Will Shell's Rig Grounding Thwart Its Arctic Oil Plans?

The grounding of Shell's oil drilling rig Kulluk may bring its quest for Arctic oil to a halt.

The rig, which ran aground in the Gulf of Alaska on Dec. 31 and is on the southeast shoreline of Sitkalidak Island, Alaska, a critical wildlife habitat, may now be too damaged to be ready for the 2013 drilling season.

Fuel Fix reports:

It is unclear whether the Kulluk can be repaired even if it can be freed intact. Salvage crews on the Kulluk have discovered wave and water damage inside the rig, along with inoperable emergency generators. A number of water-tight doors were breached. One compartment, or void, surrounding the Kulluk's inner hull also was damaged.

Dave Pursell, managing director of the Houston-based energy investment bank Tudor Pickering Holt & Co. adds:

If Shell figures out there's enough damage they can't get it repaired, I don't know that they have enough time to acquire another.

Greenpeace USA Deputy Campaigns Director Dan Howells agrees that the Kulluk incident may thwart Shell's Arctic drilling plans, and says other companies should heed the warning:

The rocks grinding against the Kulluk's hull are damaging Shell's corporate reputation just as badly as the rig itself. It's hard to see how this company can salvage this rig, repair it and regain the public's trust in time for the 2013 drilling season.

Shell's US$4.5 billion Arctic gamble is looking like a serious mistake, and should act as a warning to other companies looking to drill in this incredibly hostile environment.

CNN reports that the rig is carrying "as much as 150,000 gallons of ultra low sulfur diesel and approximately 12,000 gallons of other petroleum product."