ParisTech Review

Macondo was a quirky name for BP’s ill-fated Gulf of Mexico oil well – the name of Nobel Prize-winning novelist Gabriel García Márquez’s fictional hometown, a place where the usual rules of time, space, and probability often do not apply.

In the beginning, Macondo might not have seemed like a good name for a high-tech deepwater drilling operation. Now, after the long-running disaster, the whole episode seems quite at home in García Márquez’s sad surreal world: a fire that could not be extinguished; an oil well that could not be capped; a government that set rules but did not enforce them, then extracted a $20 billion damage settlement outside the rules it had set – in many ways, the accident has had a nightmarish, bewitched quality not unlike its namesake.

Most of all, the story of the blown and now capped well is similar to García Márquez’s world in that the players seem trapped in a history from which they can’t break free. Ordinarily such a disaster might be expected to unleash a lot of new regulation, but industry insiders and industry critics alike are now doubtful that at least on the regulatory side, much is going to change. Although the industry does have a number of expert panels now looking at what went wrong, regulatory reform seems unlikely, even as the frequency of remote, deepwater drilling is expected to grow substantially over the next few years.

The “Lucky” Spill
Bad as this spill was, it had some advantages. The well was located relatively near shore, for one thing – just 66 kilometers off the coast of Louisiana, and a short helicopter ride from New Orleans, one of the offshore industry’s servicing hubs. A gyre in the ocean formed around that time prevented the oil from spreading to other nations’ coastlines. It also happened off the coast of one of the best-insured countries in the world, in a region familiar with disaster.

Finally, much of the spill ended up in a zone where it could do relatively little ecological damage – the Gulf of Mexico Dead Zone, “a region in which levels of fertilizer and other nutrients brought down the Mississippi River have made the Gulf of Mexico’s waters in the vicinity of the delta almost devoid of oxygen and hence of life,” in the words of a recent report on the disaster by RMS, a global catastrophic risk analysis company.

Next time, drillers might not be so “lucky.” If present trends continue, any spill would likely happen farther away from a service center, in water as much as five times as deep (the BP well head was about 1,500 meters down), and off the coast of a country less prepared to demand compensation. The spilled oil might also flow from the waters of one country into that of another – a situation in which there is little international law regulating what the polluter or the offending country must pay.

Of course, some regulators and legislators are trying to prevent a “next time.” But the “never again” official promise may simply mean never again for Block 252 Mississippi Canyon, the area on the Gulf floor that serves as Macondo’s neighborhood address. A leading trial attorney of complex marine litigation is skeptical of whether liability rules, for example, are going to change. In the United States, liability for an offshore oil spill remains capped at $150 million, a number that has not changed in decades, and attorney Brian O’Neill, a partner at global law firm Faegre & Benson in Minneapolis, notes that since the disaster, no legislation has been introduced in Congress that would increase liability for oil drillers.

Industry lobbyists also doubt that significant U.S. legislation will pass this year. “The desire to do something while the well was still spewing oil into the Gulf of Mexico was very strong,” says Michael Kearns, director of external affairs at the National Ocean Industries Association, an offshore energy trade group. “It’s less strong now.”

With an important Congressional election nearing, there is little consensus in the Senate about what measures should be taken, according to Kearns.

There is also little political pressure to act: Americans are generally split over offshore drilling. While support for the drilling has gone down since the accident, an August 2010 Gallup poll found that 47 percent of American adults favored lifting the post-Macondo moratorium on drilling while 46 percent said the ban should stay in place.

The Missing Rulebook
Internationally, the likelihood that liability rules will change seems even smaller, as outside of the North Sea, where a regional treaty prevails, there are no clear rules over liability for when oil from a well drifts from one country’s waters to another.

For oil tankers and other ships, there are recognized international regimes, says Aldo Chircop, director of the Marine & Environmental Law Institute at the Schulich School of Law of Dalhousie University, Halifax, Nova Scotia. But not for oil platforms.

