The speech that follows was presented by Shell Alaska Vice President Pete Slaiby – at the Arctic Imperative Summit on Tuesday, June 22, 2011 at Alyeska Resort in Girdwood, Alaska.
In the coming weeks, townsquare49.org will feature a number of the presentations from the Summit. For more details of the event, including video of each of the speakers, check out www.arcticimperative.com
It’s a pleasure to be with you.
As Drue mentioned, my last assignment working for Shell was in Brunei and for many years before that, I worked in tropical regions throughout the world – mostly, looking for oil.
I reiterate that point because in just the span of my career I have witnessed, and personally experienced, a significant migration north. Not just of human resources and capital but also a migration of thought; of what’s possible both technically and materially in the Arctic.
The possibility, of course, is that the Arctic is home to a quarter of the world’s yet untapped oil and gas reserves. And the thought is that more than 25% of the oil may lie off the coast of Alaska.
I don’t mind telling you that as an experienced Arctic explorer with a majority leaseholder position in Alaska’s Beaufort and Chukchi Seas, Shell is counting on it.
So too is the rest of the industrialized world who, whether they know it or not, need that oil.
Of course, there is also fear among some who feel we need that oil too badly. Those who believe that as we move further and further from the equator to find untapped oil reserves we are also moving away from the infrastructure and oversight that would prevent a devastating spill from permanently scarring the Arctic ecosystem.
I understand that fear. But I don’t share it. I’ll explain why.
Making a Case for the Arctic
I’m here today because the company I work for believes as I do: that offshore exploration can be done in a way that protects the environment. That we can co-exist with subsistence users and provide benefits and security to entire nations and local stakeholders, alike.
My boss, Marvin Odum, has made clear to me those are not suggestions. They are maxims. And if we could not meet those very basic requirements, we would not consider a future in the Arctic.
Not My First Rodeo
I’ve spent 30 years producing oil and gas for Shell and most of that time I have been in tropical and sub-tropical locations. The only material resources those places have in common with the Arctic are mostly hidden underground.
But make no mistake; Bruneians are every bit as tied to their live coral reefs as the Inupiat are to the whale. In fact, there are countless more examples of how local stakeholders closest to the resources we covet are culturally tied to the land and water we’re asking to explore.
I bring that up not to diminish the ties that bind Arctic stakeholders to their resources, but rather to highlight those ties as well as our sensitivity to those who are being asked to trust that an oil company can and will do the right thing.
A Climate Change
I’d like to leave you with one, over-arching thought today about the changing Arctic. I’m not referring to climate change, although that’s a topic Shell is very engaged in, but rather changes in how we must approach oil and gas exploration north of the Arctic Circle. The Arctic is NOT a new frontier, but that doesn’t mean our best practices should stop evolving.
From a Shell perspective, it all ties back to making a business case for the Arctic along with an equally important commitment to raise the bar and exceed expectations.
I predict that burden will follow any would-be explorer into the Arctic.
And frankly, it should.
A Global Perspective
So where are these Arctic resources?
I think we’re still finding that out. For Shell, that conversation is focused squarely on Alaska today but, as you have heard, our investment in the Arctic is bigger than one state or even a single country.
And that informs our global approach. I don’t mean to imply that’s the only approach.
Best practices are meant to naturally evolve and should not be proprietary. Agreed-upon standards are important issues and will advance the Arctic dialogue in several positive ways if we get it right.
Doing that, “getting it right”….cannot be a relative term. Nor can it be yesterday’s news.
Shell was an explorer and offshore producer in Alaska for nearly 50 years. In the 1980’s and 90’s we actively drilled and discovered oil and gas in the Beaufort and Chukchi Seas – the same areas we are looking to explore again in 2012.
Unfortunately, our long history in Alaska was not a golden ticket to picking up where we left off.
Since 2005 we have spent over $3.5 billion in Alaska and we have yet to drill. Litigation and regulatory delays have prevented us from doing so and I predict those kinds of roadblocks will not be exclusive to Shell or Alaska.
Fact is, there are substantial barriers to entry in the Arctic and most have very little to do with the environment we are attempting to work in. They have almost everything to do with how we contemplate that work, and ultimately, carry it out.
Fortunately, we are already in the Arctic and our responsible history there is creating more and more space for us to operate.
Who’s in Charge?
Having said that, a prevailing question we are facing relates to exactly how we are expected to operate once given that open space.
Who will set the new Arctic standard? Will it be industry or government? Or Global Councils?
Whose “best practices” are truly the best?
Who will police the Arctic?
All valid questions.
For our part, in Alaska, we realized very early on that any aspirations we have for the offshore would not be advanced or financed by anyone but Shell.
That means building a world-class, oil spill response fleet.
It means building custom vessels to manage ice. It means investing in unmanned aircraft to indentify protected marine mammals.
These examples are just the tip of the iceberg (if you will), and not luxuries – they make up our license to operate and are a must if we are going to co-exist with the environment and the subsistence hunters who view the Arctic waters as their garden.
Pan Arctic Challenges
As Robert Blaauw mentioned prior; at Shell, we see the Arctic in a global context, both in terms of issues and our portfolio.
Although the particular circumstances differ by location, our general Arctic themes can be categorized into the following: science, technical challenges, indigenous peoples, and oil spill prevention and response.
We have always made clear that delivering our Arctic business starts with a sound, scientific understanding of the Arctic environment and its inhabitants.
People often say that we know very little about the Arctic and that very little scientific data is available.
