* Arctic seen having 30 pct of undiscovered gas; 13 pct oil

* Containment dome to catch spilled oil damaged during test

* Drilling will now stop short of oil reservoirs

* Shell will be back next year

By Andrew Callus

LONDON, Sept 17 (Reuters) - Shell's offshore drillers have lost their race with the Arctic winter and abandoned hope of striking oil this year but will drill wells before the ice closes in to prepare for a 2013 search for the region's elusive riches.

Shell had until Sept. 24 to drill into oil reservoirs in the Chukchi Sea, according to U.S. rules designed to accommodate the dangers of drilling in increasing ice and deteriorating weather in the environmentally sensitive region.

But Shell's U.S. offshore Arctic expedition has cost $4.5 billion since 2005, almost one sixth of Shell's annual capital spending budget, and has faced a series of setbacks.

The latest came on Monday when the company said its containment dome, a giant metal box on a barge that is standing by to help contain any oil spill resulting from a well blowout, had been damaged during tests.

"In order to lay a strong foundation for operations in 2013, we will forgo drilling into hydrocarbon zones this year. Instead, we will begin as many wells, known as `top holes,' as time remaining in this season allows," the company said.

By Oct. 31, Shell must halt all operations, including top hole wells which stop short of the oil reservoirs but prepare the way for drilling in earnest next year.

Last week, Shell was forced to unhook its drilling vessel from anchors holding it over a drill site to escape encroaching ice, just a day after it started drilling the first hole in the Chukchi seabed for more than two decades.

The work had begun after a series of delays having finally won permission from the U.S. Interior Department and the Environmental Protection Agency. U.S. regulatory oversight of the Arctic has long been intensive, but it has stepped up a gear since the Macondo oil spill in 2010.

The absence of a certificate for the barge itself from the U.S. Coast Guard delayed operations earlier in the summer. Ice cover in unexpected quantities has also been a complication.

Shell's activities in the Beaufort Sea, another Arctic province, have been hit by some of the same issues and by the need to avoid disturbing the autumn whale hunting season nearby. Drillers there have yet to get a drill bit into the seabed.


IS IT WORTH IT?

The remoteness, the extreme cold, and the threat from ice floes crushing equipment pile more costs on top of those imposed by restrictions on drilling during hunting and breeding seasons and requirements for expensive emergency equipment to be on standby.

And industry executives acknowledge that the economics of Arctic exploration is shaky.

"The Arctic has a high cost of supply and it is going to take high oil prices to keep it competitive until we can drive down the costs," ConocoPhillips Chief Executive Ryan Lance said last month.

In July, BP, Europe's second largest investor-controlled oil company behind Shell, indefinitely suspended a $1.5 billion offshore oil project in Alaska due to cost overruns and technical setbacks.

And last month, the Shtockman consortium that had been looking to exploit a huge gas field in the Russian Barents Sea put the plan in mothballs, saying it is too costly for now.

Nevertheless, Shell and other international oil and gas companies are moving into the Arctic because of increasing resource nationalism and dwindling production in their traditional heartlands of the Middle East, South America, the United States, the North Sea and elsewhere.

Persistently high oil prices are also making the huge engineering challenges of working in such a hostile environment look more worthwhile. In addition, the climate change that burning hydrocarbons contributes to has pushed back the ice, opening up access to, and markets for, the hydrocarbons there.

The prize of success could be huge. The International Energy Agency (IEA) estimates that some 30 percent of the world's undiscovered natural gas and 13 percent of its oil is waiting to be exploited in the Arctic.

Norwegian oil producer Statoil, another Arctic pioneer which recently teamed up with Russia's Gazprom and others, is working on a prototype of a gas compressor the size of a football field and 20 metres (66 feet) high designed to sit on the seabed beneath the ice and operate all year round.

Drilling in the Arctic Barents Sea, off Norway, has continued unabated this year after a string of major discoveries recently and the government will offer 72 Arctic blocks in a licensing round later this year.

Statoil already operates the Snoehvit LNG facility in the Barents and Italy's ENI is putting the finishing touches to the $6.4 billion Goliat facility, which will start up in 2014.


ENVIRONMENTALISTS PLEASED

Campaigners are worried about the potential threat to wildlife, the environment and traditional Arctic communities from drilling noise and pollution and the chance of a spill.

Greenpeace hailed the failure of the Shell safety equipment to get through the testing stage as a victory for its campaign to keep the oil companies out of the region.

"Nearly 2 million people from around the world have joined the Greenpeace campaign to Save the Arctic and keep it off limits to oil companies," said Ben Ayliffe, senior Arctic campaigner, in a statement.

"Today's news is vindication for the effort they have put in confronting the oil giant in places as far apart as New Zealand and Edinburgh, but these millions will not stop until the whole of the pristine and unique Arctic is protected."

The New York-based environmental group Natural Resources Defense Council said the problems Shell has had highlight the dangers of working in Arctic conditions.

"It's not safe to drill for oil in the Arctic -- not now, not next month, not next year," the NRDC said in a statement.

Frederic Hauge, founder of environmental campaign group the Bellona Foundation, told Reuters at a recent industry conference in Norway that there was no way a response on the scale mounted after BP's 2010 Macondo Deepwater Horizon spill in the U.S. Gulf could be mounted in the Arctic.

"We don't have the equipment for cleaning up oil on the ice. The Deepwater Horizon cleanup had 45,000 workers and 4,500 ships working out of some of the biggest ports in the world. Where are the harbours for that? We don't have that at all. The oil industry is too self-confident."

