctic Rule), the first set of federal regulations for oil and gas drilling in the Arctic Ocean.

Rep. Lamborn expressed frustration about a lack of communication between federal agencies, as the proposed rule doesn’t take into account the information published in NPC’s report.

Rep. Alan Lowenthal (D-CA), the ranking member, claimed the Obama administration is “doing too much too fast” on offshore oil drilling, and that the administration’s actions support Arctic drilling. He said this fast-paced development is not right given the Arctic’s ongoing battle against climate change. As permafrost melts, more carbon dioxide—locked away for thousands of years—will be released into the atmosphere, causing a “global warming death spiral.”

Rep. Lowenthal said the U.S. should set an example for the rest of the world on Arctic drilling practices, and Shell should not have another opportunity to drill in the Arctic after its failure in 2012. He added that Shell openly opposed the Interior Department’s strict regulations for exploratory drilling conditional permitting this summer.

Rep. Lowenthal said the proposed regulations should be even stronger, because “mistakes will be made and the unexpected will occur.” Before every man-made disaster, a company spokesman always assures all stakeholders that they are prepared for any event, he said. In 2012, Shell claimed it was “the most prepared company in history,” and yet its exploratory drilling vessel still ran aground.

In his opening statement, Salerno said DOI’s proposed Arctic Rule codifies requirements that will ensure all Arctic offshore operators and their contractors are appropriately prepared for Arctic conditions. With an emphasis on safe and responsible exploration, the rule would require operators to:

Submit region-specific oil spill response plans,
Have prompt access to source control and containment equipment, and
Have a separate relief rig available for timely relief well drilling if necessary in the event of a blowout.

Salerno said DOI is now reviewing over 100,000 comments on the rule and had held a series of outreach meetings with stakeholders, industry, the State of Alaska, Alaska Native tribes and corporations, and North Slope communities. BSEE will use the relevant comments to refine the rule so energy resources can be responsibly developed. He added that the public comments were either strongly for or against the Arctic Rule, with no middle ground.

Salerno said the extractive industry has criticized the proposed rule on the grounds that the relief well requirement creates too heavy of a burden, citing the NPC report as justification. In response, Salerno said Canada recently affirmed its same season relief well requirement, and only stated that its regulators remain open to proven alternative technologies that would enable extending this regulation.

Salerno mentioned comments DOI received that recommended using an alternative kill well system instead of a relief well, or employing subsea shut-in devices that would secure wells over the winter in lieu of traditional plugs. He said both of these ideas need more proven research to determine their effectiveness.

Lastly, Salerno addressed the conditional permit DOI granted to Shell, which limits well operations during the shoulder seasons (spring break-up and fall freeze-up). He said this restriction will minimize blowout risk and allow operations to conclude before seasonal ice formation, which complicates spill control. Letting a spill flow uncontrolled for nine months through the winter would have devastating effects on the environment and for Alaska Natives who depend on subsistence resources, he added.

In his testimony, Glenn said ASRC supports responsible OCS natural resources development in the Beaufort and Chukchi Seas because it provides North Slope communities with the means to preserve their traditional way of life and culture, while also allowing them to enjoy a greater quality of life.

He cited Canada, Greenland, and Norway as examples of countries that have engaged in offshore Arctic drilling to enable development within the indigenous communities. Many regions in Alaska have extremely prudent development, and still lack the most basic infrastructure, such as roads.

Glenn added that although plenty of oil and gas may remain to be developed onshore, oil field decline is inevitable. Only Alaska’s OCS has the potential to continue producing oil at a rate that will keep the Trans-Alaska Pipeline System (TAPS) from becoming obsolete.

“The development of these resources is critical to ensuring continued American competitiveness and energy security,” Glenn said. “The decision whether or not to develop Arctic oil and gas resources carries with it national and international implications for the security of our nation.”

Glenn referenced section 201 of Public Law 104-58, “Exports of Alaskan North Slope Oil,” which states that crude oil from the Arctic OCS can be exported to countries like Japan, Taiwan, and South Korea, thereby providing the U.S. with opportunities to “exercise soft power to support international partners and combat regional energy hegemons that exercise aggressive foreign policies.”

Glenn criticized the Arctic Rule for containing “redundant provisions that could ultimately lead to confusion over the jurisdictions and roles of various federal agencies.” He said the requirements for multiple submissions to various departments would increase operator costs and makes the jurisdiction and role of various agencies unclear.

