The Potential Effect Of Environmental Regulations, Citizen Suits On The Costs Of Doing Business In The Arctic: A Comparison Of U.S. And Norwegian Approaches

Previously published in Oil, Gas & Energy Law Intelligence, February 2012.

1. Introduction

   The Arctic Ocean is believed to have one of the largest remaining undeveloped reserves of oil and gas in the world.1 Interest in Arctic offshore exploration and development has grown over the last few years, and several companies have significant plans for new activities in the Arctic.2 While the Arctic holds significant promise for new oil and gas development, its harsh conditions and fragile environment pose a number of unique challenges to the exploration and production industry. As activities in the Arctic expand, one of the major hurdles that companies desiring to conduct offshore operations in the region will have to overcome is obtaining environmental approvals for their proposed activities. This Article compares the regulatory systems of the United States and Norway and the likelihood of citizen group challenges environmental decisions made by regulators.3 Reflecting on recent litigation in the Chukchi Sea and the Gulf of Mexico, we highlight the significant uncertainties and delays that can be associated with citizen suits. Ultimately, we conclude that although there remain regulatory distinctions, post-Deepwater Horizon reforms are bridging the gap between the U.S. and Norwegian regulatory systems. However, companies engaging in new exploration and production activities in the Arctic may prefer to minimize their uncertainty and operate in the territory of those countries where participatory governance structures reduce the likelihood of citizen group challenges to regulatory decisions.

2. Challenges of Arctic Spill Response

   The Arctic environment itself poses unique challenges for oil and gas exploration and production. Among these are the harsh climate conditions and presence of ice, which lead to shorter working seasons. A staff working paper for the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling describing the difficulties of spill response in the U.S. Arctic explains that both the Chukchi and Beaufort Seas present environmental conditions that call into question the effectiveness of common response methods.4 Temperature, winds, and wave action limit responder access and impact dispersion and degradation of oil; locating oil among or captured in ice floes can be difficult and dangerous; and ice poses a physical barrier to mechanical recovery technology such as skimmers and booms.5

   Some methods of response proposed for use in the U.S. Arctic rely on strategies and technologies that are untested in Arctic conditions. A "leave-in-place" strategy that tracks oil incorporated into ice in order to recover it once the ice melts has not been used during an actual spill.6 Additionally, in-situ burning, a response technique used in the Deepwater Horizon response, could require chemical herders7 of which there are none currently approved for use in Arctic waters and for which studies on effectiveness of in-situ burning in an Arctic environment have yielded varying results.8 Similarly, a 2001 study found chemical dispersant less than 10% effective on the Alaska North Slope.9 Concerns about toxicity of dispersants and the lengthened time that dispersed oil would remain in the ecosystem in Arctic waters also persist.10 In addition, the potential interactions between oil and sea ice are poorly understood,11 making it difficult to develop effective spill response technologies.

   Staging a spill response in the U.S. Arctic would be far more difficult than in more developed and less remote regions, such as the Gulf of Mexico. The U.S. Arctic currently lacks the support infrastructure needed to marshal an adequate response. The Coast Guard has only one operational polar icebreaker, the Healy,12 and would need additional icebreakers to respond to spills or emergencies if major drilling began in the Chukchi Sea. The nearest Coast Guard operations base to the Chukchi is about 1,000 miles from leasing sites, making it difficult to conduct search and rescue operations.13 As a result, initial emergency and spill response activities would likely fall to industry and contractors. Even in the Beaufort Sea, which is much closer to shore, there is limited response capability. The small communities in the area can not presently support the large number of response personnel required to respond to a major incident.14 Oil spill response contractors, such as Alaska Clean Seas ("ACS"), have limited offshore response capabilities.15 ACS was established as a non-profit response co-operative for the North Slope onshore operations. It is unlikely that the amount of resources marshaled in the Gulf of Mexico for the Deepwater Horizon spill could be gathered in the U.S. Arctic under current conditions. More than one hundred aircraft and helicopters were used during the Deepwater Horizon response for aerial surveillance and tracking.16 It is generally understood that similar resources are not yet available for rapid response in the U.S. Arctic. Response resources in the U.S. Arctic are presently located hundreds of miles from the drilling area, whereas in the Gulf of Mexico, spill response equipment was available immediately.17