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    In Nigeria's Akwa Ibom State, an ExxonMobil pipeline ruptured on May 1 and spilled over a million gallons of oil, <a href="http://www.guardian.co.uk/world/2010/may/30/oil-spills-nigeria-niger-delta-shell" target="_hplink">reported the <em>Guardian</em></a>. The leak continued for seven days before it was stopped. <a href="http://www.huffingtonpost.com/omoyele-sowore/the-oil-spill-no-ones-tal_b_649220.html" target="_hplink">HuffPost blogger Omoyele Sowore explained</a> in July 2010 that an oil spill from ExxonMobil operations was nothing new to the country. He wrote that an "environmental catastrophe [had] been going on since December 2009." He described the toll on Nigeria: "There's oil on the surface of the ocean, wildlife coated in crude, fishermen losing their businesses."

  • Trans-Alaska Pipeline Spill - May 2010

    In May 2010, several thousand barrels of oil spilled from the Trans-Alaska pipeline "during a scheduled pipeline shutdown at a pump station near Fort Greely," <a href="http://www.huffingtonpost.com/2010/05/26/alaska-oil-spill-trans-al_n_589974.html" target="_hplink">explained AP</a>. No injuries were reported and officials said the spill was likely "limited to the gravel on top of the containment area's line."

  • Red Butte Creek Spill, Utah - June 2010

    In June 2010, a Chevron pipeline ruptured and spilled oil into a creek near Salt Lake City, Utah. It was first estimated that over 400 to 500 barrels spilled into the creek, which leads into the Great Salt Lake, <a href="http://www.huffingtonpost.com/2010/06/12/utah-oil-spill-500-gallon_n_610232.html#s99698" target="_hplink">reported AP</a>. Around 150 birds were "identified for rehabilitation." The <a href="http://www.huffingtonpost.com/2010/06/14/utah-oil-spill-officials-_n_611014.html" target="_hplink">oil did not reach the Great Salt Lake</a>, however. <a href="http://www.huffingtonpost.com/2010/07/14/chevron-cited-for-oil-spi_n_646340.html" target="_hplink">Chevron was later cited for the spill</a>, which released an estimated 33,000 gallons in total. In March 2012, <a href="http://www.huffingtonpost.com/huff-wires/20120324/us-oil-spill-utah/" target="_hplink">a group of 66 residents of a Salt Lake City neighborhood sued Chevron</a> for damage caused by the Red Butte Creek spill and a smaller spill in December 2011.

  • Kalamazoo River Spill, Michigan - July 2010

    In late July 2010, an Enbridge pipeline in southwestern Michigan sprung a leak and <a href="http://www.huffingtonpost.com/2010/07/27/michigan-oil-spill-among_n_661196.html" target="_hplink">spilled over 800,000 gallons of oil into a creek</a> which flows into the Kalamazoo River. By August, a regional EPA administrator said that significant progress had been made at the site, but "the agency cautioned that it will take months to complete the cleanup," <a href="http://www.huffingtonpost.com/2010/08/02/michigan-oil-spill-epa-of_n_667556.html" target="_hplink">reported AP</a>. By the end of September, <a href="http://www.huffingtonpost.com/2010/09/27/michigan-oil-pipeline-res_n_741233.html" target="_hplink">the pipeline -- which travels from Ontario to Indiana -- was back in operation</a>. The EPA later <a href="http://www.huffingtonpost.com/huff-wires/20111116/us-michigan-river-oil-spill/" target="_hplink">reported that about 1.1 million gallons of oil were recovered</a>, but pipeline operator Enbridge said that it would stick with previous estimates that only about 843,000 gallons were spilled.

  • Xingag Harbor Spill, Dailan, China - July 2010

    In July 2010, China experienced what was reported as the "<a href="http://www.huffingtonpost.com/2010/07/21/china-oil-spill-grows-off_n_653852.html#s120708" target="_hplink">country's largest reported oil spill</a>" after a pipeline rupture near the northeastern port city of Dailan. Several days after the spill, cleanup efforts were underway over a 165 square mile (430 square kilometer) area of the Yellow Sea. The Chinese government reported that about 1,500 tons or 461,790 gallons of oil had spilled, but <a href="http://www.huffingtonpost.com/2010/07/30/china-oil-spill-far-bigge_n_665038.html#s120708" target="_hplink">experts contended that the spill could have been "dozens of times larger,"</a> reported AP.

  • Peace River Spill, Alberta, Canada - April 2011

    In late April 2011, a pipeline in northwestern Alberta began leaking, and created the worst spill in the province in 36 years, <a href="http://www.calgaryherald.com/news/alberta/Rainbow+pipeline+leak+largest+years/4720888/story.html" target="_hplink">reported the <em>Calgary Herald</em></a>. About 28,000 barrels of oil were reportedly spilled from the Rainbow pipeline, which is operated by Plains Midstream Canada. The <em>Globe and Mail</em> revealed that the pipeline operators "<a href="http://www.theglobeandmail.com/report-on-business/oil-on-rainbow-line-halted-8-hours-after-problem-detected/article2013335/" target="_hplink">detected a potential problem nearly eight hours before halting the flow of crude</a>." A nearby school in a First Nation community was closed after residents reported "nausea, burning eyes and other symptoms," and several animals were found dead. In late July, Plains Midstream <a href="http://www.huffingtonpost.ca/2011/07/28/alberta-pipeline-owner-as_n_912796.html" target="_hplink">requested to re-open the pipeline</a> and begin to ship oil to Edmonton again.

  • Bohai Bay Spill, China - June 2011

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  • Rena Spill, New Zealand - Oct. 2011

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