For the US oil industry, the National Commission’s first conclusions about the causes of last year’s BP oil spill are unfortunately timed.
This week the American Petroleum Institute, which represents the leading oil and gas companies active in the US, renewed its call for increased offshore drilling to a new and more receptive Congress.
The message from the Commission is that the former offshore regulator, the Minerals Management Service, was hopelessly inadequate for proper oversight of that activity. Its replacement, the Bureau of Ocean Energy Management, Regulation and Enforcement, is impressively titled but shows no sign of being any more effective.
The Commission argues that without fundamental reform of the regulatory framework, as well as the industry, the conditions that led to the Deepwater Horizon disaster could occur again. Its warning raises the prospect that offshore drilling will be dogged by political controversy and bureaucratic confusion for years to come.
Amy Myers Jaffe, an energy expert at the James A. Baker III Institute for Public Policy, said the Commission had said more about US regulators than the industry. “What that statement says is we do not have the proper regulatory environment to ensure we always get best industry practices.”
The first chapter to be released by the Commission, in advance of the full report on January 11, focuses on the actions of the three companies, BP Transocean and Halliburton, that played central roles in the accident.
But in addition it argues that “government also failed to provide the oversight necessary to prevent these lapses in judgment and management by private industry”.
Regulators lacked the resources and political support needed to uphold safety standards in the complex and dangerous field of deepwater drilling, the Commission says.
Regulations were often inadequate, for example, providing no guidance about the conduct of the vital negative pressure test, which was misinterpreted by BP and Transocean staff.
Even where regulations existed, regulators did not have enough expertise to uphold them. On one occasion four days before the disaster, BP asked for permission from the MMS to modify its plan for the Macondo well in a way that was potentially in breach of regulations. After just 90 minutes, the MMS official approved the request.
The US government says it has since put in place fundamental reforms to offshore regulation.
The Department of the Interior, which oversees the BOEMRE, said: “The report released today reflects areas DOI has already identified, acknowledged and spent months working aggressively to reform.”
The MMS has been broken up, separating the regulatory function now carried out offshore by BOEMRE from the collection of royalties for oil and gas leases, which used to be conducted by the same body. A new investigations unit has been set up to look into problem regulators and companies. A long list of new regulations has been put in place.
The government is also planning to hire more skilled engineers for BOEMRE and to invest more in training inspectors.
The immediate consequence has been to halt all drilling in the deep waters of the Gulf of Mexico, and much of the drilling in the shallow water, even though there is no formal ban.
The moratorium on deep-water drilling was lifted last October, but not a single permit for a new well has yet been issued, as applications grind through BOEMRE’s intense scrutiny.
The API warns it could be 2012 before the first new well is drilled, costing up to 50,000 jobs and causing a fall in US oil production.
Robin West, chairman of PFC Energy, a consultancy, argues that in the light of the offshore industry’s generally very good safety record, the concerns fuelled by the Commission’s report are excessive. “Serious mistakes were made, but the report is overly broad.’’
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