In her testimony, Pearce described the Exxon Valdez catastrophe in 1989 and Alaskans’ anger over the disaster, exacerbated by a series of actions that increased the damages. Pearce said she had vowed to do her best to ensure incidents like this never happened again, and that the response and preparedness has improved vastly since then.

She added that 2012 was not the first venture into the U.S. Arctic OCS; 15 wells had been drilled previously and all occurred without incident. She said the most important part about writing the state laws for these activities is finding the balance that allows environmental protection and economically viable development. A certain level of risk needs to be determined, which she noted the President underlined in comments in May 2014, when he said development needs to be done in a safe and appropriate manner.

“Oil and gas development in the Arctic is essential to diversifying the nation’s energy supply and to promoting national security,” Pearce said. An imbalance that stifles the future of the Arctic is unacceptable, she added, and deficiencies in the new rule must be addressed in order to meet the President’s objective of competitive Arctic resource development.

In recognizing that “consistency cannot be legislated,” Pearce voiced frustration about a lack of uniformity between regulatory requirements on Alaska’s North Slope versus those in the Lower 48. She questioned whether the Arctic Rule regulations were “driven by a determination to create unjustified barriers against future exploration efforts in the Arctic OCS in spite of the President’s intent.”

Resler testified about the length of the drilling season, lease terms, and prescriptive versus performance-based legislation for the Arctic. Schlumberger provides onshore and offshore drilling intervention services to oil companies operating in the Alaskan Arctic and participated in the NPC study.

Resler said drilling season length is critical to viable economic development of Arctic energy resources. Weather and other conditions that challenge effective resource development should be considered in setting the season, along with technical considerations. “This could ultimately undermine the economic competitiveness of U.S. Arctic exploration in comparison to other Arctic nations,” she said.

To mitigate hydrocarbons escaping into the environment, industry and regulators need to focus on primary barriers, blow out preventers (BOPs), casing and cementing, and effective well designs, Resler said. Additionally, current and future regulations must be able to incorporate technological advances and best practices in order to improve operational performance in a timely manner. She said the best way to reduce environmental risk is through superior well control and well integrity, achieved through adherence to codes and a safety and risk management culture.

LeVine testified about the risks facing the Arctic Ocean, the need for comprehensive planning, and some of DOI’s proposed new requirements. He said the pursuit of energy resources in increasingly remote and dangerous ocean waters creates significant risk for important marine resources.

“Therefore, there needs to be forward-looking, holistic management in the face of a push from industry and growing populations,” he said, which includes sustainable choices that oppose lease sales and exploration plans, as previous lease plans were sold without being backed up by the necessary science. Until there is adequate technology for safe, responsible development—because catastrophic blowouts can and do occur—development shouldn’t be allowed, LeVine said. The potential risk for an accident is magnified by the fact that proven response measures aren’t available in the Arctic, he added.
To illustrate this, LeVine listed the mishaps and problems that plagued Shell’s 2012 exploration efforts, noting the company moved its drilling rig across the Gulf of Alaska to avoid state taxes.
While the proposed rule is, in part, an effort to learn from 2012’s government and corporate failures, LeVine said that allowing oil and gas leasing, exploration, and development amounts ultimately to a tradeoff to obtain benefits that may not outweigh the all but certain risks.
While future technologies might allow for more profitable production, and innovation may result in functional response techniques, “there is no reason to try and force it now,” LeVine said. The U.S. could also use it Arctic Council chairmanship to demonstrate leadership on Arctic development and provide a path towards responsible, safe, and fair development.
LeVine said the proposed rule could potentially reduce the risk of blowouts, but the only way to permanently stop blowouts is to drill relief wells. He cited the 2013 Walter well gas blowout that occurred 55 miles off the coast of Louisiana as an example of a situation in which a relief well was needed to permanently kill a leaking well.

Regarding response techniques, LeVine said booms and skimmers would be difficult to deploy in the Arctic due to challenging weather and marine conditions; in-situ burning could only be effective when wind, waves, temperature, visibility, and sea-ice coverage are moderate enough to allow for equipment deployment and oil ignition; and air-and-vessel-based application of chemicals and dispersants would experience a response gap.

LeVine said the rule can be improved as it currently does not go far enough to address the significant risks, as it doesn’t fundamentally reform the manner in which decisions about offshore activities are made.

