Posted on May 30, 2010 - by Venik

Deepwater Sombrero

According to the latest news reports every attempt to plug the oil leak in the Gulf of Mexico has failed. At some point last week it became obvious that BP has been copying the failed attempts to stop the 1979 Ixtoc spill. It is interesting to note, that the two drilling rigs – the Ixtoc and the Deepwater Horizon – were both owned by Transocean Ltd (the Ixtoc rig was leased by Transocean to PEMEX).  In late 2009 Transocean announced that their Deepwater Horizon rig has reached a record depth of over thirty five thousand feet. At that time the company did not mention that this was five thousand feet deeper than the rig’s stated design specification.

The Deepwater Horizon was a part of the Macondo Prospect development led by BP, which assumed responsibility and cleanup costs for the spill, but said the rig’s operator – Transocean – was at fault. This is BP’s third high-profile accident in the US in the past five years. The previous two accidents – a refinery explosion that claimed fifteen lives in Texas and a large oil spill in Alaska – were attributed to poor equipment maintenance and lapses in safety. One would imagine that a company that exceeded safety limits for its oil drilling equipment and bragged about the achievement  in a press release would not be overly concerned with safety regulations or maintenance schedules.

Indeed, LA Times reported that on the day of the explosion at the Deepwater Horizon, Transocean’s drilling specialists had an argument with BP’s management over safety issues with BP’s desire to complete exploratory drilling sooner. The safety concerns stemmed from the results of a negative pressure test conducted on April 20th just hours before the accident. As you might have guessed, the BP’s manager in charge overruled the technical experts working on the rig.

In case of Deepwater Horizon accident, the BP chose to use a toxic chemical compound Corexit as the oil dispersant. Reports suggest that Corexit helps keep the oil submerged, minimizing the appearance of the oil spill, but causing serious damage to underwater wildlife. Essentially, this is a cover-up tool that gave BP execs more time to unload their stock. The EPA reports that Corexit’s toxicity to humans includes “respiratory, nervous system, liver, kidney and blood disorders”. The LA Times reported that the local fishermen hired by BP to clean oil spills on the shore were coming down with nausea, headaches and respiratory problems. BP did not provide the workers protective gear and did not inform them of the potential health risks. Two workers involved in the cleanup were airlifted to a hospital in Louisiana last week  and are expected to be released on Monday. Both declined a toxicology test (I wonder why).

Like other oil companies, BP has fast-response damage control teams consisting of technical, legal and PR specialists experienced in “managing” the fallout from various frequent accidents. What we learn about this accident from the press are just disconnected tidbits of information gathered by reporters who managed to get the scoop before BP’s cover-up taskforce found the leak. If only BP devoted as much planning and funding to plugging oil leaks as it did to plugging information leaks…

BP’s basic strategy for dealing with the Deepwater Horizon spill is to play for time. Experience from the Ixtoc spill in the same area more than thirty years ago shows that the only truly effective way of dealing with this type of a spill is to drill a relieve well – an operation that will take months (it took ten months in case of Ixtoc spill and the Deepwater spill is, well, much deeper). In the meantime, BP is trying the same tried and failed solutions from three decades ago. The goal here is to divert public and government attention and give the company some much needed time to devise a strategy for dealing with the inevitable financial fallout. Since the Deepwater Horizon accident on April 20, BP’s stock lost about thirty percent of its value, while Transocean stock went down about forty percent.

BP has already filed a motion to transfer all lawsuits related to the spill to a federal court in Houston, Texas, believed to be a forum favorable to oil companies. Both BP and Transocean have also files a motion in the Houston court to limit its financial responsibility for the disaster to seventy five million under the Oil Pollution Act of 1990. That would be a sweet deal for BP: to pay for America’s greatest environmental disaster with pocket change. BP’s grand strategy is to shift the blame for the accident to Transocean and to offload the responsibility for the cleanup on the federal government. In the meantime, BP execs busy themselves with trying to downplay the extent of the damage.

A post on Slate is discussing the best way of punishing BP. The conclusion is that there is no viable way of really punishing the oil giant. Fines, lawsuits and bad publicity are nothing new to BP. Maybe Obama can talk to his buddy Medvedev and Kremlin will put another squeeze on BP’s interests in Russia. The issue at the heart of the fallout from the Deepwater spill is a substantial gap between drilling technology and cleanup technology. We must assume that spills will continue to happen as we have to drill to increasingly greater depths to satisfy our addiction to petroleum products.  BP’s reliance on failed spill containment technology from the age of disco and bell-bottoms is a good indication of how little money oil giants divert from their substantial revenues to developing new safety techniques and equipment.

The only solution is to force oil companies operating in the US to spend a certain percentage of their profits on developing and testing effective spill prevention and containment methods that would be subject to independent technical evaluation and government approval. This measure would be more effective if implemented on an international level with support from the EU. Will this actually happen? Considering that most of our good old Senators are heavily invested in the oil industry, the answer is “no”. But who knows, maybe a combination of public outrage and a liberal White House will help common sense to prevail. Crazier things have happened.

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