Shell’s ambitious plans to finally return to the Arctic face yet another hurdle, one that could delay drilling once again.

Shell is using the port of Seattle as its base for some of its vessels that it will use in the Arctic. Seattle has been a launching point for Shell in the past (and has hosted Alaskan drilling equipment for decades), but a new greener municipal government is taking a harder look at Shell’s operations. Spurred on by Shell’s error-ridden 2012 campaign in the Arctic that culminated in the grounding of the Kulluk, environmental groups have mustered up some political power over Shell’s Arctic program. While not necessarily having the upper hand – much of the decision-making happens at the federal level – Seattle environmental groups have a powerful ally in City Hall.

City regulators just concluded that Shell will now need a separate permit to house its drilling equipment and tugboats at the Seattle port. Mayor Ed Murray agreed, praising the decision while also calling for a transition away from oil.

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“This is an opportunity, I believe, for the Port and all of us to make a bold statement about how oil companies contribute to climate change, oil spills and other environmental disasters and reject this short-term lease,” Mayor Murray said in a statement. “It’s time to turn the page. Things like oil trains and coal trains and oil-drilling rigs are the past. It’s time to focus on the economy of the future,” he added.

Yet Shell’s local contractor, Foss Maritime, insists that the current permit was sufficient to dock Shell’s ships. In fact, Paul Query, a spokesperson for Foss, criticized the Mayor’s opposition. “The mayor’s action…raises grave concerns about his stated commitment to Seattle’s thriving maritime community,” Queary said in a written statement. “By giving a small but vocal group the ability to jeopardize the commercial relationships between our local maritime businesses and the Port of Seattle, the mayor is casting serious doubt on the future of the city’s working waterfront.”

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It is unclear what happens next. A months-long permitting period could throw a wrench in Shell’s plans. Shell has a narrow window in which it can drill, a few months when sea ice has melted. Shell’s ship, the Polar Pioneer, is scheduled to set sail for the Arctic in June from Seattle, but could be blocked from arriving at the port in the first place after the latest decision from Seattle’s regulators.

Shell said it is reviewing the situation. It is not at all clear that Shell will in fact move forward with drilling even if it can obtain a city permit in time. It still needs to receive the necessary approvals from the U.S. Department of Interior for its drilling plans in the Chukchi Sea. That seems likely though, given the recent remarks from Interior Secretary Sally Jewel at the IHS CeraWeek conference. She said that Shell learned “some very painful and expensive lessons about contractors,” comments that suggest Interior is now more comfortable with Shell’s revised drilling plans. Jewel also said that her agency has “raised the bar” in terms of demanding certain safety standards from Shell and other offshore drillers. Interior approved Shell’s lease a few weeks ago, the last major hurdle. The agency could give Shell a final green light to drill in the Arctic this summer in the next few weeks.

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But even if the final go-ahead is forthcoming, Shell has to make a business decision on whether or not taking on the high costs and risks of drilling in the harsh Arctic environment is worth it, especially given the new direction the company is heading with the purchase of BG Group, an LNG-heavy company that will reconfigure the makeup of the combined company. If the Arctic conditions can be navigated, however, the expected large reserves of oil in the Chukchi, which could provide steady long-term production, may in fact fit into Shell’s vision.

However, if an additional Seattle port permit is needed, Shell may have more time to ultimately decide its Arctic plans. Just as Shell appeared to be getting all of its ducks in a row, the city of Seattle managed to make the oil major’s Arctic drilling plans for the summer a lot more complicated.

By James Stafford of Oilprice.com

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