LeVine outlined his ideas for strengthening the Arctic Rule:

Improve Oil Spill Response Plans and provide public review,
Make the response plans subject to agency review and approval,
Require zero-discharge of drilling by-products,
Include a well control plan, and
Increase transparency.

Following the testimony, subcommittee members asked questions of the witnesses.

Question & Answer Period

Invited to attend this hearing, Don Young (R-AK) said a “mother-may-I approach” toward Arctic drilling will not work, and other technologies can be used. He said that Alaskan villages still need basic infrastructure, and depend on continued natural resource development for project funding.
As an Alaskan, Rep. Young said he believes the proposed regulations are overly prescriptive and lock oil and gas development into a status quo that diminishes the opportunity to carefully introduce and advance new technologies.
Young asked Glenn about the potential of a blowout. Glenn responded that Shell will be operating at very shallow depths (about 6,000 feet) where low pressure makes blowouts unlikely.

Rep. Lamborn asked Pearce to elaborate on Crowell & Moring’s statement that the same season relief well requirement will shorten drilling time and actually endanger Arctic waters.

Pearce said a shorter timeframe will require vessels to make the same journey twice, doubling the chance of a spill and further endangering the waters. Other countries use control measures that allow a longer drilling season, such as capping and containment systems and other well control systems.
Lamborn asked Salerno if DOI ignored the NPC study when it finalized the Arctic Rule. Salerno said DOI did not, and it disagrees with the alternative kill well solution. DOI learned that Canada has not yet accepted the kill well plan. Canada would consider such a system if proposed, but to date this has not happened.

Referencing a 2008 lease sale and the revenue it generated, Rep. Lamborn asked Pearce if this could have occurred under the proposed rule. Pearce said the stricter regulations are already diminishing interest in the area, and even stricter Arctic Rule regulations would make operations economically unfeasible.

Rep. Don Beyer (D-VA) asked LeVine about balancing economic development with environmental protection. LeVine said response strategies in more temperate areas cannot be directly translated to harsher conditions in the Arctic.

Jared Huffman (R-CA) asked Pearce to identify the authors of the NPC report. The discussion concluded that nine out of 13 executive summary writing team members previously worked for the oil and gas industry. LeVine added that arguably one member of the environmental community, from Pew Charitable Trust, worked with the 250 people who produced the report.

Huffman concluded questioning in support of the proposed Arctic Rule, and criticized the NPC study as an industry-sponsored effort to loosen OCS drilling rules.
In response to this criticism, Garret Graves (R-LA) later said he is a member of the NPC, and the NPC committee members’ work experience in the oil and gas industry was directly relevant to writing the report. He asked Salerno to state on the record that Secretary of Energy, Ernest Moniz, as responsible for appointing members of the NPC.

Addressing the Deepwater Horizon oil spill, Rep. Graves said BP was held liable for billions of dollars to address all damages. He added that if efforts are continually made to impede production, petroleum demand will be reduced.

Salerno said the administration’s goals do not include impeding production, but instead it wants to ensure that all necessary resources are available to respond if necessary. The Arctic Rule is intended to ensure that there are multiple ways to solve problems.
Graves asked Glenn to talk more about the perspective of North Slope residents. Glenn said ASRC mainly settles issues of aboriginal title. He said the people of Barrow, where he grew up, have worked with the development companies in the region at every step for mutually beneficial results. “Now the government is stepping in and curtailing the development the communities in the North Slope depend on,” Glenn said.
Jeff Duncan (R-SC) asked about seismic air vent blasting, telling LeVine that there have been no verifiable marine animal deaths over the past 50 years. Rep. Duncan added that seismic testing is not physically disruptive when sea ice is present.
LeVine answered that noise has significant impacts on marine mammals by diverting them from breeding and feeding grounds, and the Bureau of Ocean and Energy Management (BOEM) doesn’t support this technique. Rep. Duncan responded that Canada uses the same type of seismic testing and the migration routes extend across the border.
Lowenthal (D-CA) said he supported using performance-based regulations when available, noting that prescriptive regulations don’t describe how to achieve targets, citing example from his own district in Port of Long Beach, CA. But in referencing the outcome of a 2002 Harvard Law School workshop, Rep. Lowenthal said, “Performance-based regulations cannot appropriately measure rare and catastrophic events.”

