Regulations considered following the disaster could push smaller companies out of the offshore market.
BP's well blowout may well benefit big oil producers
When we are faced by a disaster such as the oil spill in the Gulf of Mexico, no one gains; neither those who said such an accident could never happen nor those who say their warnings were not heeded. The continuing oil leak from BP's Macondo well is defying all the efforts of disaster response workers from the oil giant and the rig owner Transocean, as well as the US authorities. The failure of repeated attempts to cap the well - which is at the end of kilometres of cable, under the crushing weight of 1,500 metres of dark, cold water - conjures up nightmarish images.
For the first time at such depths, a giant metal funnel has been installed over the biggest leak to collect escaping oil. But it has been blocked by hydrates, ice-like solids that form under the cold and extreme pressures at the deep seabed. BP anticipated this might happen, but the problem is worse than was expected. An attempt is being made to place a new blowout preventer (BOP) on top of the original one, which failed to seal the well automatically. Two weeks of efforts with remote-controlled vehicles to close the BOP were unsuccessful.
BP is considering jamming the BOP with pieces of rubber and other materials, or cement, using a slurry that sets in seconds. Last week, the trade publication Upstream reported BP had capped one of the three leaks identified, installing a valve over the end of the broken drill pipe. BP is also drilling two relief wells to intersect the original well bore about 4,500 metres below the seabed and inject "heavy mud". This should finally "kill" the well but the bores could take three months to finish.
Meanwhile, about 100 ships are skimming oil from the sea's surface; some 4,000 volunteers are protecting the coastline; floating booms are being deployed to stop the oil spreading; and aeroplanes are spraying dispersants to break up the slick before it hits land. It seems the companies and authorities are doing as much as they can to deal with this unprecedented disaster, however belatedly. But so much for the mitigation efforts.
Politicians and the media seem to have forgotten the 11 men who died. Quickly, an effort has begun to apportion blame and promote policy changes. Though they are destructive, such accidents are rare. Apart from Montara in Australia in August last year, we have to go back to Ixtoc off the coast of Mexico (1979), Ekofisk in Norway's North Sea (1977), Santa Barbara in California (1969), and the infamous Devil's Cigarette Lighter in Algeria (1962).
Macondo is leaking about 200,000 gallons of oil a day - but it is not even among the largest 50 spills ever. The amount leaked so far is about 10 per cent of all the oil that human activities add to North American waters in a year - mostly from land-based run-off, rivers and shipping, not offshore drilling. Almost twice as much comes from natural seepage. The technical investigation into Macondo centres on the failure of the BOP. No doubt improvements will be proposed and BP's efforts have already created a lot of new experience in fighting such a blowout. These measures will inevitably fail to satisfy environmentalists, many of whom oppose such drilling, no matter how safe the oil industry maintains it is.
Both BP and Transocean will be damaged by financial, legal and reputational repercussions and, possibly, diminished access to future opportunities. BP's safety culture is already under question after a series of accidents over the past five years. The US authorities have concentrated their fire on BP rather than the US-based Transocean: "Our job, basically, is to keep the boot on the neck of British Petroleum," said Ken Salazar, the US interior secretary.
The US Senate Democratic leader Harry Reid has proposed raising the liability cap on companies responsible for oil spills from US$75 million (Dh275.4m) to $10 billion. Since companies guilty of negligence already face unlimited damages, increasing liability to such astronomical levels would put US offshore exploration completely off-limits to all but the largest companies. Even they might baulk at taking on exposure amounting to an entire year's profits.
Other oil companies will be cursing BP. Just before the accident, the Obama administration had agreed to lift offshore drilling moratoriums in parts of the eastern Gulf of Mexico, in the Atlantic off Virginia and in Alaska. Now, the Californian governor Arnold Schwarzenegger says, "Why would we want to take that risk?" This is only a pyrrhic victory for environmentalists. Opening more exploration areas was done in hope of attracting moderate Republican support for a new global warming bill.
But as the Democratic senator Bill Nelson says: "If offshore drilling off the continental coast of the US is part of it, this legislation's not going anywhere". Restricting the supply of US oil is pointless, even hypocritical. If companies had been given access to shallow offshore prospects in California or Florida, perhaps they would not have been forced into drilling at Macondo. All that further moratoriums would do is shift drilling to other countries, perhaps with weaker environmental legislation, or to higher-carbon sources such as Canada's oil sands. This would cost US jobs and boost budget and trade deficits.
Greenpeace, the Sierra Club and others should turn their attention to reducing US oil demand, for instance through a hefty petrol tax. Yet hammering "big oil" is much easier than tackling millions of US drivers who are wedded to their 4x4s. Offshore workers, oil companies, Republicans and Democrats, coastal communities, the US consumer and the environment will all suffer continuing pain from Macondo.
The industry never gloats over such disasters, but perhaps the only gainers, now facing less competition, are big oil producers - including the GCC. Robin M Mills is a Dubai-based energy economist, and the author of The Myth of the Oil Crisis (Praeger, 2008).