That’s not consistent with the truth. And with all due respect, it’s a stall tactic.
Many are surprised to learn there’s a 100-year science record in the Arctic; that over five-thousand scientific studies have taken place in the Alaska offshore alone since the mid-1970’s.
A great deal of that science comes from industry as we prepare to mature our investments from exploration to development. It’s a role we will never shy away from because science is critical to underpinning safe, efficient solutions that minimize the footprint of our operations.
As expansion into the Arctic grows, so too will the need for additional science in every offshore region. That will take an investment by industry, but it should be matched by Arctic nations who have much to gain by having a seat at the table.
I think we as an industry talk a lot about technology but we don’t always do a good job of explaining how technology can be used to grow an offshore business in the Arctic.
Yes, technology is key to designing wells and platforms that can stand up to harsh conditions. But good technology is also essential in creating a successful venture.
I’m not talking about the flow of oil and gas; I’m referring to sustainable development – using technology to balance short and long term goals while having the least possible impact on the environment and local populations.
Examples from our project in Alaska include the use of unmanned aircraft and underwater acoustic recorders to survey the habits and behaviors of sea mammals; sonar to understand ice scouring on the sea floor for future pipeline placement; investigating the use of bubble curtains so that drilling noise can be reduced to prevent disturbance of marine mammals.
There are countless other examples but the point is technology has to be relevant beyond oil and gas extraction. We are working on ways to make it more so because not to employ the best available technology is to sell the Arctic and stakeholders short.
On the subject of stakeholders, there’s no bolder reminder that we are moving into frontier areas than the new relationships we are forming with those closest to the resource. Specifically, I am talking about indigenous populations that are not familiar with our business and who are not necessarily inclined to understand how we might co-exist.
Every company has its own way of forming these relationships but I will tell you our entry into the Arctic is absolutely dependent on how we interact on a daily basis with local stakeholders.
I’ll be the first to tell you that when Shell first returned to Alaska in 2005 we didn’t do a good job of explaining why we were back. We didn’t do the work necessary to re-earn the trust of Alaskans. As a result, our plans were litigated and our project high-centered.
Since then, we’ve had nearly 500 meetings with Alaskan stakeholders across the North Slope and Northwest Arctic over the last five years.
I don’t want to portray that all stakeholders want us to drill and be neighbors because that’s not true – but I can proudly say we have now formed relationships and fostered a dialogue of respect with Alaska stakeholders and the trend is positive.
The basis for this relationship is not a secret. We listen very carefully to the needs of the people whose backyard we want to explore and whose sons and daughters we want to employ.
We believe that working together we can better preserve the environment, minimize the impact of our operations on traditional lifestyles and maximize benefits to local communities – something I like to call, “economic justice” – jobs, revenue, shared services and possibly, a chance for equity in the project itself.
I’ve always said, if we as a company are successful but locals don’t do well, that’s a recipe for disaster.
The burden of proof is rightly on Shell and industry to foster economic justice and fulfill any of the promises we make.
Oil Spill Response
Finally, I want to address the one subject that surfaces more than any other – oil spill response and the fear of an oil spill in the Arctic.
Despite the preventative measures we take and the world-class oil spill response assets we have put in place in Alaska, we are constantly rebutted with the simple accusation: you can’t recover oil in the frigid Arctic.
That’s not true.
I will tell you, oil spill response in the Arctic is different.
It is difficult.
And it is costly.
Shell has spent hundreds of millions to assemble an on-site oil spill response fleet because the model that includes thousands of small boats chasing down ribbons of oil in the water is not realistic.
Nor is calling the Coast Guard.
I want to pause on that subject for a minute because I’d like to do some myth-busting.
First, I want to make clear that we have the utmost respect for the Coast Guard. We have former Coast Guard employees working in our Alaska office and they are first rate. We work closely with the Alaska Command and we have never submitted an oil spill response plan that didn’t include consultation with the Coast Guard.
Having said that, the role of the Coast Guard in the event of a spill is NOT to recover oil. That burden falls squarely on the operator. The Coast Guard, as we saw in the Gulf of Mexico spill last summer, does assume a critical lead role in Central Command.
I bring that up because it underscores a responsibility and a gap. The responsibility for industry is simple: any foray into the Arctic means investing in a new kind of business that must be built from the ground up. That includes new, specialized equipment dedicated to oil spill response.
As more and more entries are made into the Arctic, there may be some opportunities to share these kinds of assets, but we are not there yet. And that’s a gap that must be addressed by industry and by individual nations as the migration north continues.
In closing, I want to make a point that may have been lost as we contemplate the challenges and questions many of us still have about the Arctic.
For Shell, the Arctic as hugely relevant and exciting.
We remain a big believer that all sources of energy will be needed as the world’s population continues to grow. Our investments in wind, bio-fuels and gas to liquids technology backs that up.
But the world still needs conventional oil and gas. And we have reason to believe the Arctic offers the next frontier of supply.
Obviously, we’re not alone.
Arctic nations are increasingly interested in international boundaries and opportunities for resources and economic development. And much like landing on the moon, it doesn’t hurt to be first.
Even nations outside the Arctic are positioning themselves for Arctic resource development. While Shell takes no issue with competition, we are sensitive to how that development takes place.
Our approach must remain smart and deliberate.
Because as we have seen, an incident in the offshore is one all of us have to own. And that, in turn, makes all of us a responsible party.
Just one more reason we have to get the Arctic right. I’m confident we will.