It is now approaching three months since the Deepwater Horizon accident and it could be another two months until BP succeeds in capping the well that has created an unprecedented environmental problem in the Gulf of Mexico.
The political response has arguably been more emotional than responsible. President Obama immediately called for a six month moratorium on deepwater oil exploration and then further reached out to the environmental lobby by describing the accident as an environmental 9/11, reasoning that the oil spill would provide the radical environmental legislation in the same was that foreign and domestic security policy was rushed out in the aftermath of the New York terrorist attacks.
A moratorium on deepwater exploration is a knee jerk reaction and causes more problems than it solves, with oil companies right to challenge the ban. And last week BP said it would not be swayed from its long-term oil development policy by confirming plans to proceed with drilling operations in environmentally sensitive areas such as Canada's tar sands and further deepwater exploration, despite pressure to stop from environmental groups and some investors.
Explaining the policy, a BP spokesman said: "When the leak is plugged and we return to normal we will be carrying out an assessment of where the new BP goes from here. We will – like the rest of the industry – be working out how we can do things differently in terms of safety but not where we do them. The position is the same now as it was at the strategy update earlier in the year. We are committed to three core areas of deepwater oil, unconventional gas and enhanced recovery on super-sized fields. The world needs oil to meet growing demand and total risk aversion would just drive up prices."
This is the right decision. Oil is too important a commodity, with last month’s International Energy Agency report on medium-term supply and demand underling the importance of more investment in exploration and production to ensure demand is met from 2015 onwards.
The key issue facing the oil industry, and regulators, is to learn from the deepwater accident and do things differently to reduce the risk of further accidents. And in this respect the oil industry can look to the nuclear industry for guidance.
Following the Three Mile Island nuclear accident in 1979 and the Chernobyl accident in 1986 there were widespread calls for an end to nuclear generation, with opponents arguing that the generation source was too dangerous and that the risks of environmental damage outweighed the rewards of the electricity provided. But instead of the incidents proving to be the demise of nuclear power they actually led to its resurgence. Lessons were learned, new safety checks and practices were put in place, and today nuclear is increasingly being seen as a vital component in the world’s low carbon energy future.
The oil industry and regulators have to act in a similarly responsible fashion. Much as the environmental lobby would like to see the deepwater accident leading to the end of oil, with the billions of investment in the industry diverted to renewable energy sources, such a move would be irresponsible. The world’s addiction to oil cannot simply be ended; it has to be slowly eased off oil over a period of time with some analysts estimating the timeframe for such a transition to be at least 30 to 40 years.
Much as Obama would like the US public to believe the deepwater accident to be America’s environmental 9/11 in reality it is the oil industry’s 9/11. The failure of the major economies to develop alternative fuel technologies over the past two decades as they were lulled by the security provided by oil is in part responsible for the accident in the Gulf of Mexico that was always going to happen one day as exploration risks increased. And now that it has the oil market has to look forward, not back.
Deepwater Horizon will not be the end of oil, but how the industry and regulators respond will determine the maturity of oil’s future.
Article contributed by:
Mr. Jeremy Wilcox, Managing Director, Energy Partnership
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