Following the Texas City refinery explosion in 2005 and Prudhoe Bay pipeline spill in 2006, BP’s operations in America have once again been placed under the spotlight in the wake of the Deepwater Horizon tragedy. Oil & Gas Middle East examines the fallout between the US government and BP
The fatal explosion on the BP-controlled Deepwater Horizon oilrig in the Gulf of Mexico and the subsequent environmental fallout has delivered major financial and political consequences for BP. But it has also had major ramifications for the oil industry in general as the Gulf Coast accounts for almost a third of America’s oil production and new discoveries.
Eleven rig workers died in the accident, which occurred on 20 April, with a further seventeen workers taken by sea or air to hospital. The remaining crew were safely evacuated from the rig, which was located approximately 50 miles south-east of Louisiana’s tip.
The rig, which was owned by Transocean, sank two days later, following which oil started pouring at a rate of 5,000 barrels a day (210,000 US gallons) into the Gulf, threatening ecologically fragile areas from Louisiana through to Alabama and Mississippi and Florida. At the time of going to press, the spill measured 130 miles by 75 miles. Following uncertainty over the cause of the explosion, an initial investigation by BP has revealed the blast was triggered by a bubble of methane gas.
As the primary shareholder leasing Deepwater (the junior partners are America’s Anadarko and Japan’s Mitsui) BP has bore the brunt of anger from the US and the costs to deal with the spilt crude, which had been estimated at $6m per day to clear up. This figure is expected to rise significantly as activity increases. BP chief executive Tony Hayward accepted the firm is the ‘responsible party’ for the clean-up and has pledged to cover all ‘legitimate and objectively verifiable’ losses caused by the disaster.
Questions have also been raised about whether BP should have installed a secondary cut-off valve and why it had not featured an ‘acoustic switch’ on the blowout preventer, located on the seabed, which is designed to stop pressure from the oil well damaging the rig, so it could be activated remotely.
BP has a number of plans to stem the flow. On May 4, BP announced that work had begun to drill a relief well via a second oil rig to intercept and isolate the oil well. Drilling began on Sunday 2 May, the company said.
The new well, in 5,000ft of water, is planned to intercept the existing well around 13,000 feet below the seabed and permanently seal it. The new drill site is about half a mile on the seabed from the leaking well in Mississippi Canyon. Drilling is estimated to take three months.
In that time, however, up to half a million barrels of oil could have escaped (19m gallons) or almost twice the amount that decimated the Alaskan coastline 21 years ago following the grounding of Exxon Valdez. Therefore work is underway to establish a successful, but quicker method.
“This is another key step in our work to permanently stop the loss of oil from the well,” said Hayward. “At the same time we are continuing with our efforts to stop the leak and control the oil at the seabed, to tackle the oil offshore, and to protect the shoreline through a massive effort together with government agencies and local communities.”
In an interview with the BBC’s flagship news programme, Today, Hayward attributed primary blame to the operator of the rig, Transocean, which was ‘accountable’ for the safety and operability’ of the so-called ‘blow-out preventer’.
Currently the onshore activity is focusing on six locations: Venice and Port Sulphur; Louisiana; Pascagoula and Biloxi, Mississippi; Mobile, Alabama; and Pensacola, Florida.
Hope had centred on the deployment of a containment dome (cofferdam), a four-storey, 100-tonne specially constructed metal tower that would cap the leak, and be siphoned off.
Over the weekend of May 8, the containment dome was placed over the leak to ‘plumb’ the flow in a more manageable direction. It was the first time such an operation has been attempted at such a depth (1.5km) leading some to urge circumspection: Rear Admiral Mary Landry of the US coastguard said: ‘‘I know we are all hoping that this containment system will work, but I want to remind everybody that this is a first of its kind deployed in 5,000 feet of water.”
Fears however, that such an operation would falter due to the extreme depth were founded. Following the procedure to fit the tower, it quickly became clear that another solution will be needed. A build-up of crystallised gas (methane gas partly frozen into slush) blocked the pipes in the tower, which then had to be lifted from the seabed.
BP Chief Operating Officer, Doug Suttles said: “I wouldn’t say it has failed yet. What I would say is that what we attempted to do last night didn’t work because these hydrates plugged up the top of the dome.” He added that solutions could include heating the area, or adding methanol to break up the hydrates.
A remotely operated underwater vehicle has been dispensing nine gallons a minute of dispersant close to the leaks, thousands of feet below the surface. It is hoped that the oil can be broken up before it reaches the surface.
