Tougher regs inevitable as Horizon lessons hit home

BP struggled to stop the flow of oil from the Macondo well in the Gulf of Mexico as the disaster entered its second month, and the spill, the worst in US history, was having repercussions far beyond the environmental catastrophe. Russell McCulley reports.

BP’s latest attempt to stem the flow of hydrocarbons from its Macondo well in 5000ft of water ended in failure late last month. As OE went to press, the operator confirmed it had abandoned a three-day ‘top kill’ operation after much of the 30,000 barrels of drilling mud pumped into the failed BOP escaped through the well’s damaged riser; a volume of mud sufficient to counter the flow of hydrocarbons apparently could not be directed into the wellbore.

BP was preparing next to sever the riser from the BOP and replace it with a lower marine riser package cap. If successful, BP said the device could capture a majority of the estimated 12,000-19,000b/d – far higher than previously estimated – gushing from the well. Meanwhile, the company continues to drill a pair of relief wells, the first of which might not be complete until August.

Events surrounding the Deepwater Horizon disaster in Mississippi Canyon block 252 were unfolding rapidly: US president Barack Obama, under increasing fire for the government’s response to the tragedy, called for a six-month extension of a moratorium on new deepwater permits announced shortly after the 20 April explosion and fire that killed 11 and sank the Transocean rig (OE last month). Obama also suspended exploration in Alaska’s Chukchi and Beaufort seas, cancelled planned lease sales in the western Gulf of Mexico this year and offshore Virginia in 2012, and ordered a halt to work at 33 deepwater Gulf exploration wells already in progress.

Hours before the 27 May announcement, Minerals Management Service director Liz Birnbaum resigned. A report released days earlier detailed widespread ethical lapses at the agency, including charges that some employees accepted gifts – and, according to a 2007 investigation, drugs and sexual favors – from industry representatives. The report covered an eight-year period before Birnbaum took office last summer, but some had doubted whether she could effectively implement the Obama administration’s proposed MMS restructuring, which would separate the agency’s leasing, enforcement and offshore energy development missions.

Investigators had yet to determine the precise cause of the blowout. But some outlines of the tragedy’s effects on oil & gas exploration were taking shape. The American Petroleum Institute reacted swiftly to Obama’s announcement, saying further Investigators had yet to determine the precise cause of the blowout. But some outlines of the tragedy’s effects on oil & gas exploration were taking shape. The American Petroleum Institute reacted swiftly to Obama’s announcement, saying further

‘We understand the concerns many people have about offshore drilling in the wake of this incident, and the frustration many feel toward oil companies,’ said API president and CEO Jack Gerard, but ‘additional moves to curtail domestic production by postponing exploration and development off the coasts of Alaska and Virginia, as well as areas in the Gulf, have the potential to significantly erode our energy and economic security.’

The move was a reversal of Obama’s earlier decision, announced just a few weeks before the spill, to proceed with lease sales and open more of the US coast to offshore drilling. Now, those plans are in jeopardy – at least temporarily – and the industry is likely to face much tighter scrutiny long after the oil has been swept from the Gulf Coast’s shores.

While a verdict on the cause of the disaster – a failure of technology, or negligence on the part of industry and regulators, or some combination – will influence the course of corrective measures, tougher regulations seem inevitable. And that might not be a bad thing, says Al Hegburg, senior fellow in energy at the Center for Strategic and International Studies.

‘One thing that strikes some of us is that the response mechanism – how do you deal with a crisis in 5000ft of water – just didn’t exist,’ he says. ‘There has to be some way to deal with these questions other than sort of designing it as you go. I’m not faulting the industry or anybody for that. I just don’t think it was part of the culture or process or regulatory environment to think about that, and be prepared to manage something like this.’

BP chief executive Tony Hayward said as much earlier in a Houston press conference.

‘The industry has been exploring in the deepwater for over 20 years now, and this is the first time we’ve had an incident of this nature,’ Hayward said after BP’s attempt to capture escaping oil and gas in a large containment dome failed. ‘There is an enormous amount of learning going on here because we are doing it for real for the first time. And that learning will have, I’m certain, profound implications for the industry.’

Just what those implications will be remains unclear. ‘At this point, it’s very difficult to say exactly what that will mean going forward because we don’t have the full results of the federal investigation into why what went wrong went wrong,’ says Kenneth Medlock, energy fellow at Rice University’s Baker Institute. ‘Until we nail that down, it’s hard to say whether this was the result of negligence or whether it was the result of technology failing.

‘If it was a result of technology failing, this could be really detrimental because it almost makes us go back to the drawing board in terms of understanding what we need to do to make sure this never happens again.’

Response mechanism
A likely outcome, Medlock believes, is that the industry will be required to demonstrate a capability to respond quickly to such disasters. ‘It’s one thing to say you can deal with this in 100ft of water. It’s another thing to say you can deal with it in 5000ft of water, or even deeper. I think that’s one thing that this accident has really brought to light, that there isn’t really a response mechanism.’

A temporary halt in new deepwater drilling is prudent, but ensuring that such an event never happens again is ‘a pretty tall order’, says Maguire Energy Institute director Bruce Bullock.

‘Most of the industry’s efforts have been focused on prevention, and understandably so, given the challenges of operating in 5-10,000ft of water,’ Bullock says. ‘Given what’s happened, I don’t think there’s anybody who will argue that [a pause in new permitting] is not a prudent thing to do. I think the question is going to be, what level of risk, as a society, are we ultimately willing to take? Airplanes crash, but we still fly. Cars crash, but we still drive.’

And deepwater exploration and production will continue, says Douglas-Westwood chairman John Westwood. Of the top 11 oil majors, all but three – Saudi Aramco, PetroChina and Petrobras, all NOCs – have apparently reached peak production rates.

‘If so many of the majors seem to have peaked in their production, where do they go from here? We’re in a situation where the state oil companies, at the moment, own access to something like 80% of the world’s oil reserves,’ he says. ‘So the oil majors have some real difficult times ahead of them as far as access.

‘The reality is, just about the only place to find significantscale reserves, currently and in future years, is in deepwater.

‘Deepwater drilling will go on, there’s no doubt about that,’ Westwood adds. ‘Obviously, there needs to be very serious consideration in the industry about what has happened here, and there will be pressure to put in place legislation to make sure that whatever happened in this situation doesn’t happen again.’

In the short term, the ban on new deepwater permits could undercut whatever environmental benefits might be gained from a drilling freeze, argues Medlock.

‘If we limit drilling today, we’re going to have to import more oil, at least for a short amount of time,’ he says. ‘There are the obvious energy security negatives associated with that, but in addition, there are potential environmental elements to this as well, because the spill rates on tankers are actually much higher than they are on platforms and rigs. So you’re sort of throwing out one option and bringing in a dirtier option.’ OE

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