Learning from Deepwater Horizon

OPEC Bulletin Commentary July-August 2010

The April 20 explosion on the Deepwater Horizon rig off the coast of Louisiana was a tragic event. Its impact and the aftermath have been felt by many. There are the 11 workers who died and their families, the residents along the Gulf of Mexico affected by the spill, the companies involved and the oil industry in general. As Steve Westwell, BP's Executive Vice President and Chief of Staff said at June's World National Oil Companies Congress in London (see page 20), the incident and resulting spill has been "hugely shocking for us, for America, and for the rest of the world."

The event has led to much debate among industry stakeholders, politicians, analysts and the media. The initial focus obviously centred on stopping the leak - something that now appears to have been achieved - and cleaning up the spill. This is clearly the priority for all those involved. There has also been much dialogue about the potential consequences for the offshore oil industry, particularly in the Gulf of Mexico, in the years ahead. How will it be impacted? It is a simple question, but one with no straightforward answers. It is evident that the events of April 20 have left the industry with much to take on board.

While the specifics of the incident and the actual implications still remain unclear, there are a number of broader issues that can be explored.

Much talked about at the Congress in London was the need for the industry to learn lessons from the incident and to make sure it acts accordingly. In terms of imperatives, Westwell underscored the need for better safety technology, the urgent need to develop more effective deepwater sub-sea intervention capability and the more general need to revisit business models.

Then there is the US Government's most recent moratorium on deep-water offshore drilling. This was in response to a federal court's rejection of its first ban, with the government saying that the new moratorium is based on new evidence about drilling safety. While safety is of course paramount, the possible short- and long-term implications of any ban, in terms of exploration and production in the deepwater Gulf of Mexico, need to be recognized.

Additionally, there is the cost issue. While the incident has not deterred project developers and financiers from the offshore industry, the possible knock-on impacts certainly raise the spectre of increased costs.

What is not in doubt is that fossil fuels will continue to provide the lion's share of the world's energy for many years to come, with oil maintaining a leading position. The offshore oil industry is expected to play a significant role in this. To do this though, it needs to evolve and develop. The events of April 20 should never be forgotten. They should not, however, prevent the industry from its broader, longer-term undertaking of contributing to a sustainable energy future for all.

OPEC Bulletin Jul-Aug. 2010

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