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Vol. 231 No. 7 |
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PRAMOD KULKARNI, EDITOR
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No ‘rewind,’ no ‘fast forward,’ just slow-motion pain
This is one of those times you wish you could play out your life like a recorded TV show. You could press the “rewind” button, skipping past the Macondo well spill, and go back to a time when all was well with deepwater drilling. Or you could “fast forward” to a time in the future when the Gulf Coast would once again be vibrant with fishing, tourism and oil and gas operations. The reality, however, is that we remain locked in the harsh present, moving forward in excruciating slow motion. Under the circumstances, the oil and gas industry needs to conduct a realistic evaluation of the crisis and work in concert to create a viable future in the US and around the world.
Containment and cleanup. BP is making steady progress toward capping the well, but complete subsea containment is not expected until August when the relief wells reach the producing formation. Even US President Barack Obama admitted, “There has never been a leak of this size at this depth, [testing] the limits of human technology.” BP has asked for and received expertise and equipment from other Gulf of Mexico operators and service companies to develop the successive containment options. Transocean rigs are being used to drill both relief wells and for spilled oil recovery and storage. Oceaneering’s ROVs have been invaluable in the subsea monitoring of the leak and the implementation of containment technologies. Nalco is providing the dispersant, and Helix Industries has contributed three vessels for oil and gas recovery and flaring.
All of us in the oil and gas industry have a stake in minimizing the spill’s environmental impact. This should not be seen as BP’s problem or the government’s problem, but our problem. Before Macondo, there was an environmental disaster after the blowout of the Ixtoc well in 1979, which resulted in a spill of 3 million bbl over an area of 1,100 sq mi and impacted 162 mi of coastline. The well was capped only after 10 long months of trials. The Macondo spill seems interminable at this time, and the environmental damage far too widespread. But just like the Ixtoc spill, we can overcome the Macondo spill.
Financial damages. The loss of lives and the financial devastation to Gulf Coast residents, fishing, tourism and wildlife are well-documented. BP has spent $2 billion on cleanup efforts through mid-June. In addition, investors throughout the world, including UK pensioners, are already paying a price through the drop in oil industry equities and the suspension of BP’s dividend program. The $200 billion cleanup and assistance fund that BP agreed to escrow at the insistence of the US government will continue to suppress the company’s market value. A boycott against BP gas stations has resulted in a 20% decline in sales, hurting local businesses that actually own the retail outlets. Rates to insure offshore drilling rigs operating in shallow water have already gone up 15–25%, and as much as 50% for deepwater rigs.
Lifting of the moratorium. Without regard to the safety record of the industry and financial consequences, the Obama administration imposed a six-month moratorium on offshore drilling at depths of 500 ft or greater. US District Judge Martin Feldman has struck down the moratorium and issued an injunction against its enforcement, but the Obama administration is planning to appeal the ruling. With midterm elections approaching, the administration has cast itself as the champions of the Gulf Coast victims against the oil and gas industry. If the moratorium is upheld by higher courts, there will be a significant drop in oil and gas production from the Gulf of Mexico, an increase in the import bill and an eventual rise in retail gasoline prices.
A few of the operators have declared force majeure to try to cancel their deepwater drilling rig contracts, to the chagrin of the drilling contractors. It is hoped that the rigs will find work in other deepwater arenas such as offshore Brazil and West Africa, though such a rig exit will adversely impact deepwater Gulf operations for years to come. The major service companies have also announced the shifting of their deepwater Gulf employees to other arenas. Unfortunately, this option is not available to the smaller service companies, whose well-being is anchored to the Gulf of Mexico.
If the Obama administration wins its appeal and reinstates the deepwater drilling moratorium, it will not likely be lifted until the president’s blue-ribbon panel announces its findings on the causes of the Macondo accident. Regardless of the specific findings, the commission will insist on stricter standards for safety equipment, more redundancy in safety valves and BOPs and their remote actuation. There will be calls for common standards for rig design, better training of rig workers and more oversight of contractor and operator executive decisions. Other nations are likely to follow suit. Earlier in June, Norway announced the suspension of its licensing round pending review of the Gulf spill.
Green push and strategic response. The Gulf incident is being used by some groups as a trigger to push away from fossil fuels. One of the groups is the American Energy Innovation Council (AEIC), which includes as members General Electric CEO Jeffrey Immelt and Microsoft Chairman Bill Gates. The AEIC has called for the US government to triple its spending on clean energy research to $16 billion a year. The money would be spent on a laundry list of projects such as cutting carbon emissions from coal, nuclear fission research and energy-efficient buildings. Natural gas and hydrates were mentioned only in passing. To pay for the new investments, the group has suggested reducing fossil-fuel subsidies, creating an oil import fee and/or increasing the gasoline tax, with little regard to the economic consequences of such actions.
In this hostile political environment, the oil and gas industry needs to adopt multi-level strategies for survival and success. First and foremost is improved safety and environmental performance. There can be no more BOPs that fail to operate and no more carbon-copy filing of environmental impact statements. Secondly, the industry needs to champion clean crude oil production and petrochemical processing and the use of natural gas for electric power generation and transportation. Our modern economy is based on hydrocarbons. Even with the politically motivated push for alternative energy sources, it will remain so. 
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