With climate disaster comes great opportunity.
Author McKenzie Funk explored that irony extensively in his recent book, "Windfall," which chronicled the many and varied money-making opportunities arising from a changing climate -- including cases where the people most responsible for our current situation sometimes have the most to gain. Nowhere are these perverse incentives more evident than in the Arctic, where, as sea ice melts, new sources of oil are suddenly within drillers' reach.
But just because we now have access to Arctic oil doesn't mean it's advisable for us to go after it. Shell learned that the hard way back in 2012, when a series of missteps -- cumulating in the grounding of its offshore exploratory rig, the Kulluk -- ended, at least temporarily, the company's Arctic exploration. Funk chronicles the entire fiasco in "Of Ice and Men," his new e-book, which was excerpted last weekend in the New York Times and which raises important questions about the inherent risks of drilling in so punishing an environment.
The low price of oil may have tempered Big Oil's Arctic dreams for now, Funk warns, but "the future is long ... and the ice is still melting." In other words, this probably isn't the last we've seen of Shell -- and according to Funk, we should be extremely wary of its inevitable return. Our conversation, which has been lightly edited for length and clarity, follows.
Did this story come out of the research you were doing for "Windfall"?
The same moment that I was thinking about starting to do "Windfall" is actually when I got interested in Shell. In 2007, the year the Russians planted their flag at the North Pole, I was in the Arctic on a National Geographic assignment, going through the Chukchi Sea on a U.S. icebreaker. The U.S. was trying to basically map the seabed in order to claim territory. And at that time already Shell had bought the Kulluk, and they were doing some seismic surveying up in the Chukchi. They were starting to go around to villages, and a lot of the local Inupiat were interested in what they were doing. And to Shell's credit, more than a lot of other oil companies, they had a guy on the ground there who went out, starting around that time, and was meeting with everyone, really getting to know people. His name is Pete Slaiby -- he's mentioned in the story -- and he flew around from village to village convincing people that this was something that would be good for Alaska, and that they'd do their best.
In any case, when I was on the Chukchi I got a note from someone I knew who happened to be on one of Shell's survey vessels, and I thought, "Whoa, that's interesting." I think the Kulluk had been kept out of the Beaufort Sea on some sort of injunction at that point. So yeah, I was aware of all this happening, and then there was the Chukchi Lease Sale 193 -- the one where Shell bid $2.1 billion. That scene's in the second chapter of "Windfall." And that was just a moment in Arctic history, because never before had someone bid so much money on leases. You could really see Shell's intentions in that moment, that they were really going for the Arctic. And so from then on I was interested. And then when the Kulluk crashed, of course.
So you were really watching this as these events played out. How did going back to it, now that it's over and done with -- and now that Arctic drilling, for the moment, isn't as much of a conversation -- influence your perspective on the story?
The hard thing with this story was not knowing what the takeaway was for a long time. And so not doing it for so long was actually a good thing, in that it gave the perspective to know what this all meant. For awhile I thought they were trying to come back, and I thought maybe the moral of the story is that something this big and dramatic can happen, and everyone will forget in two years' time. I still think that might be the moral of the story, because I don't think many people have heard of the Kulluk, even now. That's why it was nice to do that story -- they hadn't even heard what happened.
So at first, oil prices aside and all that, I thought it was timely just because Shell had filed for a possible return to the Arctic. And I think they were considering it -- I think the bottom line for them was that they still need oil. So, you know, Arctic drilling's not part of the conversation now, but the future is long, and it's still, in terms of conventional oil deposits -- not fracking or anything -- it's still the biggest thing out there. And the ice is still melting. So this isn't the last time we're going to see Arctic oil. It's maybe a temporary drop.
You say explicitly in the book that there are a number of different ways that this story is read by people: either that it's proof that Shell can't be trusted to explore the Arctic, proof that no one should really be out there, or for some people it's a non-issue, because things went wrong, but not horribly so. Is there an interpretation that seems to be winning out, or that won out for you?
There are a few ways to look at it. One is the bottom line: Did anything happen because of the Kulluk? Well, I guess not really. I mean, there wasn't huge environmental damage. But that's not the important thing. The important thing to take away from what happened isn't that there wasn't a huge spill that did a lot of damage, like Exxon Valdez. The important thing to take away is also not that Shell is bad and they screwed up and they can't do anything right, because as oil companies go, I think they're more competent than most, actually. But it's that the 20/20 vision of hindsight shows how all these little mistakes added up to a big wreck. And I think that speaks more to the distance and difficulty in getting oil like this than it does to any amount of finger-pointing at Shell for being a bad company, or the sort of morality of getting Arctic oil, which is another question.
