Mike Wackett | ci-online
Oil is the new tobacco. We crave it, but we are about to learn the full cost of the addiction.
With a horrendous 60,000 barrels of oil a day estimated still to be gushing into the Gulf of Mexico, nearly two months since BP’s Deepwater Horizon oil rig exploded claiming the lives of eleven oil workers; blackly scaring the white-sanded coastlines, killing wildlife and impairing the livelihood of residents, questions are being asked within and without the oil industry about the safety of deep offshore drilling – a factor that ensures post-spill exploration costs will soar.
BP ceo Tony Hayward was ‘sliced and diced’ on Thursday by US Congressmen as he ineptly tried to deflect blame for the spill, following the British oil giant’s climb down the day previously in agreeing to a USD20 billion ‘uncapped’ escrow fund.
Indeed, Hayward was accused of ‘kicking the can down the road’ in his misguided PR disaster hearing attempt at stonewalling many of the questions from the emotionally-charged Senators, baying for the gaff-prone ceo’s blood.
Moreover, the USD20 billion compensation and clean-up cost could ultimately rise to USD100 billion, as no-win-no-fee ambulance-chasing lawyers in the US climb on the bandwagon in the belief that several Christmases have arrived at once.
Conscious of easing the current anti-oil sentiment in the US, BP’s peers, Chevron, Exxon Mobil, Petrobras and Royal Dutch Shell may publicly be saying that the accident was ‘preventable’, but privately they might just be thinking: ‘there but for the grace of God.’
Meanwhile, the Obama administration has imposed a minimum six-month moratorium on deep drilling offshore while the accident is investigated and the President figures out ‘whose ass to kick’ for the blowout on BP’s 5,000ft deep well.
And elsewhere, in the wake of the Gulf of Mexico spill, the oil industry is in reflective mood: oil firms are reviewing their technology and systems, in anticipation of a crackdown by regulators.
‘What’s happening now is that the industry is looking at how it does things, checking that they are following the correct procedures, and that they aren’t inadvertently straying from good practices, making sure all their equipment is functioning as it should be,’ UK Health and Safety Executive inspector Donald Dobson told the BBC in an oil disaster debate this week.
‘It’s making people go back and double-check things that they’ve taken for granted in the past,’ added the official.
According to the BBC review – which centred on Aberdeen, Scotland, one of the world’s leading support centres for offshore drilling – of particular concern in the light of BP’s nightmare is the increased risk of deep wells offshore vis a vis:
- The sheer distance from rig to seabed means that the usual hydraulic systems – for example those used to shut off a well during an emergency – cannot be relied on to respond rapidly enough.
- Waters deeper than 400m are beyond the reach of divers and although remotely operated vehicles are increasingly sophisticated, there are limits to their effectiveness.
- Temperatures are so low at depth that if there’s a leak in the riser pipe – bringing oil to the surface – the icy waters could freeze the methane that flows with the oil and block the flow.
President Obama has described the Gulf of Mexico oil catastrophe as having an impact like the terrorist attacks of 9/11; since when the world changed forever.
If after the oil is finally stemmed from BP’s damaged Macondo well, as diversionary wells come on stream as predicted in August, and the clean-up and compensation claims progress smoothly, will the market regain its appetite for the ‘risk’ involved in deepwater production?
There is little doubt that post-spill, companies working offshore will be required to obtain more insurance; and that insurance will become dramatically more expensive and harder to get in the light of the expected avalanche of claims resulting from BP’s disaster.
It follows that the drive for oil exploration will hereon in become muted, as significantly higher costs are factored into production costs.
What does this all mean to the shipping industry?
Hitherto, oil prices have largely clung onto the coat tails of stock markets: soaring to USD147 a barrel in the mid-2008 boom times; plunging to USD40 a barrel as the market bottomed at the end of 2009, and hovering around USD80 in today’s fragile recovery.
However, several analysts are now predicting a spike in crude prices as increasing costs and stymied exploration combine to drive the price higher than warranted by reason of growth demand.
And with the daily fuel spend for a single post-panamax boxship nudging USD100,000 per day – even allowing for slow-steaming – ocean carriers will not want to be bitten twice by losses from soaring bunker costs and will pile on further surcharges in the direction of the downtrodden shipper.
President Obama – a smoker himself – hiked tobacco tax as one of his first acts in office, a popular move; but fuel rises stemming from an overly severe punishment of oil majors may not be quite so opinion poll boosting.