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Shell Oil’s setback is unfortunate for the company

Thursday, January 01, 2009

This editorial appeared in the Fairbanks Daily News-Miner:

Shell Oil made a good-faith effort to obtain the permits necessary to begin exploration drilling on its new offshore leases in the Beaufort Sea next summer. But a three-judge panel of the 9th U.S. Circuit Court of Appeals said last month that the federal agency in charge of the leasing and environmental review, the Minerals Management Service, hadn’t properly considered the potential environmental impact.

This kind of decision presents a huge problem for companies trying invest in an offshore oil field. How do they know when the studies and analyses are adequate? Shell canceled its exploration drilling for next summer while it tries to find a way through the maze. The decision imperils hundreds of jobs.

Millions of dollars were spent on environmental studies in the waters off the North Slope during the past few decades as various lease sales were held. But in the view of the circuit court panel’s majority, the analysis completed on the basis of those studies did not constitute the required “hard look.”

Courts usually try to defer to the expertise of agencies. The court panel’s two-judge majority acknowledged as much when it said “We will not substitute our judgment for that of the agency …” Yet Judges Dorothy Nelson and Stephen Reinhardt then went on to describe how the MMS, in their view, had failed to properly assess the environmental issues raised by exploration drilling. They vacated MMS approval of Shell’s exploration plan so the agency could “conduct the ‘hard look’ analysis required by NEPA (the National Environmental Protection Act).”

Here’s what Judge Carlos Bea, the dissenting judge in the case, had to say about his colleagues’ decision: “I’m afraid the majority has substituted its ‘expertise’ in environmental science for that of the expert agency to which Congress entrusted primary analytic responsibility.”

“… The agency parsed nearly 1,600 pages of in-depth scientific analysis,” Bea wrote. “This voluminous study – a ‘hard look’ by any rule – revealed that, while the drilling project might have some small impact on the environment, that impact was not significant enough for MMS to require a costly, time-consuming, duplicative EIS (environmental impact statement) or ‘revised’ EA (environmental assessment). This analysis was neither arbitrary nor capricious, and is entitled to deference.”

The other two judges refused to provide such deference. For example, they dismissed a report upon which MMS relied to assess the effect of drilling noise on bowhead whales, saying the report’s conclusion was “contrary” to its own assertions.

In fact, the report acknowledges the potential risks of offshore drilling, notes that studies of noise disturbances are sparse and then comes to the educated conclusion that “bowhead whales exposed to noise-producing activities … most likely would experience temporary, nonlethal effects” and that “such exploratory drilling would not jeopardize the population.”

That’s a professional judgment that balances the various factors. Judges Nelson and Reinhardt decided it wasn’t a sound conclusion. But are they to make such a judgment, instead of the “expert agency to which Congress entrusted primary analytic responsibility,” as Judge Bea put it?

Apparently there is nothing to stop them. So, absent any successful appeal, Shell and the MMS will need to find or conduct more studies that satisfy the scientific judgments of the judges. If the company and agency cannot do so, the Beaufort Sea lease agreement they entered won’t be worth more than the paper on which it’s printed. That would be an unfortunate result for the company and Alaska.


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