Lowenthal added he doesn’t know how performance-based regulations can be used to measure whether companies are meeting blowout response goals unless blowouts actually occur.
LeVine responded that performance-based measurements require a certain amount of data, and given that there is not enough data to understand the mechanisms causing a blowout and how to prevent it, it is important to take into consideration the magnitude of the consequences, as the results of a catastrophic event cannot be fixed. He also noted the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling recommended moving towards performance-based standards that augment a base of prescriptive standards, which appears to be DOI’s approach for the proposed rule.
Lowenthal asked Salerno about the nature of the Arctic Rule regulations. Salerno said performance goals are inherent in the regulations, and they are not entirely prescriptive. The rule includes compliance models that reference specific pieces of equipment, which leaves the door open to future technology that can improve performance standards.
Salerno said the rule’s prescriptive regulations regarding oil spill containment issues are intended to control the source and kill the well in the same season. On the performance side, the rule includes a compliance model that references specific pieces of equipment and capabilities that are available today. Future technological developments that can achieve the same standards in a better way are not precluded by the proposed rule, he said.
Lowenthal asked Pearce to clarify how her organization set up a performance standard for a low-probability, high-risk event. Pearce responded that if industry and regulators collaborate, the regulations could contain some prescriptive elements, but would also have performance-based standards that allow adaptation in response to new information. She called for adaptive management in this particular scenario.

Rep. John Fleming (R-LA) asked Salerno about interactions between the Obama administration’s Climate Agenda and the Arctic Rule, which he believes is solely a social rule. Rep. Flemming wanted to know if the Arctic Rule prohibits development in order to support the administration’s climate change agenda.

Salerno said this was not the case, the Arctic Rule is a technical rule, and it contains no language specific to climate change.

Rep. Flemming asked LeVine if Oceana agrees with the recent protests in Seattle against drilling in the Arctic. LeVine said his organization’s position is not to stop or shut down development in Alaska’s OCS, but to ensure past mistakes are not repeated. He added that Oceana only supports Alaska OCS development if it is part of a broader strategy to transition to renewable energy development.

Lois Capps (D-CA) reminded the committee about the loss of well control happened about a month ago on one of the most sensitive coastlines in the U.S. near Santa Barbara, CA. Rep. Capps asked LeVine about the response to a similar event in the Arctic.

LeVine said a similar event in Alaska would be significantly more difficult to respond to. Even when the necessary resources could be mobilized, dispersants and boomers wouldn’t be effective in even small amounts of ice in the Arctic, as indicated by tests conducted in the year 2000.
Capps said only one incident needs to occur, whether the likelihood is one in 1,000 or one in 100,000. She asked Pearce about the threshold for “unlikely” and if she agreed that “extremely unlikely” does not mean “impossible.” Pearce said yes, that is correct. She added the spill near Santa Barbara was caused by pipe corrosion, and the pipes should have been tested.
Jody Hice (R-GA) said Alaska’s crude oil production is declining, and the Arctic Rule will only catalyze the pace of the decline, even though the NPC report said Arctic OCS development can be done safely.
Hice asked Pearce why the Arctic Rule is so inconsistent with NPC’s extensive research. Pearce said the proposed rule debates the NPC’s findings at every level.

“But due to the way the prescriptive rules are written, it is very difficult to move forward,” she said. “There needs to be ongoing collaboration and adaptive regulation.”
Jim Costa (D-CA) said extraction on federal lands is “either something you support or you don’t,” adding that other factors—such as where the U.S. is importing its energy resources—need to be taken into consideration. Rep. Costa estimated that with a comprehensive energy strategy, the U.S. can decrease oil imports by 20 percent over the next ten years. He noted that Canada and Russia will extract oil and gas from the Arctic, and their regulations will probably be less strict than the U.S.
Costa said he was struck by Pearce’s comments that barely acknowledged preparing for a worst case scenario. He said other countries use performance-based regulations for Arctic drilling, as they are easier to write, but more difficult to administer. Writing plans and permits is a challenge, he said, because the public wants assurances that decisions were made in consultation with all sectors and stakeholders.
Costa addressed those who mentioned alternative technologies, noting they need to elaborate on the industry’s evolving best practices.

Resler responded that over $1 billion has been invested in these technologies, and the more goal-orientated regulations are, the more motivation the industry will have to develop new technologies.