But simply the practicality of getting giant rigs up there, the practicality of getting oil from that far away from the rest of us to market is a huge, huge undertaking. It's not just expensive, which makes the break-evens high, but it's also risky distance. Just to get the Chukchi oil to market is to build another pipeline right horizontally across Alaska, to tap into the trans-Alaska pipeline: probably hundreds of miles across wilderness. Certainly you worry about the environmental effects with a giant pipeline like that. But it's also just the amount of money to pull that off -- the amount of everything -- it's massive. And I don't think people understand that. Or what, tankers? Tankers to bring it all the way down from there, through the same waters where the Kulluk had trouble, or tankers through the Northwest Passage, which is shallow and still has ice, despite the climate change? The fact that the weather could be worsening because of climate change, I think, matters.
So for me, the takeaway was that it wasn't about pointing fingers, and it wasn't about this not mattering at all, it was that this mattered in a non-obvious way. Not because there wasn't a spill, but because it shows us how difficult this is, and how the risk of something much worse happening in the future is heightened.
Right, and there's also been some research about how prepared we are -- or not -- to deal with a disaster in the event that it happens, and it would seem that a lot of those same pressures related to the Arctic would make cleanup more complicated ...
Oh yeah, and I unfortunately didn't get into that in the article, but you're absolutely right -- the most proven way to deal with an oil spill in the Arctic is just to burn all the oil. Not that chemical dispersants are great, but imagine a giant spill and then having to burn all that off. Sea ice really messes up the booms that you'd have to deploy; the water's certainly too cold for the chemicals they used in the Gulf with Deepwater Horizon to work; so a lot of the techniques that have been developed for spills elsewhere are totally inapplicable in the Arctic, and it's a huge issue.
Then, I don't know if you saw that Nature study that came out in the last couple of days saying that basically, to meet a 2 degree target, all the Arctic oil has to say in the ground -- or, rather, the seabed.
Yeah, and you're getting to the moral argument for why to avoid Arctic drilling with that.
Or practical, depending on how you look at it. Practically speaking, I don't want to have six-degree Fahrenheit warming.
A longer-term disaster. One of the other things that stuck out to me in the story was that it did seem like there were a lot of pressures on Shell that made the company either unwilling or unable to admit that something was wrong, or to gloss over problems. How does that factor into the discussion about whether these companies should be drilling in the Arctic?
Shell's pretty competent, technically, when it comes to drilling. And in point of fact, the drilling they managed to do -- which wasn't a lot -- went OK. So when people say the Arctic's not safe for drilling, they can somewhat likely say, look, we pulled it off. So again it goes back to the distance. And so much of the operation was actually handled by subcontractors. You see that the subcontractors -- Noble Drilling -- they just plead guilty to eight felony charges and paid $12.2 million in fines and community restitutions. I don't know how much Shell was involved in overseeing the work done in the shipyard in Seattle, but certainly there were some questions about the shackles -- although that may not have ultimately mattered too much; it's tough to know. The people from Louisiana who were driving the Edison Chouest boat clearly didn't know the Arctic waters well, and Shell itself didn't. Certainly there could have been more oversight. I mean, the fact that all their senior staff were gone because it was the holidays, and they were exploring then because of the tax bill, that certainly didn't help once it became a crisis. I don't know specifically what they would have done differently, and I'm not sure they do either, but the point of fact is a lot of their senior people weren't around.
So say we decide it's worth it to take oil out of the Arctic -- or oil companies decide it is -- is there a case to be made that it can be safer, that we can learn from past experiences and that by tightening up a lot of these issues, companies can learn to do it safely?
The case is basically Norway. It's warmer around there, so the water isn't as ice-covered, but they've done very high north drilling. And so far as I know, it's been OK. There has been a lot of exploration in Alaska, actually -- during the '80s, after the Arab oil crises, there was a push to drill up on the Beaufort. They found some oil, and then the price of oil went down so much that they went away. And as far as I know, there wasn't some huge spill that happened. So people absolutely make the argument that it can be done safely. But I don't think it's as safe as ... we got the easy, safe oil. It is a priority farther away than a lot of other places. And it is offshore, which brings in difficulties.
I'm sure if they threw enough money at it, it could be done, but they have shown that they don't want to throw all the money at it that they have to -- if they're leaving for tax bills of a mere $5- or $6 million and they're using 30-year-old drill ships, that's not state-of-the-art. So yeah, throw enough money at something, throw enough people who actually know the Arctic waters as your captains, spend years training up, and then do it. But then it becomes even more expensive to get this oil out of the ground. The break-even is already high: Above $70 per barrel is the only time the Arctic makes sense. And often much more than that. Add more skilled people, add new drill ships, add more safety requirements, that goes up and up and up. And in fact, Shell's point man in Alaska was meeting with White House officials arguing there needs to be less regulation, and slightly fewer demands from the federal government on Shell related to this Arctic program, because it was becoming too expensive. Particularly having a second drill in place to prevent a blowout -- that they're pushing back on that rule ... I'm not an oil engineer, I don't know fully what that means, but clearly they're trying to dial back the regulations that are already in place.