“There’s a structure for accidents in outer space, there is a structure for accidents on the moon, but there really is no jurisdiction for what happens when oil moves from one jurisdiction to another,” says Faegre’s O’Neill.

Eventually, says David Bederman, a professor at Emory Law School, some kind of self-insurance pool will be formed to which developers throughout the industry will contribute. Such schemes for ships and tankers have been in place for decades now, and worked quite well.

But maybe not right away.
“The oil industry does a very good job in making sure that none of the national legislatures do anything that would affect its interests,” says O’Neill.

Almost everywhere, says Toyin Falola, author of the book, “The Politics of the Global Oil Industry: An Introduction”, there is an alliance between the industry and the government. “I don’t think you can have a big oil business and not control power. It’s a contradiction.”

In rich countries, this influence is often expressed through well-financed lobbies and political candidates with links to the industry, according to Falola. In poorer countries, the influence of the industry on politics can be extremely stark. “We’re talking about big money,” Falola says. One Nigerian politician, for instance, made $500 million in one week on the sale of an oil license, he says.

In the past, a lack of regulation has had terrible consequences for oil-producing regions in the developing world. “If you were to take a look at some of the most contaminated places in the world – the Niger Delta, Chile, and Equador — you would see a pattern of there very rarely being any regulation of the oil industry,” O’Neill says.

Damage in the Delta
Falola, a native Nigerian and professor of history at the University of Texas at Austin, says the environmental damage to the Niger Delta has been much worse than what’s been seen, so far, from the Macondo spill.

“This is something they do abroad every day,” he says. “This is something that has been going on in Africa since they began drilling oil there. That thing in the Gulf is nothing compared to what happens in three hours in the Niger Delta every day.”

Falola’s statement might be hyperbolic, but there is no question that the ongoing damage to the Niger Delta has been immense, perhaps 9 to 13 million barrels spilled since 1958, according to a recent Amnesty International report. Even today, the World Bank estimates that there are about 300 spills in an average year on the Niger Delta, amounting to as much as 150,000 barrels of lost oil. (One widely circulated estimate of the size of BP’s Gulf spill is 4.9 million barrels.)

Between frequent spills from a variety of causes, particularly theft and sabotage, and massive gas-flaring (the burning of natural gas when it’s pumped out of the ground, because there are no facilities to tap it), the environmental damage in the Niger Delta since drilling began a little more than 50 years ago has been huge, especially in terms of fishing grounds and mangrove forests.

Sixty percent of the 31 million people in the region still depend on agriculture and fishing for their livelihood, according to Amnesty International. The human rights group notes that although the oil has generated $600 billion since the 1960s, “many people in the oil-producing areas have to drink, cook with, and wash in polluted water, and eat fish contaminated with oil and other toxins.”

Beyond the lack of oversight, the financial incentives for developers to drill safely in poorer nations are also much lower. As a financial matter, disasters off other coasts are often far less expensive than off the United States. The damage from a spill similar to the Macondo blowout off the coast of Angola or Brazil (where deep sea drilling is also under way), for example, would likely be less than 1% of the cost of a U.S. coastal spill, estimates Robert Muir-Wood, chief research officer at RMS in London.

Legally, too, a spill would probably be easier to defend in a poorer country. If it had no specific law in place for oil spill liability, the local government would have to prove negligence, which might be a tall order. “That’s pretty tough, especially if you have a company that has all the know-how, all the expertise, and you have a government in a developing country that has absolutely no clue as to what happened,” Dalhousie’s Chircop says.

Falola is pessimistic about the possibility of real regulation in markets such as Nigeria. Oil is a high-tech industry that doesn’t employ many people, giving local populations little power to demand any changes. As for the richer nations changing the dynamic, Falola is not optimistic, either. People are so removed from the conditions of production that they don’t know its true environmental cost, he says. In addition, oil is used in so many things that advanced economies are entirely dependent on it.

This connection gives the oil industry a lot of leverage. “They’re not stupid,” Falola says of the oil companies. “If they’re pressured to make some of these concessions, then they will say, not a problem — you and I will pay 10 cents more.”

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