Gulf oil spill: Wasted reputations

Stopping the flow from the Macondo well is not the end of the Deepwater Horizon affair. Along with BP, environmentalists and the US government must rebuild credibility that has been lacking in the aftermath of the accident

Imaging the outrage in Western capitals if it had happened in Russia. Imagine that before any due legal process had reached its course, the Kremlin had threatened the largest foreign investor in the most prospective oil province in the country with the removal of its licence to operate. Imagine that it had summoned the company’s chief executive to Moscow for public humiliation; demanded that his company cough up $20bn to cover penal charges; and overseen the decimation of that company’s market valuation and its reputation.

It’s safe to assume that the reaction of governments and media in the West wouldn’t be pretty.

Yet the tale of BP’s experience in the US following the oil spill in the Gulf of Mexico bears uncomfortable similarities with the kind of behaviour seen in Russia in the past decade, and roundly condemned by commentators elsewhere. Remember Shell’s experience in 2006? Alleged environmental violations by the Anglo-Dutch major led to the company surrendering control of the consortium developing a liquefied natural gas project on Sakhalin Island. The charges – which at one stage amounted to $30bn in fines – mysteriously disappeared once Gazprom had replaced Shell as Sakhalin Energy’s majority shareholder.

The US government has not appropriated BP’s assets, although the potential liabilities now weigh so heavily on the UK company that it has been forced into a firesale to shore up its finances. But the political reaction to the spill was ugly – as if the US government hadn’t previously sought to lure deep-water drillers to the Gulf, relaxed the laws governing their activities there, opened new waters to the companies, and proclaimed a goal of “energy independence” while doing nothing to control oil demand.

The spill in the Gulf of Mexico was both a tragedy and a disaster. Eleven men died. BP, whether it was to blame for the accident or not, initially handled the response badly. Along with local authorities, it repeatedly underestimated – either through ignorance, or deliberate manipulation – the volume of oil being spewed from the broken well into the sea. That undermined the faith of those watching the response.

But despite the needs of the 24-hour news media that descended on the Gulf coastline, establishing what was happening 1,500 metres below the sea – a depth too great for any human – was difficult. So, as everyone now knows, was the task of stopping the flow. Indeed, drilling oil wells at such depth is a feat of engineering. Permanently sealing a gusher through the deployment of remotely operated vehicles at such depths is an achievement that, in another context, would have earned any engineer a medal.

BP pulled it off on 3 August. A day later, the White House concluded that 4.9m barrels of oil had escaped from the well between the explosion on 19 April and the temporary capping of the well on 15 July.

Meanwhile, despite statements from the US government that the spill caused the worst ecological disaster in the country’s history – a premise essential in its drive to keep a “boot on BP’s neck” – its impact on the Gulf of Mexico may be far less than the apocalyptic expectations of many environmental groups. The White House’s report now says that about three quarters of the oil that spewed into the Gulf has already been captured, dispersed or dissolved. Stories of plumes of oil defying gravity to float beneath the sea now sound fanciful.

Ecologists from Louisiana State University, who are more accustomed to holding oil-industry polluters’ feet to the fire, talk of the remarkable resilience of the local ecosystem, which has in any case been abused repeatedly by the oil industry before. Far fewer birds, to take one example, have died as a result of the oil spilled after the Deepwater Horizon incident than after the Exxon Valdez disaster (just 1% of the number killed then, according to Time magazine). The warm waters of the Gulf and the high grade of the region’s oil, it turns out, mean the slick is being degraded naturally far quicker than the headlines predicted.

The drilling moratorium, the curtailment of fishing during the clean up and the disappearance of tourists have damaged the economies of the states that surround the Gulf. Even before the courts have established BP’s culpability – or exonerated the contractors that many in the oil industry suspect may share some of the blame – the company is facing liabilities for the loss of this business.

Yet BP did not inflate the impact the spill would have on the coastline. While it was spending billions to mitigate the accident, it was wild speculation in the media, the fantastical predictions of anti-oil activists and the proclamations of Armageddon by men such as Matthew Simmons, the doyen of the peak-oil movement, that helped drive tourists away from the Gulf’s beaches and persuade the US government into its confusing decision to impose a moratorium on offshore drilling.

Not only had President Barack Obama’s administration just weeks before announced the opening of new waters to explorers, but the blanket ban suggested it believed the spill was an industry-wide problem. If so, why did it so assiduously single out BP?

BP, accountable to its shareholders, has been humbled. Its share price has collapsed, its reputation has been tarnished, probably for years, and it has been forced to sell assets across the world as it girds itself for more reckoning. US voters may hold the nation’s politicians responsible for a mess created, in part, by lax regulations and the “corruption” – Obama’s word – of the federal body overseeing drilling in the Gulf. The legions of green groups that, smelling blood, joined the lynching of BP will pack up and move onto the next media bonanza, where facts run as carelessly as a deep-water gusher.

In short, no-one involved in the spill or its aftermath has covered himself in glory, though some have been punished more than others. The credibility of oil companies that say they can drill at these depths has been compromised, despite incident-free operations elsewhere in the world. The Obama administration and rent-a-quote members of congress put politics ahead of the facts, contributing to the wreckage of BP’s share price and reputation. The White House is now on the defensive, saying it owes no apology to Tony Hayward, BP’s former boss, who was roundly criticised for saying that the ocean would probably cope with the spill. Yet he was correct. The green activists who used the spill to advance an agenda more connected with stopping oil consumption, full stop, than with preventing future tragedies such as the Deepwater Horizon, have brought discredit to their other claims.

If that is a legacy of the Gulf slick, it will be disastrous, because there are many more compelling reasons to push the world to break its oil addiction. Oil spills have been happening for years in countries such as Nigeria with little attention from mainstream media. And the hunt for fresh oil supplies in the Middle East has brought consequences for global politics that remain far more damaging to many more people than have been affected by the tragedy in the Gulf.

So with the end of the Deepwater Horizon spill, it is time for facts and analysis to trump the rhetoric. Lawmakers must react sensibly to prevent another accident in the Gulf, or anywhere else. The companies, including BP, Transocean and others involved in the Deepwater Horizon disaster, must restore their credibility by continuing the successful clean up (in BP’s case) and deploying better practices wherever they drill.

But the US government, as well as the activists, must also recognise that while oil is consumed wastefully by some, to many others it is not a luxury and the companies that deliver it do so to meet demand. Steady supplies help economies to grow, spreading wealth and alleviating poverty. Until a new fuel can do the same, at the same cost and at the same scale, the world will need new supplies of oil. The sorry affair of the Deepwater Horizon accident cannot be used to deny that.

Petroleum Economist