   Although the Norwegian Arctic faces some similar environmental challenges as the U.S. Arctic, it has more robust response capabilities for offshore drilling and has characteristics that make such response capabilities easier to amass than in the U.S. Arctic. The Norwegian Arctic does not have the sea ice that greatly complicates operations in the U.S. Arctic. In addition, unlike the remote nature of the U.S. Arctic, the northern Norway is a populated area with a number of cities that have substantial transportation, housing, and economic infrastructure, including significant airports, that would make a Deepwater Horizon-level response in the Barents Sea easier to conduct. As for the governmental response capabilities, as was described above, the U.S. Coast Guard has limited response capabilities in the U.S. Arctic. By contrast, northern Norwegian municipalities, that also have responsibility for response within their jurisdictions, the Norwegian Coast Guard, and the Norwegian Coastal Administration have substantial offshore response capabilities with equipment located across the Norwegian coast.18

   There are significant differences in the private sector response capabilities as well. While Alaska Clean Seas is geared mostly towards work on the North Slope, Norway's equivalent private sector association, the Norwegian Clean Seas Association for Operating Companies ("NOFO") has substantial experience in offshore spill response in open seas and coastal waters in the Arctic. It was created following a blowout in the North Sea in 1977.19 The organization maintains five bases with twenty full time employees and fifty reinforcement personnel pledged by operators as well as eighty people hired to maintain and operate oil spill response equipment at the bases.20 NOFO provides tactical and operational command of private sector response resources for oil companies in the event of a spill. As is described in more detail below, the company responsible for the spill has overall responsibility for spill response from offshore facilities under Norwegian law, with the governmental response and coordinating responsibilities falling to the Norwegian Coastal Administration. NOFO's response resources include oil recovery vessels, towing vessels, ocean-going mechanical oil recovery systems, large stocks of dispersion agent, agreements for remote sensing from radar satellites, aircraft, helicopters, vessels and installations, oil recovery equipment for coastal operations, and a specialized task force for organizing and conducting shoreline operations.21 NOFO conducts more than 100 exercises and verifications annually, including oil-on-water R&D and training exercises.22 NOFO's resources are dispersed throughout Norwegian coastal areas in order to quickly respond to spills.23 As mentioned above, Alaska Clean Seas was developed primarily for onshore operations in the North Slope. While it has some response capabilities for offshore operations, Alaska Clean Seas' primary activity and the majority of its equipment remains geared towards the North Slope, near-shore, and onshore water bodies.24 In addition, the oil companies themselves, that are required to provide for oil spill contingencies, have deposits of equipment in various coastal locations.25

2. Comparison of U.S. and Norwegian Regulatory Regimes

   Norway's regulatory regime governing offshore exploration and development is generally regarded as among the most stringent in the world, and, in the aftermath of Deepwater Horizon, requirements with regard to oil spill preparedness and clean-up in the United States have become more robust. However, there are still significant differences between the legal standards in the United States and Norway. In Norway, the requirements imposed upon operators of offshore exploration and development activities derive from both the Petroleum Activities Act and the Pollution Control Act. Together, these Acts create an affirmative duty of pollution response and cleanup. In contrast, while new regulations require that a party demonstrate it has adequate resources to clean up a spill, the United States' legal regime has traditionally been more focused on the imposition of financial liability for spill cleanup than on creating a structure that governs who will conduct the cleanup.

   This Part provides a brief overview of the process by which entities may obtain rights to explore portions of the outer continental shelf and the environmental approvals associated with such activities. This Article then describes the spill response planning and demonstration of financial capacity to respond to a spill required for approval to drill offshore.

   1. Offshore Leasing and Permitting in the United States

      The Submerged Lands Act established...