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A Turning Point Has Been Reached In the Gulf of Mexico, But This Crisis Will Still Transform The Oil Industry

Kees Willemse, Professor of off-Shore Engineering, Delft University of Technology

This article also appeared on Reuters The Great Debate UK on June 11th, under the heading ‘BP Gulf of Mexico crisis will transform the oil industry’ 

The news that a huge metal cap has been successfully placed over several of the leaking oil vents at the Deepwater Horizon site marks a potential turning point in the Gulf of Mexico crisis. It is already estimated that some 10,000 of the 12,000-19,000 barrels of oil that are spilling out each day into the ocean are being captured and diverted to ships on the sea surface. Barring further setbacks, it is expected that the percentage of captured oil will be progressively increased over the next few days.

Despite this major engineering success, a complete end to the oil leakage is unlikely until new relief oil wells are completed – a drilling process that could take most of the Summer, and potentially into the Autumn. This is because the newly installed metal cap is unlikely, even in the best case scenario, to stop all of the oil spilling out.

In advance of the completion of the relief wells, a potentially major new complicating factor is the arrival of the hurricane season last week. The National Oceanic and Atmospheric Administration is already predicting between 8 and 14 hurricanes this season, with perhaps a similar number of smaller storms, any of which could complicate (or indeed force a postponement) of the ongoing mitigation and clean-up activities in and around Deepwater Horizon.

Although the leakage will therefore continue for weeks to come, and the clean-up operations will take even longer, it is already clear that the disaster will herald a transformation in the oil industry by:

– Signaling a new re-regulatory era, especially in the United States, including the new six month moratorium on offshore drilling announced last month by US President Barack Obama. Authorities around the North Sea are also reasserting their positions.

– This will be paralleled by movement by the industry towards a new paradigm which, as is explored later in this article, may potentially require companies to adopt new operating models and much better engineering expertise of how to manage and mitigate disasters when they occur, especially in hard-to-reach oil in deep waters. As BP CEO Tony Hayward has asserted, ‘After the Exxon Valdez spill in 1989, the industry created the Marine Spill Response Corporation to contain oil on the sea surface… The issue now will be to create the same sub-sea response capability’.

The crisis is now officially the worst US spill in history, with between 500,000 to 800,000 barrels estimated to have leaked out into the Gulf of Mexico as of May 31. While still dwarfed by the largest ever off-shore leakage of oil (an estimated 3,300,000 barrels in 1979) at Ixtoc-1 in the Gulf of Mexico’s Bay of Campeche, Deepwater Horizon is now at least twice as large a spillage as the 260,000 barrels estimated to have polluted the shores and caused major environmental damage in Alaska following the Exxon Valdez disaster in 1989, although it should be realised that the crude oil of that vessel was considerably worse for the local environment.

Hence, the reason why Obama re-asserted last week that Deepwater Horizon will be the ‘worst environmental disaster of its kind’ in US history.
With US mid-term congressional elections fast approaching in November, a regulatory clampdown upon the oil drilling industry appears likely. However, re-examining the regulatory framework is just one part of what is now needed. In addition, much more emphasis should also be placed upon enhancing safety technology, and engineering expertise and preparedness of how to manage and mitigate disasters when they do occur, especially in hard-to-reach oil in deep waters.

On the safety technology side, we will need, in particular, to improve blow-out preventer technologies. It is also likely that more than one of these blow-out devices will be needed at major sites in the future. Had a second blow-out preventor been in place at Deepwater Horizon, it is possible that the current disaster could have been completely averted.

What is also badly needed is better management and mitigation preparation for sub-sea disasters. Much of the equipment that was used in the various attempts to stem the oil flow was hastely designed on the spot and whilst the well was blurting out the oil in huge quantities. Hence, the reason why BP CEO Tony Hayward candidly asserted that his firm ‘did not have the tools you would want in your tool kit’ to respond faster to the crisis.

That the necessary expertise and preparedness has been lacking is reflected in the fact, for instance, that workers have needed to experiment with new technologies and devices such as the five-storey, 100 tonne containment dome which unsuccessfully was used to act as a giant funnel, collecting and piping the oil to the sea surface. Before Deepwater Horizon, this procedure had only been used at much shallower depths with much lower pressures. There is now an urgent need for ‘before-the-event’ development and experimentation of this, and other techniques, in much deeper waters.

Meeting these ambitions head-on will require, in the words of Hayward, nothing less than a ‘paradigm change’ in the oil industry.

At a minimum, this will require all key industry parties (including exploration and production companies and drilling contractors, but also the engineers and researchers of the major universities with offshore expertise) to work together more closely to reduce the safety risks. However, it may also require a transformation in the oil industry business model which some assert has become excessively reliant on outsourcing important work to contractors.

For instance, while BP was in overall control of the Deepwater Horizon platform, responsibility for safety was shared with Transocean (which owned and operated the rig), Halliburton (which cemented the wall), and Cameron International (which manufactured the blow-out preventor). Reducing the risk of accidents in the future could involve moving towards a different model with less sub-contractors, or at least one company tasked with overall responsibility for safety.

Whether such an operating model transformation happens or not, this new safety reform agenda can only be cost-effectively achieved if the oil industry prioritises it. It is likely that the global public will settle for nothing less in the post-Deepwater Horizon world.

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