A leaky dilemna

What is playing out in the Gulf Of Mexico had been envisaged in a 2008 CRS report for members of the U.S congress. Titled ‘Oil spills in U.S coastal waters, background governance and issues for Congress’, the report warns that America may have lost its expertise and institutional knowledge to effectively respond to a major oil spill.

One of the sources of this conclusion perhaps was the ‘After Action Report’ by the U.S coast guard after completion of its 2004 Spill of National Significance (SONS) exercise. Here are some extracts from the report: ‘Oil spill response personnel did not appear to have even a basic knowledge of the equipment required to support salvage or spill clean up operations.There was a shortgae of personnel with experience to fill key positions. Many middle level spill management staff had never worked a large spill and some had never been involved in an exercise. As a result some issues and complex processes unique to spill response were not effectively addressed.”

The 2008 CRS report expresses concern about a possible increase in oil spills considering that oil production and import are expected to rise and with this the transportation of oil domestic or international to refineries and ultimately to the consumer. The report states that American pipelines remain a major source of worry. “American oil pipleine infrastructure is old and in some areas pipleines are operating well beyond their intended service life”. Most of the U.S oil imports (55%) arrive via the Gulf Coast. Of the oil spills within the coast guard jurisdiction (marine and coastal area) nearly 50 per cet of the incidents and the volume spilled have been in the Gulf Of Mexico and its shoreline states. The Gulf must surely remain an area of special attention.

What is worrisome is the fact that coast guard data on recorded spills from facilities and pipelines does not match the actual numbers happening out there both on land and at sea.

The BP blow out must shine the spotlight on other seepages minor or major offshore or onshore like those from abandoned or orphan wells.Reports clearly indicate that operators may not have the required funds to properly shut down offshore oil platforms at the end of the facilities operating life or while idling. As with many onshore wells, this potential problem is exacerbated by the steady transfer of offshore leases from major oil companies to independents as production declines. Despite bonding requirements, public liability remains a concern.The General Accounting Office conducted a detailed study in 1993 examining offshore drilling platforms in the Gulf of Mexico. GAO’s estimates for the full cost of dismantling platforms and plugging wells under the OCS program ranged from $4.2 to $4.4 billion. Yet, surety bonds in place covered only 1.6 percent of this prospective liability. According to MMS, total offshore liability has since risen to approximately $5.5 billion, of which approximately $1 billion is covered by surety bonds.Although the coverage ratio has risen from 1.6 to 18 percent over the past years, the potential public exposure tops $4.5 billion.

The cost of coverage ranges from one to four percent of the bonded amount depending on factors like drilling equipment reseves left underneath the well, amount of collateral. However, the one percent cost applies only to financially strong operators with full collateral for the coverage. A two percent rate is the realistic minimum for the independents. There are fears that these firms will make up the bulk of the unfunded liability in the Gulf. Based on a premium rate of two to four percent, addressing the liability shortfall would cost existing producers $53 to $106 million per year.Currently, the federal taxpayer bears this liability.

How many of the existing abandoned/orphaned oil facilities are leaking oil into the water?

Some may argue smaller amounts of oil leaking into the Gulf should not be a cause of concern. Chronic low level exposure to oil contaminants can significantly affect the survival and reproductive success of marine birds and mammals. National Marine Fisheries Service (NMFS) have confirmed that oil pollution concentrates of as low as one part per billion could stunt pink salmon growth and cause other chronic health problems for the fish. The NMFS has also confirmed that the 1989 Exxon Valdez spill will continue to kill or damage future generations of pink salmon

Clearly government needs to have a fresh look at these and other related issues keeping in mind that even an international oil company like BP underplayed the possibility of an under water blow out,though such occurances are not out of the ordinary. More surprising that despite the oil pollution act of 1990 BP had no plans on how to respond to a worst case scenario though the act clearly states that the owner or operator of a vessel or facility must have these plans. Congress did not intend for every vessel to have on board all the personnel and equipment needed to respond to a worst case spill but vessels must have a plan and procedures to call upon, typically through a contractual relationship, the necessary equipment and personnel for reponding to a wrost case spill.

The act extended the role and scope of the National Contingency Plan, establishing a multi layered planning and response system to improve preparedness and response to spills in marine environments. Among other things the act also requred the President to establish procedures and standards for responsing to worst case oil spill scenarios.

Clearly there has been failure at more than one level.

Add to this the statistical knowledge sitting with government departments that in recent years annual spill volumes from offshore facilities in federal waters have increased and a vast majority of these spills have taken place in the Gulf Of Mexico.

And despite all the noise by the U.S state governors in the wake of the recent deep water spill, the precise volume and incident frequency in state waters is difficult to determine. Reportedly oil spills in state waters account for twice the oil discharges of activities in federal waters. Majority of the oil extraction operations are located in state waters off the coast of Louisiana and Texas.