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Obama to Suspend Arctic Oil Drilling Until 2011

THE WALL STREET JOURNAL

By STEPHEN POWER And GUY CHAZAN

The Obama administration, under pressure to act over the Gulf of Mexico oil disaster, is expected to announce Thursday that it will suspend consideration of any applications for exploratory drilling for oil in the Arctic until 2011.

The decision is a major blow to Royal Dutch Shell PLC, which had planned an ambitious oil-drilling program in the Chukchi and Beaufort Seas off Alaska this summer. Shell has been arguing to regulators that its operations in Alaska would face a lower risk of the kind of problems faced by BP PLC in its ill-fated Gulf of Mexico operation.

The announcement is expected to be made after Interior Secretary Ken Salazar delivers a report Thursday to President Barack Obama on what can be done to prevent future offshore oil spills.

The administration is also expected to announce that a moratorium on permits to drill new deepater wells will continue for a period of six months. A planned lease sale off the coast of Virginia, a key political offer by the president to Republicans in hope of cooperation on his broader energy agenda, will also be canceled in response to environmental concerns and worries raised by the Defense Department, a person familiar with the matter said.

The Obama administration has faced increasingly urgent calls to act against offshore drillers in the wake of last month’s sinking of the Deepwater Horizon oil rig, which has left oil gushing into the Gulf of Mexico and threatening Gulf Coast states with environmental disaster.

This afternoon, Mr. Obama, at his first full news conference in 10 months, will take questions on the administration’s plans. The White House’s moves come as U.S. officials see a glimmer of hope in BP’s efforts to seal the gushing oil well. But even if the oil leak can be stopped, the cleanup efforts will take months, and the recovery could take years.

The announcements Thursday mark the most dramatic policy response yet to the spill. Mr. Obama is under pressure from his left flank to pull back on his promises to expand offshore oil drilling, especially in Alaska, where environmentalists say a blowout similar to the current one in the Gulf would have even more serious ramifications.

Response to a blowout in such a treacherous environment would be far harder, said Dan Weiss, an energy expert at the liberal Center for American Progress. At the same time, Mr. Obama’s decisions could make it harder to win Republican support for his push to control greenhouse gases believed to be warming the planet and to force a shift from fossil fuel reliance to the use of more renewable energy sources, such as wind and solar power.

The decision to be issued Thursday is sure to upset Alaska lawmakers, some of whom were briefed on it late Wednesday. Sen. Mark Begich (D., Alaska) said in a statement that it would cost Alaska jobs and cause the U.S. to “export more dollars and import more oil from some unfriendly places.” He said the halt would “cause more delays and higher costs for domestic oil and gas production to meet the nation’s energy needs.”

Shell officials appeared resigned to the decision. They acknowledge that Mr. Obama can’t halt oil production in the Gulf of Mexico, which is crucial to U.S. energy security. But he can stop oil companies drilling in virgin areas if they haven’t started yet.

But the decision will be hugely frustrating for the Anglo-Dutch major, which won a slew of legal challenges from environmental groups. It has already started moving equipment up to staging areas in Alaska, ready to commence drilling in July.

In the wake of the Gulf disaster, Interior Department officials said they would subject Shell’s drilling plans to a new safety review before deciding whether to issue final permits.

Subsequently, Shell sought to reassure nervous regulators that its Alaska plans would meet the “highest and operational and environmental standards.”

In a letter sent earlier this month to the Minerals Management Service, which oversees offshore drilling, it stressed there was a much lower risk of the kind of blowout that destroyed the Deepwater Horizon April 20, since the wells it planned to drill in Alaska were in much shallower waters and at much lower pressures.

It also said it would heighten safety measures, including testing a critical piece of safety equipment, the blowout preventer, every seven days instead of every fortnight, the industry standard. Shell also argued it would have much more back-up plans in place than BP had when the Deepwater Horizon exploded.

But environmental critics of Shell’s plans said the company still had not addressed how it could ensure a rapid oil-spill response in a place as remote as the Arctic. They say cleanup equipment and personnel would have to be transported thousands of miles by barge or helicopter to the spill site, a process that could take days.

—Jonathan Weisman contributed to this article.

Write to Stephen Power at [email protected] and Guy Chazan at [email protected]

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