The legal challenge by a consortium of environmental groups to the Department of Interior’s issuance of a permit to a unit of Royal Dutch Shell plc to drill a new well in the Gulf of Mexico (GOM) has the “potential to virtually halt production in the Gulf of Mexico,” said Shell Oil President Marvin Odum.

If the environmental groups are successful in their lawsuit, it would turn out to be a “backdoor moratorium,” Odum said during a luncheon Thursday sponsored by the U.S. Chamber of Commerce’s Institute for 21st Century Energy and the National Chamber Foundation in Washington, DC.

“Shell’s not named in the suit, although it is our well [that is the target of the legal action]…We’ve petitioned the court to allow us to join the suit, as have most of the Gulf states and a number of [others]. We’re doing this in support of the regulator as it defends its decision to issue the permits. In fact, we prefer, we want and we need…working relationships with agencies like the Department of Interior to develop regulations that are both appropriate and defensible in court,” he told company executives.

“The reason why this [Shell] well was selected is because it’s a very deep well; it’s likely [to be] a very prolific well, so it’s on the edge…in terms of what the Gulf of Mexico is capable of giving this country” energy-wise, he said.

“If somehow the process through the legal system was to stop the drilling of this well, I think you would effectively…stop the drilling of any exploration well. And it’s not a very big step to say then you’d stop all drilling in the Gulf of Mexico, which would be a disaster for this country,” Odum said.

The lawsuit was brought by the Defenders of Wildlife, Center for Biological Diversity, Natural Resources Defense Council and the Southern Environmental Law Center in June in the U.S. Court of Appeals for the 11th Circuit in Atlanta (see NGI, June 13). The groups said the federal government “illegally authorized new deepwater drilling by claiming that risky operations will cause no significant harm to the environment” despite last year’s Macondo well blowout, which killed 11 men and destroyed the Deepwater Horizon drilling rig.

The lawsuit specifically targeted Shell’s plan to conduct new deepwater exploratory drilling about 225 miles southwest of New Orleans in waters about 2,000 feet deep. Shell sanctioned the deepwater Cardamom well in June.

Odum signaled that opening more lands to producers for oil and gas producers was more important than tax incentives. “We don’t need government incentives or bailouts or stimulus to do this. We just need clearance.” Even in the areas that are accessible to producers, “we still face debilitating regulatory red tape.”

He urged Interior and other agencies to be less prescriptive (rigid) in their regulations. The “American regulatory system is more focused on the prescriptive and methodical and less focused on goal-oriented, outcome-based regulations” for producers. He further believes that regulators “are in danger of letting process trump performance.”

In the offshore, Odum said the challenge no longer is how deep companies can drill. Rather, it is finding the oil and natural gas resources beneath the sea floor — the seismological aspect. As for shale production, he believes the “next wave” will be “finding…those spots where the amount of gas contained in the rock is the richest. The company that breaks that code will have a significant breakthrough.”

Odum said the company just announced its “Saving LNG” project. Imagine, he said, “producing and converting natural gas to liquefied natural gas so it can be shipped anywhere in the world, just like oil. Think about all of that happening offshore on a ship. That’s what we’re starting to build now. This will be the largest floating vessel in the world” — four football fields long. He said the project would be used first in Australia.

Due to shale development, U.S. natural gas resources have doubled in the past three years, he said. It’s been estimated that the nation has enough natural gas resources to meet demand for the next 100 years. And Odum said Shell expects to produce more natural gas than oil next year. He estimated that Shell has invested more than $20 billion to develop North American gas prospects in the past five years (see related story).

But Shell scenario planners believe that demand could potentially exceed supply down the road, according to Odum. “The fact is in a business-as-usual case, energy demand could triple. This could leave a gap between supply and demand equal to the size of the energy industry’s entire global output in the year 2000. Our Shell scenario planners describe this gap as the zone of uncertainty. To bridge this gap, you’re going to have to see an enormous expansion in energy supplies, coupled with extraordinary and unprecedented moderation in demand.”

With respect to creating public support for shale development, Odum believes transparency is the key. “I happen to believe that being transparent about what we do and how we do it is the best possible way to creating an environment that is more favorable to this energy source, an energy source that this country desperately needs,” he said.

“That’s why last month Shell released what we call new onshore gas principles.” The principles detail how “we design, construct and operate our wells in a safe manner; how we protect groundwater and reduce water use overall; how we protect air quality; how we reduce our operational footprint on the ground; and importantly, how we work with communities to help them take advantage of the economic stimulus that is happening within their reach.”

Odum said Shell has spent more than $2 billion on leases in Alaska since 2005 and $1.5 billion more to prepare an exploration program, but “we have yet to drill a single well” there. “By comparison, during the same time Shell has received regulatory approval and drilled over 400 wells around the world,” he said.

“Again we have to fix that.”

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.