Moving beyond the Deepwater Horizon

Members of Congress are spending this month back in their home districts, listening to constituents and getting a fresh dose of “outside the beltway” plain speak. Hopefully that message includes a dire warning about rushing into a liability scheme that cripples or destroys many of the companies that strive to develop oil and natural gas off our shores.

At first blush, the rallying cry of “if they can’t afford to drill, they shouldn’t be out there” satisfies our need to punish “big oil” for the devastating spill in the Gulf of Mexico. But that satisfaction will fade as current home-grown companies begin closing their doors and forcing workers to seek employment elsewhere. If Congress continues in the direction it is headed, more exploration rigs will head to Egypt, the Congo, and other overseas oil fields.

Critics rightfully point out that theDeepwater Horizon accident is the poster child of what can go wrong – and did go wrong. But, on July 15, something went right for the first time in 86 days. The flow of oil stopped, after BP successfully installed a three-ram capping stack to the lower marine riser. Industry breathed a collective sigh of relief. As I write this article on July 16, I am watching television news coverage showing clear, oil-free water surrounding the Macondo well, and along with the rest of industry, I have my fingers crossed in hopes that the cap will continue to hold back the oil until the well is killed.

The reality is that the oil must be cleaned up to the greatest extent possible, and BP must pay for the clean up and economic damages. The outdated cap of $75 million for economic damages will not apply. But this spill, as tragic and devastating as it is, should not be used to justify the destruction of a vital part of the energy industry. This is particularly true because there are alternatives to imposing a simplistic, flat-out elimination of the existing cap or requiring impossible financial responsibility thresholds.

For example, Congress could simply raise the cap to a higher number. The $75-million figure has not changed for two decades, so a higher amount seems reasonable. However, Congress and the Administration do not appear to want to debate what a reasonable number would be, so no number becomes reasonable.

Following several smaller spills and theExxon Valdez tanker spill in 1989, Congress established an Oil Spill Liability Trust Fund. The fund is established to pay for response and damages beyond what a responsible party may be able to pay. One looks first to the responsible party and then to the Fund. This trust fund concept is not uncommon, and both the Superfund and the international oil pollution fund are based upon that principle. Should there be a large spill from a vessel, this international fund is used to pay what the individual tanker company is unable to pay. It is not based upon the concept that should a vessel cause a major spill, we put vessel companies out of business. However, in the wake of the Gulf oil spill, Congress is flirting with driving many in the exploration industry out of business.

The Oil Spill Liability Trust Fund is fueled by a per barrel payment of oil imported into or produced in the United States. The current fee is eight cents a barrel. Again, it is time for it to be raised. And Congress is certainly doing so. One Senate proposal had raised the fee to 49 cents a barrel. So, one might think that raising the fee and the liability cap would suffice, but evidently not so.

Many in Congress who support the higher per barrel fee claim that it becomes taxpayer money and should not be used to pay for economic damages that result from an oil spill; and so they instead argue in favor of an unlimited liability cap.

If that is not enough to quench the desire to punish the industry, Congress could actually require a separate fund, once again paid for by the oil and gas industry, to cover response, clean up, and economic damages. Even though that cost will be borne by the companies and eventually the consumer, this is probably a better answer than unlimited liability and unobtainable financial thresholds. The use of a fund, either the Oil Spill Liability Trust Fund or an additional fund, would provide some certainty to insurance carriers, which in turn, provide insurance to the non-national and international companies.

No one in the energy business expects Congress to sit idle in response to theDeepwater Horizon accident, but a thoughtful reasoned approach has the opportunity to do more good than harm. Though perhaps not as headline catching, such an approach would more effectively preserve American jobs and maintain domestic energy security.

Randall Luthi
President,
National Ocean Industries Association

This page reflects viewpoints on the political, economic, cultural, technological, and environmental issues that shape the future of the petroleum industry. Offshore Magazine invites you to share your thoughts. Email your Beyond the Horizon manuscript to David Paganie at[email protected].