In addition to dispersants, booms are being deployed to prevent the oil damaging the ecologically-sensitive and threatened regions of the coast.
Engineers are also investigating the possibility of plugging the leak using a ‘junk shot’, which means firing debris comprising bits of tyres and golf balls into the well at high pressure to block it. Speaking at a press conference in Houston, Texas on 10 May, Kent Wells, senior vice president in BP’s exploration and production business said, once again that this technique, while successful in the past had not been proven at 5,000ft – nothing has. Over the weekend of May 8th and 9th, a three-mile boom was laid across the mouth of Mobile Bay, Alabama, the ninth largest port in the US.
It is also home to beach resorts and commercial and leisure fisheries, including oyster beds. The seafood industry alone in Louisiana is worth an estimated $2.4bn when fishing, processing, selling and cooking in restaurants are all taken into account. The current fishing ban is wreaking havoc across the region.
The financial fallout on BP itself has been severe. On 4 May it was reported that its share price fell nearly 5 per cent – slashing £5bn off the company’s value – after it warned the cost of tackling the oil spill was exceeding $6m per day.
In total, since 20 April, BP’s share price has fallen 14% since the explosion, wiping £19bn off the value. The final bill has been estimated at up to $12bn.The incident has prompted a backlash against oil firms and has angered many democrats and environmentalists, already bristling over Obama’s plans to expand offshore drilling. The president himself has described the incident as ‘a massive and potentially unprecedented environmental disaster’, which ‘could seriously damage the economy and the environment of our Gulf state and…jeopardise the livelihoods of thousands of Americans.’
Arnold Schwarzenegger, California’s governor announced he was reversing his support for expanded drilling to help the state’s $20bn budget crisis. In a press conference he said: ‘You turn on the TV and see this enormous disaster; you say to yourself, why would you want to take on that kind of risk?’. The governor of Florida, Charlie Crist also withdrew his support for offshore drilling.
As a result, a number of senators are calling for the cap to be raised on legal damages oil firms must pay after a spill from $75m to $10bn. Such limits do not apply, however, if BP is found to be negligent or has violated government regulations at the time the rig exploded.
Disaster Pedigree
BP has a recent history of disasters derived from incomplete maintenance and faulty equipment. This included the 2005 blast at a refinery in Texas City when 15 workers died when a fuel tower was powered up without following protocol
This was followed by the Prudhoe Bay oil spill that was discovered in March 2006, which came four years after BP had been warned over corroded pipelines. Initial estimates said that up to 267,000 US gallons (6,400bbl) were spilled over 1.9 acres (7,700 m2), making it the largest oil spill on Alaska’s north slope to date.
The company pleaded guilty to felony in the first instance and a misdemeanor charge in the second, accruing fines of over $62m. In congressional hearings after the Prudhoe Bay spill, BP management was accused of making ‘draconian’ budget cuts that affected safety, including limiting the use of a corrosion inhibitor inside the pipeline, a step that could have prevented the deterioration that led to the 2006 spill. While its recent history with the US has hardly endeared BP, it would be pertinent to note the Deepwater incident will surely pale in comparison to the worst recorded oil spill. Also in the Gulf of Mexico, in June 1979 a blowout on a Mexican rig called Ixtoc-1 saw 3.3 million barrels released. For comparison, the Exxon Valdez fiasco released just 260,000 barrels.
At the same time, by and large oil firms are not the worst polluters of the world’s seas. According to The Economist, average annual spills from underwater pipelines shrank from 2.5 million gallons in 1980-84 to just 12,000 gallons in 2000-2004, according to figures from the Congressional Research Service. America’s National Research Council estimates that offshore drilling accounts for 1 per cent of the oil floating in the country’s waters, and tankers and pipelines just a further 4 per cent, compared with 33 per cent from other shipping and 62 per cent from natural seepage.
Perhaps the US Department of Interior – which has temporarily suspended issuing permits for new offshore drilling rigs and production platforms until a department report is delivered to Obama – should take note.
It would be remiss not to highlight the other players involved in the Deepwater disaster. While BP is bearing the brunt of anger, there are a number of other sizeable named players who were responsible. The rig was owned and operated by Transcocean, the world’s largest offshore drilling firm. The blowout preventer was made by Cameron International, a specialist engineer. The complex process of cementing the wellhead was being carried out by Halliburton, an engineering services firm. How blame is allocated once the dust settles remains to be seen.
